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Brookfield makes hydro-themed investment of USD 560m in TransAlta

Author: U.S. Army Corps of Engine. License: Creative Commons, Attribution 2.0 Generic.

March 26 (Renewables Now) - Brookfield Renewable Partners LP (TSE:BEP.UN) will make a CAD-750-million (USD 560.3m/EUR 496.3m) capital injection into TransAlta Corp (TSE:TA) to help the Calgary-based utility transition to 100% clean energy by 2025.

Under the terms of a newly signed deal, the renewables arm of Brookfield Asset Management Inc (TSE:BAM.A) will invest CAD 350 million in TransAlta at closing, expected in May 2019, through the purchase of exchangeable debentures. Then, in October 2020, Brookfield Renewable Partners will spend a further CAD 400 million on redeemable preferred shares.

The announcement says that TransAlta will direct CAD 350 million of the fresh funds to advance its coal-to-gas transition strategy and up to CAD 250 million to repurchase shares over three years. The balance will go towards advancing the development of existing and new growth projects and for general corporate purposes.

After December 31, 2024, Brookfield Renewable Partners will have the right to convert its purchased exchangeable securities into an equity ownership interest in an entity that is yet to be formed with the purpose of holding TransAlta’s Alberta hydropower assets. This will be done at a value based on a multiple of the hydro assets’ future earnings before interest, tax, depreciation and amortisation (EBITDA).

Based on TransAlta’s estimates, Brookfield’s CAD-750-million capital injection can convert into an interest of between 30% and 35% in the entity holding the hydro assets. The maximum equity interest it could own is 49%.

“By crystallizing the value of our Hydro Assets, we can accelerate the return of capital to shareholders and invest in coal to gas conversions and strategic gas and renewable developments, while still meeting our goal to reduce senior indebtedness to CAD 1.2 billion by the end of 2020,” stated Dawn Farrell, president and CEO of TransAlta.

At present, Brookfield holds a 4.9% stake in TransAlta and it has committed to buy common shares on the open market over two years following completion of the transaction in order to raise its equity ownership in the company to 9%.

(CAD 1.0 = USD 0.747/EUR 0.661)

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Ivan is the mergers and acquisitions expert in Renewables Now with a passion for big deals and ambitious capacity plans.

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