Capstone Infrastructure Corporation Announces 20-Year Contract for
Cardinal
- Completes new long-term agreements with Ontario Power
Authority and Ingredion Canada Incorporated
- Ensures sustainability of current dividend level
- Advances Capstone's strategy to reduce risk, extend the
portfolio's cash flow profile and establish a solid platform for
the future
TORONTO, ONTARIO--(Marketwired - Mar 26, 2014) - Capstone
Infrastructure Corporation
(TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the
"Corporation") today announced it has signed a new 20-year
non-utility generator contract (the "Contract") with the Ontario
Power Authority for its 156-megawatt ("MW") Cardinal
combined-cycle, natural gas-fired facility ("Cardinal"). The new
Contract will be effective January 1, 2015.
"This new contract allows Cardinal to continue providing
reliable, affordable electricity to Ontario ratepayers. It also
provides certainty for our shareholders on Cardinal's longevity and
contribution to Capstone's cash flow profile and dividend
sustainability following 2014," said Michael Bernstein, President
and Chief Executive Officer. "We are proud to remain part of the
local community and look forward to delivering cost-effective,
flexible electrical capacity and energy to Ontarians over the next
20 years."
The New Contract and
Cardinal's Future Operations
Starting in 2015, Cardinal will become a dispatchable facility
rather than a baseload generator, supplying electricity to the
Ontario grid only when needed. The new Contract provides Cardinal
with a fixed monthly payment, escalating annually according to a
pre-defined formula, intended to cover Cardinal's fixed operating
costs and return on capital. Cardinal will also earn variable
market revenue from the electricity it delivers to Ontario's power
grid, and will be responsible for arranging its own gas supply. The
Corporation expects to invest approximately $30 million of capital
over 2014 and 2015 to prepare Cardinal for cycling, including
purchasing a new rotor and related equipment to extend and enhance
the facility's capabilities. The new Contract will expire on
December 31, 2034.
Under the new Contract, the Corporation currently expects
Cardinal to generate Adjusted Earnings before Interest, Taxes,
Depreciation and Amortization ("Adjusted EBITDA") in the range of
$7 million to $9 million in 2015. This outlook reflects
payments under the contract as well as anticipated market revenue
and fees for operations and maintenance ("O&M") services
provided to Ingredion Canada Incorporated's ("Ingredion") adjacent
manufacturing facility.
In addition, the Corporation and the OPA have reached a mutually
beneficial agreement for Cardinal to provide additional operational
flexibility to Ontario's electricity system for the duration of its
current power purchase agreement, which expires on December 31,
2014.
The Corporation also announced today that Cardinal has entered
into an agreement with Ingredion to renew its energy savings
agreement ("ESA") for a term of 20 years. This agreement includes
O&M services to be provided to Ingredion for a fee, an
extension of the lease for the land on which the Cardinal facility
is located, and a royalty payable by Cardinal to Ingredion based on
variable market revenue from electricity sales.
"We are pleased with this new agreement," said Jim Zallie,
Ingredion's President, North America. "It provides Ingredion Canada
with more options for the future of its Cardinal facility and
allows Cardinal Power to continue serving Ontario's electricity
needs."
Capstone's Dividend
Profile
Based on the Corporation's current portfolio and with Cardinal's
new Contract secured, the Corporation intends to maintain its
current common share dividend level of $0.075 per common share
quarterly or $0.30 per common share on an annual basis, which it
believes is sustainable over the long term.
The Corporation targets an average long-term payout ratio range
of approximately 70% to 80% of Adjusted Funds from Operations
(AFFO), which it anticipates achieving by 2017 when the
Corporation's current pipeline of wind power projects is expected
to be fully commissioned and generating cash flow, and with the
increased dividends it expects to receive from Bristol Water over
the next regulatory period, which commences in April 2015 and
concludes in March 2020. In 2015 and 2016, the Corporation's payout
ratio may exceed 100% of AFFO, reflecting Cardinal's reduced cash
flow contribution starting in 2015. The Corporation believes it has
sufficient liquidity to fund its needs over this period, including
cash and cash equivalents on hand, operating cash flows from its
various businesses, and use of its corporate credit facility.
"We believe the cash flow generated by our current businesses
and project pipeline will more than sustain our dividend over the
long term," said Mr. Bernstein. "Over the past three years, we have
deliberately refocused our portfolio to reduce risk, extend our
cash flow profile and establish a solid platform for the future. In
particular, our investments in Bristol Water and Värmevärden have
significantly improved the quality of Capstone's overall investment
profile by offering perpetual, increasing cash flow and the
potential for considerable organic growth. Similarly, our new power
development arm positions us to realize higher investment returns.
The fundamental value of our company is growing and we are
confident in our ability to sustain our dividends and to deliver an
attractive total return to our shareholders as we complete the
build out of our development pipeline."
The Corporation's dividend policy is determined by the Board of
Directors of the Corporation and is based on a number of factors,
including forecasts for operating and financial results,
anticipated cash flows, maintenance and capital expenditure
requirements, market activity and conditions, and the satisfaction
of solvency tests imposed under corporate law for the declaration
of dividends and other relevant factors.
Conference Call and
Webcast
The Corporation will hold a conference call and webcast (with
accompanying slides) today at 5:30 p.m. EDT to discuss this
announcement. To listen to the call from Canada or the United
States, dial 1-800-319-4610. If calling from elsewhere, dial
+1-604-638-5340. A replay of the call will be available until
Wednesday, April 9, 2014. For the replay, from Canada or the United
States, dial 1-800-319-6413 and enter the code 1109#. From
elsewhere, dial +1-604-638-9010 and enter the code 1109#. The event
will be webcast live with an accompanying slide presentation on the
Corporation's website at www.capstoneinfrastructure.com.
About Capstone
Infrastructure Corporation
Capstone's mission is to provide investors with an attractive
total return from responsibly managed long-term investments in core
infrastructure in Canada and internationally. The company's
strategy is to develop, acquire and manage a portfolio of high
quality utilities, power and transportation businesses, and
public-private partnerships that operate in a regulated or
contractually-defined environment and generate stable cash flow.
Capstone currently has investments in utilities businesses in
Europe and owns, operates and develops thermal and renewable power
generation facilities in Canada with a total installed capacity of
net 439 megawatts2. Please visit www.capstoneinfrastructure.com for
more information.
- See Notice to Readers.
- Reflects Capstone's economic interest in its various power
facilities.
Notice to Readers
Certain of the statements contained within this document are
forward-looking and reflect management's expectations regarding the
future growth, results of operations, performance and business of
Capstone Infrastructure Corporation (the "Corporation") based on
information currently available to the Corporation. Forward-looking
statements and financial outlook are provided for the purpose of
presenting information about management's current expectations and
plans relating to the future and readers are cautioned that such
statements may not be appropriate for other purposes. These
statements and financial outlook use forward-looking words, such as
"anticipate", "continue", "could", "expect", "may", "will",
"intend", "estimate", "plan", "believe" or other similar words.
These statements and financial outlook are subject to known and
unknown risks and uncertainties that may cause actual results or
events to differ materially from those expressed or implied by such
statements and financial outlook and, accordingly, should not be
read as guarantees of future performance or results. The
forward-looking statements and financial outlook within this
document are based on information currently available and what the
Corporation currently believes are reasonable assumptions,
including the material assumptions set out in the management's
discussion and analysis of the results of operations and the
financial condition of the Corporation ("MD&A") for the year
ended December 31, 2013 under the heading "Results of Operations",
as updated in subsequently filed MD&A of the Corporation (such
documents are available under the Corporation's SEDAR profile at
www.sedar.com).
Other potential material factors or assumptions that were
applied in formulating the forward-looking statements and financial
outlook contained herein include or relate to the following: that
the business and economic conditions affecting the Corporation's
operations will continue substantially in their current state,
including, with respect to industry conditions, general levels of
economic activity, regulations, weather, taxes and interest rates;
that there will be no material delays in the Corporation's wind
development projects achieving commercial operation; that the
Corporation's power infrastructure facilities will experience
normal wind, hydrological and solar irradiation conditions, and
ambient temperature and humidity levels; that there will be no
material changes to the Corporation's facilities, equipment or
contractual arrangements; that there will be no material changes in
the legislative, regulatory and operating framework for the
Corporation's businesses; that there will be no material delays in
obtaining required approvals and no material changes in rate orders
or rate structures for the Corporation's power infrastructure
facilities, Värmevärden or Bristol Water; that there will be no
material changes in environmental regulations for the power
infrastructure facilities, Värmevärden or Bristol Water; that there
will be no significant event occurring outside the ordinary course
of the Corporation's businesses; the refinancing on similar terms
of the Corporation's and its subsidiaries' various outstanding
credit facilities and debt instruments, which mature during the
period in which the forward-looking statements and financial
outlook relate; market prices for electricity in Ontario and
Alberta; the re-contracting of the PPA for the Sechelt hydro power
generating station; that there will be no material change to the
accounting treatment for Bristol Water's business under
International Financial Reporting Standards, particularly with
respect to accounting for maintenance capital expenditures; that
there will be no material change to the amount and timing of
capital expenditures by Bristol Water; that there will be no
material changes to the Swedish Krona to Canadian dollar and UK
pound sterling to Canadian dollar exchange rates; and that Bristol
Water will operate and perform in a manner consistent with the
regulatory assumptions underlying AMP5 and those expected under
AMP6, including, among others: real and inflationary increases in
Bristol Water's revenue, Bristol Water's expenses increasing in
line with inflation, and capital investment, leakage, customer
service standards and asset serviceability targets being
achieved.
Although the Corporation believes that it has a reasonable basis
for the expectations reflected in these forward-looking statements
and financial outlook, actual results may differ from those
suggested by the forward-looking statements and financial outlook
for various reasons, including: risks related to the Corporation's
securities (dividends on common shares and preferred shares are not
guaranteed; volatile market price for the Corporation's securities;
shareholder dilution; and convertible debentures credit risk,
subordination and absence of covenant protection); risks related to
the Corporation and its businesses (availability of debt and equity
financing; default under credit agreements and debt instruments;
geographic concentration; foreign currency exchange rates;
acquisitions, development and integration; environmental, health
and safety; changes in legislation and administrative policy; and
reliance on key personnel); risks related to the Corporation's
power infrastructure facilities (power purchase agreements;
completion of the Corporation's wind development projects;
operational performance; fuel costs and supply; contract
performance and reliance on suppliers; land tenure and related
rights; environmental; and regulatory environment); risks related
to Värmevärden (operational performance; fuel costs and
availability; industrial and residential contracts; environmental;
regulatory environment; and labour relations); and risks related to
Bristol Water (Ofwat price determinations and changes to Instrument
of Appointment; failure to deliver capital investment programs;
economic conditions; operational performance; failure to deliver
water leakage target; SIM and the serviceability assessment;
pension plan obligations; regulatory environment; competition;
seasonality and climate change; and labour relations). For a
comprehensive description of these risk factors, please refer to
the "Risk Factors" section of the Corporation's annual information
form dated March 21, 2013, as supplemented by disclosure of risk
factors contained in any subsequent annual information form,
material change reports (except confidential material changes
reports), business acquisition reports, interim financial
statements, interim MD&A and information circulars filed by the
Corporation with the securities commissions or similar authorities
in Canada (which are available under the Corporation's SEDAR
profile at www.sedar.com).
The assumptions, risks and uncertainties described above are not
exhaustive and other events and risk factors could cause actual
results to differ materially from the results and events discussed
in the forward-looking statements and financial outlook. The
forward-looking statements and financial outlook within this
document reflect current expectations of the Corporation as at the
date of this document and speak only as at the date of this
document. Except as may be required by applicable law, the
Corporation does not undertake any obligation to publicly update or
revise any forward-looking statements and financial outlook.
This document is not an offer or invitation for the subscription
or purchase of or a recommendation of securities. It does not take
into account the investment objectives, financial situation and
particular needs of any investor. Before making an investment in
the Corporation, an investor or prospective investor should
consider whether such an investment is appropriate to their
particular investment needs, objectives and financial circumstances
and consult an investment adviser if necessary.
Capstone Infrastructure CorporationSarah Borg-OlivierSenior Vice
President, Communications(416)
649-1325sborgolivier@capstoneinfra.comwww.capstoneinfrastructure.com
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