TransAlta Renewables agrees to invest $540 million in three Canadian projects owned by TransAlta and announces dividend increase of approximately 5%

Nov 23, 2015

CALGARY, Alberta (November 23, 2015) – TransAlta Renewables Inc. (“TransAlta Renewables” or the “Company”) (TSX: RNW) and TransAlta Corporation (“TransAlta”) (TSX: TA; NYSE: TAC) announced today that they have entered into an investment agreement (the “Investment Agreement”) pursuant to which TransAlta Renewables has agreed to invest in TransAlta’s Sarnia Cogeneration Plant, Le Nordais wind farm and Ragged Chute hydro facility (the “Portfolio”) for a combined value of approximately $540 million (the “Transaction”). The Portfolio consists of approximately 611 MW of highly contracted power generation assets located in Ontario and Quebec. TransAlta Renewables’ investment will consist of the acquisition of securities which will track the net distributable profits of the Portfolio. As part of the Transaction, TransAlta Renewables will issue $175 million in common shares to TransAlta and $215 million in convertible unsecured subordinated debentures.

The Company also announced that, in order to finance the cash portion of the investment, it has entered into a $150 million bought deal offering co-led by CIBC Capital Markets and TD Securities Inc., as joint bookrunners, for the sale of 15,385,000 subscription receipts (“Subscription Receipts”) of the Company at a price of $9.75 (the “Offering Price”) per Subscription Receipt (the “Offering”). Following shareholder approval of the Transaction, each holder of Subscription Receipts will automatically receive one common share in the capital of the Company (“Common Share”) for each Subscription Receipt held, without further action or additional consideration on the part of the holder. The Company anticipates that the Offering will close on or about December 2, 2015, while the Transaction will close in January 2016.

TransAlta Renewables also announced today that TransAlta has entered into an agreement with Alberta Investment Management Corporation (“AIMCo”) for the sale of $200 million of TransAlta Renewables Common Shares (“AIMCo Investment”). The AIMCo Investment is scheduled to close on or about November 26, 2015. As part of the AIMCo Investment, the Company has granted to AIMCo a pre-emptive right to purchase such number of Common Shares of the Company in respect of any future offerings of Common Shares, or securities convertible into Common Shares, in order to allow AIMCo to maintain its proportionate shareholdings in the Company, provided that AIMCo’s ownership remains above a specific threshold. AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than $85 billion of assets under management and is responsible for the investments of 27 pension, endowment and government funds in Alberta. TransAlta remains committed to maintaining its position as the majority shareholder and sponsor of TransAlta Renewables.

“This Transaction represents the execution of our second acquisition of assets from TransAlta in 2015 and is in-line with our strategy of acquiring high quality assets with stable cash flows at accretive valuations,” said Brett Gellner, President of TransAlta Renewables. “The enhanced cash flow per share from this Transaction supports a dividend increase of $0.04 per share to $0.88 per share annually upon completion of the Transaction, which is in addition to the further dividend increase of approximately 6% to 7% we expect when South Hedland is fully commissioned in mid-2017. The Portfolio is highly contracted and provides additional cash flow diversification. The associated Offering and AIMCo Investment will increase the float size of the Company and improve liquidity for investors and we are pleased to have AIMCo joining as a key shareholder of TransAlta Renewables,” added Mr. Gellner.

“Since its creation in 2013, TransAlta Renewables has proven itself a very strong player in the renewable energy space,” said Kevin Uebelein, AIMCo Chief Executive Officer. “AIMCo has a demonstrated track record of placing strategic investments in significant infrastructure assets around the world. Our team of professionals is looking forward to working with the team at TransAlta Renewables to find ways to collaborate in their future growth and success.”

Investment Highlights

• Long-term, highly contracted Portfolio underpins significant increase in cash flow and enhances customer diversification

• Approximate 3% expected increase in cash available for distribution (“CAFD”) per share over the near term and longer term periods

• Represents a price to CAFD of approximately 10x

• Dividend increase of approximately 5% ($0.04 per share on an annualized basis) upon closing of the Transaction

• Significantly increases the public float

• TransAlta Renewables receives a Right of First Offer to invest in growth projects related to the Portfolio

• Potential for future growth from behind the fence power customers at the Sarnia facility for both power and steam

• TransAlta, as majority sponsor and manager, maintains significant ownership of TransAlta Renewables

Upon completion of the AIMCo Investment, the Offering and the financing of the Transaction, but before giving effect to the over-allotment option, TransAlta will own approximately 65% of the outstanding shares of TransAlta Renewables. TransAlta’s interest will be reduced to approximately 64% if the over-allotment option is exercised in full.

As TransAlta is an “insider” and “related party” to the Company under applicable securities laws and stock exchange rules, the Transaction will require the approval of the shareholders of the Company (excluding TransAlta), which will be sought at a special meeting of the Company to be held in early January 2016. The Transaction is expected to close shortly after shareholder approval is received.

Transaction Financing

TransAlta Renewables intends to finance the Transaction through a combination of cash and securities to be issued to TransAlta. The cash consideration payable to TransAlta pursuant to the Investment Agreement will be raised through the Offering and supplemented by cash on hand. TransAlta Renewables has entered into a bought deal agreement with a syndicate of underwriters, co-led by CIBC Capital Markets and TD Securities Inc., as joint bookrunners, for an Offering of 15,385,000 Subscription Receipts at a purchase price of $9.75 per Subscription Receipt which will result in gross proceeds to TransAlta Renewables of approximately $150 million. TransAlta Renewables has granted the underwriters an over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 2,307,750 Subscription Receipts at the Offering Price, exercisable in whole or in part at any time ending on the earlier of (i) 30 days following closing of the Offering and (ii) the Termination Date (as defined below). Gross proceeds to TransAlta Renewables, if the Over-Allotment Option is fully exercised, will be approximately $172.5 million.

Upon closing of the Transaction, each holder of Subscription Receipts will automatically receive one Common Share for each Subscription Receipt held, without further action or additional consideration on the part of the holder. In addition, if the Transaction closes as anticipated, any dividends declared by the Company to holders of Common Shares with record dates from the date of closing of the Offering, up to, but not including, the date of closing of the Transaction, will be paid to such Subscription Receipt holders.

The net proceeds from the sale of Subscription Receipts will be held by an escrow agent and invested in short-term obligations of, or guaranteed by, the Government of Canada (and other approved investments) until the earlier of the closing of the Transaction and March 31, 2016 (the “Termination Date”). If the closing of the Transaction does not occur on or before the Termination Date, or is terminated at any earlier time, the Subscription Receipts will be terminated and cancelled, and the full subscription price of the Subscription Receipts will be returned to holders of Subscription Receipts, together with their pro-rata portion of any interest earned thereon.

The Subscription Receipts will be offered in all provinces of Canada, pursuant to a prospectus supplement to the Company’s short form base shelf prospectus. Closing of the Offering is subject to certain conditions, including receipt of the approval of the Toronto Stock Exchange and all other necessary regulatory approvals.

TransAlta will also receive, as consideration pursuant to the Transaction, $175 million in Common Shares to be issued at the Offering Price and $215 million of convertible unsecured subordinated debentures (the “Debentures”). The Debentures will be issued by the Company to TransAlta on an interest only basis at a coupon of 4.5% per annum payable semi-annually in arrears on June 30th and December 31st and will mature on December 31, 2020. On the maturity date, TransAlta will have the right, at its sole option, to convert the outstanding Debentures, in whole or in part, into Common Shares at a conversion price of $13.16 per Common Share, being a 35% premium to the Offering Price. The Debentures will be direct unsecured obligations of the Company ranking subordinate to all liabilities, except liabilities which by their terms rank in rights of payment equally with or subordinate to the Debentures. The Debentures will rank pari passu with all subordinate debentures issued by the Company from time to time.

Special Committee and Board Recommendation

As the Transaction constitutes a “related party transaction” under applicable securities laws, a special committee consisting of the independent directors of TransAlta Renewables (the “Special Committee”) reviewed the Transaction to determine if it was in the best interests of the Company. The Special Committee retained independent technical, legal, tax and financial advisors, including Moelis & Company LLC as financial advisor, to provide advice, a valuation of the cash flow interest in the Portfolio, and a fairness opinion (the “Opinion”).

Moelis & Company LLC provided the Special Committee with the Opinion, which concluded that as of November 18, 2015, based on and subject to the analyses, assumptions, limitations and qualifications contained in the Opinion, the consideration to be paid by the Company pursuant to the Transaction is fair from a financial point of view to the Company. Based on its evaluation and advice from its advisors, the Special Committee negotiated the terms of the Transaction with TransAlta, including the consideration to be paid by the Company. The Special Committee then resolved that the Transaction is in the best interests of the Company and its shareholders (without giving direct consideration to the interests of TransAlta), and recommended that the board of directors of the Company (the “Board”) approve the Transaction. The Board considered the recommendation of the Special Committee, the Opinion, and the advice of the independent advisors retained by the Special Committee and concluded (with directors that are also officers or former officers of TransAlta abstaining) that the Transaction is in the best interests of the Company and the shareholders of the Company (without giving direct consideration to the interests of TransAlta), and unanimously approved the Transaction.

Special Meeting of Shareholders

The Company will ask its shareholders (excluding TransAlta and its subsidiaries, to the extent required by law) to approve the Transaction at a special meeting of the Company (the “Meeting”) which will be held on January 6, 2016. Shareholders of record on December 7, 2015 will be entitled to attend and vote at the Meeting. It is anticipated that the Transaction will close as soon as practicable following the receipt of the required shareholder approvals to be sought at the Meeting.

To assist shareholders in their assessment of the Transaction, the Opinion, which was among a number of factors taken into consideration by the Board in recommending approval of the Transaction, will be included in the Management Information Circular (the “Circular”) to be delivered to shareholders in respect of the Meeting. Shareholders are encouraged to carefully review and consider the Circular. The Circular and the Opinion will be filed on SEDAR at concurrently with the mailing of the materials for the Meeting.

This news release does not constitute an offer to sell or a solicitation of an offer to buy the Subscription Receipts in any jurisdiction. The Subscription Receipts have not been registered in the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States unless registered under the U.S. Securities Act and applicable state securities laws or under an exemption of such registration.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of applicable securities laws, including statements regarding the business and anticipated financial performance of TransAlta Renewables. All forward looking statements are based on the Company’s beliefs and assumptions based on information available at the time the assumptions were made, management’s experience and perception of historical trends, current conditions and expected future developments, and other factors deemed appropriate in the circumstances. These statements are not guarantees of the Company’s future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. In particular, this news release contains forward looking statements pertaining to, among other things: the anticipated financial performance of the Company; the size, and timing of the completion of the Transaction and Offering; the expected gross proceeds from the Offering; the use of proceeds in connection with the Transaction and in connection with the AIMCo Investment, the receipt of listing approval from the TSX; the closing of the AIMCo Investment; the increase to the dividend following closing of the Transaction and the expected increase to the dividend following the South Hedland project being fully commissioned; the composition of the shareholdings of the Company upon completion of the Transaction and TransAlta’s expected share ownership therein; expectations and plans for future growth, including expansion into existing and new markets and other forms of power generation and acquisition activities, including acquisition activities involving TransAlta; the ability to obtain the necessary regulatory and shareholder approvals for the Transaction; the timing of the shareholder meeting; the timing and completion and commissioning of projects under development, including the South Hedland project; the need for additional capital and the expected sources of, and access to, such capital; the closing of the Offering, and the exercise of the Over-Allotment Option; and expectations regarding TransAlta’s continued ownership of Common Shares. These forward-looking statements are subject to risks and uncertainties including risks associated with the receipt of required regulatory and shareholder approvals, the timing and cost of the construction and commissioning of the South Hedland project, and economic and competitive conditions. The forward-looking statements contained in this news release are made as of the date of this news release, and the Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities regulations. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

About TransAlta Renewables Inc.

TransAlta Renewables owns 16 wind and 12 hydroelectric power generation facilities, and holds economic interests in TransAlta’s Wyoming Wind Farm and Australian Assets, having an aggregate installed generating capacity of 1,856 MW, in which it holds a net ownership interest of approximately 1,680 MW. TransAlta Renewables’ economic interest in Australian assets consist of 425 MW of power generation from six operating assets, which are operational and contracted under long-term contracts, and the 150 MW South Hedland project that is currently under construction, as well as the recently commissioned 270 km gas pipeline. TransAlta Renewables’ power generating capacity is among the largest of any publicly-traded renewable independent power producer (“IPP”) in Canada, with more wind power generating capacity than any other Canadian publicly-traded IPP. TransAlta Renewables’ strategy is focused on the efficient operation of its portfolio of assets and expanding its asset base through the acquisition of high-quality contracted renewable and natural gas power generation facilities and other infrastructure assets. Our objectives are to (i) create stable, consistent returns for investors through the ownership of contracted renewable and, potentially, natural gas power generation and other infrastructure assets that provide stable cash flow through long-term contracts with creditworthy counterparties, including TransAlta Corporation; (ii) pursue and capitalize on strategic growth opportunities in the renewable and, natural gas power generation and other infrastructure sectors; and (iii) pay out a portion of cash available for distribution to the shareholders of the Company on a monthly basis.

Non-GAAP and Non-IFRS Measures

This news release contains references to the Cash Available for Distribution (CAFD) expected to be generated by the transaction. CAFD represents the amount of cash generated from operations, before changes in working capital that is available to invest in growth initiatives, make additional non-scheduled principal repayments of debt, pay additional common share dividends, or repurchase common shares. Changes in working capital are excluded so as not to distort free cash flow with changes that are considered to be temporary in nature, reflecting, among other things, the impact of seasonal factors and the timing of capital projects. CAFD is not a measure that has standardized meaning prescribed by Canadian Generally Accepted Accounting Principles (GAAP) and is not considered a GAAP measure. Therefore, this measure may not be comparable with similar measures presented by other issuers.

Earnings before interest, taxes, depreciation and amortization (EBITDA) is not defined under International Financial Reporting Standards (IFRS) and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Presenting these items from period to period provides management and investors with the ability to evaluate earnings and cash flow trends more readily in comparison with prior periods’ results. Refer to the Non-IFRS Measures section of the Company’s MD&A and 2015 Annual Information Form for the year ended Dec. 31, 2014 for further discussion of non-IFRS items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.

For more information:

Investor Inquiries:

Jaeson Jaman
Manager, Investor Relations
Phone: 1 800-387-3598 in Canada and U.S.

Media Inquiries:

Stacey Hatcher
Manager, Communications
Toll-free media number: 1-855-255-9184

LAST: CAD$14.280 (+1.301%)
2016-12-28 16:00:00

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