NextEra Energy Partners (NEP) will acquire the operating and under-construction assets for $805mn, plus the assumption of its share of the portfolio's estimated $1.5bn in tax equity financing, from parent company NextEra Energy Resources (NER). The transaction includes the acquisition of a 49% stake in Emerald Breeze, a holding company with 1.5 GW of solar, wind, and storage capacity in Texas, Oklahoma, New York, and Nevada. Additionally, NEP will acquire a 100% stake in 347 MW of operating wind projects in Oklahoma, Iowa, and Nebraska. The assets are contracted to credit-worthy off-takers with Moody’s and S&P ratings of A+ and A2, with cash available for distribution (CAFD) weighted remaining contract life of ~15 years.
In conjunction with the acquisition, NEP has entered into a convertible equity portfolio financing (CEPF) agreement with Ontario Teachers' Pension Plan (OTPP) for ~$805mn. Under the terms, OTPP will initially fund ~$645mn for NEP to finance the acquisition, with the remaining $160mn to be disbursed by the end of Q3 2023 upon the achievement of the commercial operations at certain large-scale solar and wind projects. OTPP is expected to earn an effective annual coupon of ~2.8% on the outstanding investment over its initial 10-year period. Further, the financing provides NEP the flexibility to buy out OTPP’s equity interest at a fixed ~7% pre-tax annual return between the 5-year and 10-year anniversaries of the agreement.
According to Moody’s credit report on NEP, released in Ju’22, NEP’s portfolio buildout since 2018 has been financed largely by CEPF structures; other major sources of capital include convertible corporate debt and project-level debt. NEP's use of CEPF structures, such as those previously executed with BlackRock and KKR, gives NEP access to low-cost capital as a means to finance portfolio asset acquisitions. NEP believes that the CEPF structures provide the company with greater financial flexibility, and allow it to leverage private capital demand for stable, long-term contracted assets. Similar to the arrangement with OTPP, the first CEPF agreement (with BlackRock) provided NEP with the option to buy out 100% of the outstanding minority ownership interest in the portfolio of wind and solar assets. NextEra exercised this option in Nov’21, with Blackrock electing to receive 30% of the buyout in cash, which NEP funded primarily with debt. The remaining 70% of the buyout was funded with new equity, which supported NEP's credit quality related to this financially complex and relatively new financing structure.
The Enerdatics research team has analyzed NEP’s portfolio buildout activity in the US since 2019 and summarized its findings on the attached chart.
The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.
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