EDMONTON, Alberta – Capital Power Corporation (TSX: CPX) (“Capital Power”) and Manulife Investment Management, on behalf of the Manulife Infrastructure Fund II and its affiliates, announced today that they have successfully completed the acquisition of a 100% interest in MCV Holding Company, which owns Midland Cogeneration Venture (“Midland Cogen”), a 1,633-megawatt natural gas combined-cycle cogeneration facility. The acquisition was previously announced on July 12, 2022.
Midland Cogen was acquired from OMERS Infrastructure Management Inc. and its co-investors for US$894 million, subject to working capital and other closing adjustments, and includes the assumption of US$521 million of project level debt. Under the 50/50 joint venture with Manulife Investment Management, Capital Power and its joint venture partner each contributed approximately US$186 million. Capital Power financed the transaction using cash on hand and its credit facilities. Capital Power will be responsible for operations and maintenance and asset management for which it will receive an annual management fee.
Located in Michigan, Midland Cogen is the largest gas-fired cogeneration facility in North America, is a critical asset to support grid reliability during the transition to renewables and is well-positioned, given anticipated market conditions, for recontracting beyond 2030. It currently operates under long-term contracts until 2030 and 2035 with high quality counterparties.
For Capital Power, the acquisition provides immediate adjusted funds from operations (AFFO) accretion with the 5-year average accretion forecasted to be US$0.30 per share, representing a 7.0% increase. Financial projections include an average adjusted EBITDA of US$59 million per year (ranging from US$85 million in 2023 and declining to US$45 million in 2027) and an average AFFO of US$35 million per year during the 5-year period from 2023 to 2027.
Non-GAAP Financial Measures and Ratios
The Company uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA) and (ii) AFFO as financial performance measures.
The Company also uses AFFO per share as a performance measure. This measure is a non-GAAP ratio determined by applying AFFO to the weighted average number of common shares used in the calculation of basic and diluted earnings per share.
These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective.
See Non-GAAP measures and ratios in the Company’s second quarter 2022, and year-end 2021 Management’s Discussion and Analysis for further discussion of these metrics and reconciliations of adjusted EBITDA and AFFO to net income and net cash flows from operating activities, respectively.
Certain information in this news release is forward-looking within the meaning of Canadian securities law as it relates to anticipated financial and operating performance, events or strategies. The forward-looking information or statements are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release around the acquisition of the MCV Holding Company includes expectations regarding: (i) financial impacts including expected AFFO and adjusted EBITDA contributions and accretion in AFFO and AFFO per share, and (ii) positioning for potential re-contracting of Midland Cogen following contract expiries in 2030 and 2035.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate, including its review of the Midland Cogen facility and re-contracting opportunities. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) anticipated performance of the Midland Cogen facility, (iii) re-contracting and wholesale market opportunities, (iv) status of and impact of policy, legislation and regulations, and (v) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity prices in the MISO power market, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation as well as the receipt and timing thereof of required regulatory approvals, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) changes in market prices and availability of fuel, (vii) ability to realize the anticipated benefits of the Midland Cogen facility, (viii) limitations inherent in the Company’s review of the Midland Cogen facility, and (ix) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s 2021 Management’s Discussion and Analysis for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
About Capital Power
Capital Power (TSX: CPX) is a growth-oriented North American wholesale power producer with a strategic focus on sustainable energy headquartered in Edmonton, Alberta. We build, own, and operate high-quality, utility-scale generation facilities that include renewables and thermal. We have also made significant investments in carbon capture and utilization to reduce carbon impacts and are committed to be off coal in 2023. Capital Power owns approximately 7,400 MW of power generation capacity at 28 facilities across North America. Projects in advanced development include approximately 385 MW of owned renewable generation capacity in North Carolina and Alberta and 512 MW of incremental natural gas combined cycle capacity, from the repowering of Genesee 1 and 2 in Alberta.
About Manulife Investment Management
Manulife Investment Management is the global brand for the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship and the full resources of our parent company to serve individuals, institutions, and retirement plan members worldwide. Headquartered in Toronto, our leading capabilities in public and private markets are strengthened by an investment footprint that spans 19 geographies. We complement these capabilities by providing access to a network of unaffiliated asset managers from around the world. We’re committed to investing responsibly across our businesses. We develop innovative global frameworks for sustainable investing, collaboratively engage with companies in our securities portfolios, and maintain a high standard of stewardship where we own and operate assets, and we believe in supporting financial well-being through our workplace retirement plans. Today, plan sponsors around the world rely on our retirement plan administration and investment expertise to help their employees plan for, save for, and live a better retirement. Not all offerings are available in all jurisdictions. For additional information, please visit manulifeim.com.