Capital Power announces strategic acquisition of Goreway Power Station and a $130 million subscription receipt offering

 $977 million acquisition materially increases contracted adjusted EBITDA and is immediately accretive to adjusted funds from operations per share

/NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

EDMONTON, April 29, 2019 /CNW/ - Capital Power Corporation (Capital Power or the Company) (TSX: CPX) announced today that it has entered into an agreement to acquire Goreway Power Station Holdings Inc., which owns the Goreway Power Station, an 875 megawatt (MW) natural gas combined cycle generation facility. Goreway Power Station Holdings Inc. is jointly owned by JERA Co. Inc., and Toyota Tsusho Corporation. The purchase price is $387 million in total cash consideration, subject to working capital and other closing adjustments, and the assumption of $590 million of project level debt (the Acquisition). The Acquisition is expected to close in the second quarter of 2019 and is subject to regulatory approvals and other customary closing conditions.

"The Goreway facility is an excellent strategic fit to our growth plans given its size, excellent operating history, location, and remaining contract term to 2029," said Brian Vaasjo, President and CEO of Capital Power. "It leverages our significant operating capability and, in combination with our other Ontario natural gas assets, it will provide operating and market synergies over time. With its strategic location in the Greater Toronto Area (GTA) load centre and the flexibility it can provide, the Goreway facility is an important asset in Ontario's electric system."

The Goreway facility has a 20-year Accelerated Clean Energy Supply Contract expiring in June 2029 with the Ontario Independent Electricity System Operator (IESO) (DBRS: A(high) / Moody's: Aa3).

The Acquisition will be financed with the net proceeds raised through the $130 million subscription receipt offering (described below) followed later by funding from other sources, including existing or new debt sources and other sources available to the company.

The Acquisition is expected to generate approximately $124 million of adjusted EBITDA and $50 million of adjusted funds from operations (AFFO) in 2020. For the 2020-2023 period, average annual adjusted EBITDA and AFFO are estimated to be $127 million and $56 million, respectively.  Based on expected financing, the Acquisition is forecasted to be $0.27 accretive to AFFO per share in 2020 representing growth of approximately 6%.

The Company has revised its 2019 financial target ranges to incorporate the acquisition of the Goreway facility.

• AFFO of $485 million to $535 million ($460 million to $510 million previously), and
• Adjusted EBITDA of $870 million to $920 million ($800 million to $850 million previously).

Overview of Goreway Power Station

• Nameplate capacity – 875 MW  
• Location – Brampton, Ontario within the GTA which is the load centre of the province
• Commercial operation date – June 2009
• Offtake – fully contracted with the Ontario IESO through June 2029
• Equipment – utilizes best-in-class gas-fired generation equipment including three upgraded GE 7FB.04 combustion turbines, three Deltak heat recovery steam generators and a single Siemens steam turbine 
• Electrical Interconnection – connected to the Hydro One transmission system
• Gas interconnect and transport – connected to the TransCanada pipeline system by a lateral, owned and maintained by Enbridge. This provides the facility with access to both the Dawn and Parkway gas trading hubs.
• Site description – located on approximately 21 hectares of land and includes vacant land for other development opportunities

$130 Million Subscription Receipt offering
Capital Power expects to finance the Acquisition using a combination of debt and equity. The Company has entered into an agreement with a syndicate of underwriters (the Underwriters) co-led by RBC Capital Markets and TD Securities to issue 4.3 million subscription receipts (the Subscription Receipts), on a bought deal basis, at an issue price of $30.30 per Subscription Receipt (the Offering Price), for total gross proceeds of approximately $130,290,000 million (the Public Offering). The net proceeds from the Public Offering will be used to partially finance the Acquisition.

The Company has granted the Underwriters an over-allotment option to purchase, in whole or part, up to an additional 645,000 Subscription Receipts at the Offering Price to cover over-allotments, if any, exercisable at any time and from time to time until the date that is 30 days following the closing of the Offering. If the over-allotment option is exercised in full, gross proceeds from the Public Offering will be approximately $149,833,500 million.

Each Subscription Receipt will entitle the holder thereof to receive, without payment of additional consideration or further action, upon closing of the Acquisition, one common share of Capital Power (Common Share). In addition, while the Subscription Receipts remain outstanding, holders will be entitled to receive cash payments (Dividend Equivalent Payments) per Subscription Receipt equal to dividends declared by Capital Power on each Common Share. Such Dividend Equivalent Payments will have the same record date as the related Common Share dividend and will be paid to holders of Subscription Receipts concurrently with the payment date of each such dividend. Dividend Equivalent Payments will be paid first out of any interest on the Escrowed Funds (defined below) and then out of the Escrowed Funds.

The proceeds from the sale of the Subscription Receipts less one-half of the Underwriters' fee (the Escrowed Funds) will be held in escrow by Computershare Trust Company of Canada, as subscription receipt agent (the Subscription Receipt Agent), and invested in interest-bearing deposits with banks and other financial institutions with issuer credit ratings with S&P Global Ratings, Inc. of at least A (as contemplated by, or specified in, the subscription receipt agreement) or other approved investments as set forth in the subscription receipt agreement, provided that Dividend Equivalent Payments may be made from the Escrowed Funds and the interest credited or received thereon from time to time, as described above.

Under the Purchase and Sale Agreement, Capital Power is acquiring 100 per cent of the ownership interests in Goreway Power Station Holdings Inc. The Acquisition is expected to close in the second quarter of 2019, subject to regulatory approvals and satisfaction of other customary closing conditions.

Once notice has been delivered to the Subscription Receipt Agent that the parties to the Acquisition are able to complete the Acquisition in all material respects in accordance with the terms of the Purchase and Sale Agreement, but for payment of the purchase price, and Capital Power has available to it all other funds required to complete the Acquisition, the Escrowed Funds, less any amounts required to satisfy payment of unpaid Dividend Equivalent Payments, will be released to or as directed by Capital Power up to six business days prior to the closing of the Acquisition. In the event such notice has not been delivered prior to November 7, 2019 or if the Acquisition is terminated prior to such time, or Capital Power advises the underwriters or discloses to the public that it does not intend to proceed with the Acquisition, then the Subscription Receipt Agent and Capital Power will return to each holder of Subscription Receipts an amount equal to the aggregate issue price of such holder's Subscription Receipts, plus any unpaid Dividend Equivalent Payments owing to such holders of Subscription Receipts (the Termination Payment). The Termination Payment will be made from the balance of the Escrowed Funds at the Termination Time, including from any remaining interest received on the Escrowed Funds. If the balance of the Escrowed Funds, together with any such received interest, is insufficient to cover the full amount of the Termination Payment, Capital Power will pay any difference to the holders of Subscription Receipts. If no Dividend Equivalent Payment is payable to the holders of Subscription Receipts prior to the Termination Time, such holders will receive, in addition to the aggregate issue price of such holder's Subscription Receipts, such holder's pro rata share of the interest earned on the Escrowed Funds and such holder's pro rata share of the interest that would have been earned on 50% of the underwriting fee were such portion of the fee included in the Escrowed Funds.

The Public Offering will be offered in all provinces and territories of Canada by way of a prospectus supplement to be dated on or about May 1, 2019 to Capital Power's base shelf prospectus dated May 11, 2018. Completion of the Public Offering is subject to certain conditions including receipt of all necessary approvals, including the approval of the Toronto Stock Exchange. Closing of the Public Offering is anticipated to occur on or about May 8, 2019.

All references to dollar amounts contained herein are to Canadian dollars unless otherwise indicated.

U.S. Securities Laws Disclosures
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES.

The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute an offer of securities for sale in the United States, nor may any securities referred to herein be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended (the Securities Act), and the rules and regulations thereunder. The securities referred to herein have not been registered pursuant to the Securities Act and there is no intention to register any of the securities in the United States or to conduct a public offering of securities in the United States.

Non-GAAP Financial Measures 
The Company uses AFFO as a financial performance measure of the ability of the Company and its subsidiaries ability to generate cash from current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company's shareholders. The AFFO performance measure represents net cash flows from operating activities adjusted to include net finance expense and current income tax expense and exclude changes in operating working capital and distributions received from the Company's joint venture interests. Net finance expense and current income tax expense are included as the timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. Changes in operating working capital are excluded from AFFO as the timing of cash receipts and payments also affects the period-to-period comparability. Distributions received from the Company's joint venture interests are excluded as the distributions are calculated after the effect of joint venture debt payments, which are not considered operating activities. AFFO is reduced by the tax equity financing project investors' shares of AFFO associated with assets under tax equity financing structures to ensure that only the Company's share is reflected in the overall metric. AFFO also excludes the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company's bank margin account held with a specific exchange counterparty. AFFO is reduced by sustaining capital expenditures and preferred share dividends and adjusted to include the Company's share of the AFFO of its joint venture interests and cash from coal compensation that will be received annually.

Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure. Commencing with the Company's March 31, 2019 quarter-end, adjusted EBITDA excludes unrealized changes in fair value of commodity derivatives and emission credits which were previously included in adjusted EBITDA. This change was made to better align the Company's measure of adjusted EBITDA with its other non-GAAP measures, as both the adjusted funds from operations and the normalized earnings per share measures exclude the impacts of unrealized changes in fair value of commodity derivatives and emission credits. This change also results in improved period over period comparability of adjusted EBITDA.

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. AFFO and adjusted EBITDA should not be considered alternatives to net cash flows from operating activities and net income, respectively, calculated in accordance with GAAP. Rather, these measures are provided to complement the nearest GAAP measures in the analysis of the Company's results of operations from management's perspective.

See Non-GAAP measures in the Company's first quarter 2019, and year-end 2018 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.

Forward-looking Information
Certain information in this news release is forward-looking information within the meaning of Canadian securities laws as it relates to anticipated financial or operating performance, events or strategies. When used in this context, words such as  "anticipate", "believe", "continue", "estimate", "plan", "intend", "expect", "target" and "will" or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause the Company's actual results and experience to be materially different than the anticipated results. Forward-looking information or statements included in this news release are provided to inform the Company's shareholders and potential investors about management's assessment of the Company's future plans and operations. This information may not be appropriate for other purposes. 

Material forward-looking information in this press release around the acquisition of the Goreway facility includes expectations regarding: (i) financing plans, (ii) transaction close timing and (iii) financial impacts including expected accretion in AFFO, AFFO per share and adjusted EBITDA contributions. Additional forward-looking information is disclosed pertaining to updated 2019 targets for the Company's AFFO and adjusted EBITDA metrics as a result of the Acquisition.

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 Goreway facility and consultation with an independent third party around market analysis. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices; (ii) Company performance; (iii) business prospects and opportunities including expected growth and capital projects; (iv) the status of and impact of policy, legislation and regulations; (v) effective tax rates; and (vi) assumptions relating to estimated purchase price adjustments pursuant to the terms of the Acquisition agreement.

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) power plant availability and performance including maintenance expenditures; (ii) changes in electricity prices in markets in which the Company operates; (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation; (iv) acquisitions and developments including timing and costs of regulatory approvals and construction; (v) ability to fund current and future capital and working capital needs; (vi) changes in energy commodity market prices and use of derivatives; (vii) changes in market prices and availability of fuel; (viii) changes in general economic and competitive conditions; (ix) the outcome of the line loss rule proceeding; * limitations inherent in the Company's review of the Acquisition and the Goreway facility; and (xi) ability to realize the anticipated benefits of the Acquisition.  See Risk Factors in the Company's prospectus supplement filed in connection with the Public Offering and Risks and Risk Management in the Company's 2018 Management's Discussion and Analysis for further discussion of these and other risks.

This news release contains future-oriented financial information and financial outlook information (collectively, FOFI) about the Company's prospective adjusted EBITDA and AFFO and the components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of describing the anticipated effects of the Public Offering and the Acquisition on the Company's business operations. The Company disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

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 power producer headquartered in Edmonton, Alberta. The company develops, acquires, owns, and operates power generation facilities using a variety of energy sources. Capital Power owns approximately 5,100 megawatts (MW) of power generation capacity at 25 facilities across North America. Approximately 900 MW of owned generation capacity is in advanced development in Alberta and Illinois.

SOURCE Capital Power Corporation

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