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Innergex and the Desjardins Group Pension Plan acquire the 30.5 MW SM-1 hydroelectric facility in Quebec

 Innergex and the Desjardins Group Pension Plan acquire the 30.5 MW SM-1  hydroelectric facility in Quebec            --  Long-term hydro asset         --  Immediately accretive to Free Cash Flow         --  Transaction structure optimizes after-tax internal rate of             return  LONGUEUIL, QC, June 20, 2014 /CNW Telbec/ - Innergex Renewable Energy Inc.  (TSX: INE) ("Innergex" or the "Corporation") and the Desjardins Group Pension  Plan ("Desjardins") have completed the acquisition from Hydroméga Group of  Companies ("Hydroméga") of the Sainte-Marguerite-1 ("SM-1") run-of-river  hydroelectric facility located in Quebec, Canada.  The transaction is closed  in escrow effective today pending customary confirmatory release conditions,  which are expected to be satisfied within the next few business days.  "The acquisition of the SM-1 facility provides us with both immediate  contributions to cash flows and a quality hydro asset with a very high  long-term value. Furthermore, we are very pleased to have developed a  transaction structure that allows us to compete in acquiring renewable energy  infrastructure assets at prevailing market prices, while leveraging the low  capital cost and long-term horizon of a pension fund, as well as our expertise  as an operator, to achieve an attractive after-tax internal rate of return for  our shareholders. We intend to replicate this structure for future  acquisitions of renewable energy assets", states Michel Letellier, President  and Chief Executive Officer of Innergex.  "The Desjardins Group Pension Plan is proud to partner with Innergex for an  investment of this nature, here in Quebec", states Sylvain Gareau, Vice  President responsible for the plan. "We have been associated with Innergex  since its inception and this partnership is important, both for our  organization and for our participants. Our portfolio of infrastructure assets  is nearing the billion dollar mark and is growing rapidly. Over the last five  years, we have become an important actor in this asset class in Canada", adds  Mr. Gareau.  Benefits of the acquisition for the Corporation         --  Increases annualized Free Cash Flow by approximately             $5.0 million         --  Reduces the Corporation's Payout Ratio by approximately three             percentage points on an annual basis         --  Adds a high-quality, long-term hydro asset         --  Provides a new watershed with a regulated water flow         --  Carries perpetual land and water rights         --  Introduces a new capital structure that optimizes the return on             acquired assets         --  Deposit refund reduces the outstanding balance of the revolving             term credit facility  Summary of asset acquired  The 30.5 MW SM-1 hydroelectric facility is located on private land near the  town of Sept-Iles, in Quebec.  Its long-term average annual production is  expected to reach 166,500 MWh after completion of a capital improvement  program already underway. The facility was commissioned in 1993 with one  turbine providing an initial capacity of 8.5 MW; two other turbines installed  in 2002 provide additional capacity of 22.0 MW. All of the electricity the  facility produces is covered by two fixed-price 25-year power purchase  agreements with Hydro-Québec: one for 8.5 MW maturing in 2018, which provides  for an annual increase in the selling price of 3% to 6%; and one for 22.0 MW  maturing in 2027, which provides for an annual increase in the selling price  of 2%. Both power purchase agreements contain a renewal option for an  additional 25-year term. The water rights for this facility are owned in  perpetuity. In addition, regulated water flows on the Sainte-Marguerite River  from the operation of Hydro-Québec's 800 MW Sainte-Marguerite-3 hydroelectric  facility upstream results in regular production levels throughout the year.  The SM-1 facility is expected to generate annualized revenues of approximately  $11.0 million and Adjusted EBITDA of approximately $9.0 million.  Capital improvement program  Hydroméga has undertaken a $5.2 million capital improvement program  comprising the installation of a variable crest weir over the existing dam,  which will increase the expected long-term average annual production of the  facility by 9% or 14,000 MWh, to 166,500 MWh. Work began in May and is  expected to be completed by the end of the year; any lost revenues expected  during construction have been included in the capital improvement budget,  which will be funded equally by the Corporation and Desjardins.  Partnership with Desjardins  The Corporation and Desjardins respectively own 50.01% and 49.99% of the  common units of Innergex Sainte-Marguerite, S.E.C. (the "Limited  Partnership"). Concurrent with the acquisition of the SM-1 facility,  Desjardins subscribed to a debenture issued by the Limited Partnership for  total proceeds of approximately $40.4 million. This debenture carries an  interest rate of 8.0%, has no predetermined repayment schedule and matures in  2064.  Terms of the acquisition  The purchase price of the SM-1 facility is approximately $82.1 million, plus  assumption of $30.8 million in non-recourse, project-level debt carrying a  fixed interest rate of 7.4% and maturing in 2025. This debt will be adjusted  to fair market value upon consolidation by the Corporation. In addition, the  final purchase price will be reduced by the amount of net cash flows generated  by the facility since January 1, 2014, which are attributable to the  purchasers.  The purchase price of approximately $82.1 million was paid as follows:  approximately $40.4 million in cash and approximately $41.7 million by the  issuance of preferred units of the Limited Partnership, which the seller  immediately transferred to Innergex in exchange for 4,027,051 newly issued  common shares of the Corporation at a price of $10.36 per common share. The  preferred units of the Limited Partnership that the Corporation now holds  carry a preferred distribution rate of 10.5% until January 1, 2024 and 11.3%  thereafter.  Concurrently with the closing of the acquisition, the seller used a portion of  the cash proceeds to repay to the Corporation the $25.0 million deposit it  received in July 2012, plus accrued interest income of $3.5 million. Innergex  will use these proceeds to reduce the outstanding balance on its revolving  term credit facility. The repayment of this deposit in effect terminates the  letter of intent and exclusivity held by the Corporation with respect to other  assets of Hydroméga.  Also concurrently with the closing of the acquisition, the second-rank  guarantee provided by the SM-1 facility for another of Hydromega's projects  has been lifted.  Cash flow distributions  Until January 1, 2024, all cash flows generated each year by the facility,  after principal payment and interest expense on the existing project-level  debt, will first go towards paying the preferred distribution to the  Corporation; any remaining cash flows will then go towards paying the interest  expense to Desjardins; and then any remaining cash flow will be distributed  between the partners on a 50.01%-49.99% basis. Any unpaid preferred  distribution will be accrued and any unpaid interest expense will be accrued  and compounded.  Starting in 2024, cash flows generated each year by the facility, after  principal payment and interest expense on the existing project-level debt, if  any, will be shared between the partners to service the distribution and the  interest on the debenture concurrently. Any remaining cash flow will then be  distributed between the partners on a 50.01%-49.99% basis.  Taking into account the preferred distribution and the operating and  management fees it will receive, all of which will be adjusted annually for  inflation, the Corporation expects this acquisition to contribute  approximately $5.0 million annually to its Free Cash Flow and to reduce its  Payout Ratio by approximately three percentage points.  About the Desjardins Group Pension Plan  The Desjardins Group Pension Plan, acting through its Retirement Committee,  provides a defined benefit pension plan to more than 57,000 beneficiaries.  With $8.3 billion in net assets at the end of 2013, the Desjardins Group  Pension Plan ranks 8th among private pension plans in Canada. As of the end of  2013, the market value of its infrastructure portfolio was $800.0 million.  About Innergex Renewable Energy Inc.  Innergex Renewable Energy Inc. (TSX: INE) is a leading Canadian independent  renewable power producer. Active since 1990, the Company develops, owns and  operates run-of-river hydroelectric facilities, wind farms and solar  photovoltaic farms and carries out its operations in Quebec, Ontario and  British Columbia and in Idaho, USA. Its portfolio of assets currently consists  of: (i) interests in 33 operating facilities with an aggregate net installed  capacity of 687 MW (gross 1,194 MW), including 26 hydroelectric operating  facilities, six wind farms, and one solar photovoltaic farm; (ii) interests in  five projects under development or under construction with an aggregate net  installed capacity of 210 MW (gross 321 MW), for which power purchase  agreements have been secured; and (iii) prospective projects with an aggregate  net capacity totaling 2,900 MW (gross 3,125 MW). Innergex Renewable Energy  Inc. is rated BBB- by S&P and BB (high) by DBRS (unsolicited rating).  The Corporation's strategy for building shareholder value is to develop or  acquire high-quality facilities that generate sustainable cash flows and  provide a high return on invested capital, and to distribute a stable dividend.  Non-IFRS Measures  Readers are cautioned that Adjusted EBITDA, Free Cash Flow and Payout Ratio  are not measures recognized by International Financial Reporting Standards  (IFRS) and have no meaning prescribed by it, and therefore may not be  comparable to those presented by other issuers. Innergex believes that these  indicators are important, as they provide management and the reader with  additional information about the Corporation's production and cash generation  capabilities, its ability to sustain current dividends and dividend increases  and its ability to fund its growth. These indicators also facilitate the  comparison of results over different periods. References to "Adjusted EBITDA"  are to revenues less operating expenses, general and administrative expenses  and prospective project expenses. References to "Free Cash Flow" are to cash  flows from operations before changes in non-cash operating working capital  items, less maintenance capital expenditures net of proceeds from disposals,  scheduled debt principal payments, preferred share dividends declared and the  portion of Free Cash Flow attributed to non-controlling interests, plus cash  receipts by the Harrison Hydro L.P. for the wheeling services to be provided  to other facilities owned by the Corporation over the course of their power  purchase agreement, plus or minus other elements such as transaction costs  related to realized acquisitions (which are financed at the time of the  acquisition) and realized losses or gains on derivative financial instruments  used to hedge the interest rate on project-level debt. References to "Payout  Ratio" are to dividends declared on common shares divided by Free Cash Flow.  Readers are cautioned that Adjusted EBITDA should not be construed as an  alternative to net earnings and Free Cash Flow should not be construed as an  alternative to cash flows from operating activities, as determined in  accordance with IFRS.  Forward-looking information  In order to inform readers of the Corporation's future prospects, this press  release contains forward-looking information that can generally be identified  by the use of words such as "projected", "potential", "expect", "will",  "should", "estimate", "forecasts", "intends", or other comparable terminology  that states that certain events will or will not occur. It represents the  estimates and expectations of the Corporation relating to future results and  developments as of the date of this press release. It includes future-oriented  financial information, such as estimated electricity production, revenues and  Adjusted EBITDA, estimated capital improvement program, contribution to Free  Cash Flow and reduction in the Payout Ratio, to inform readers of the  potential financial impact of acquiring the SM-1 hydroelectric facility. Such  information may not be appropriate for other purposes.  The material risks and uncertainties that may cause actual results and  developments to be materially different from current expressed Forward-Looking  Information are referred to in the Corporation's Annual Information Form in  the "Risk Factors" section and include, without limitation: the ability of the  Corporation to execute its strategy; its ability to access sufficient capital  resources; liquidity risks related to derivative financial instruments;  changes in hydrology, wind regimes and solar irradiation; delays and cost  overruns in the design and construction of projects; the ability to develop  new facilities; variability of installation performance and related penalties;  potential undisclosed liabilities associated with the acquisition of the SM-1  facility; the ability to integrate the acquired facility; failure to realize  the benefits of this acquisition; and failure to release the transaction from  escrow.  Forward-Looking Information in this press release is based on certain  principal assumptions made by the Corporation. The following table outlines  Forward-Looking Information contained in this press release, the principal  assumptions used to derive this information and the principal risks and  uncertainties that could cause actual results to differ materially from this  information.     Principal Assumptions               Principal Risks and Uncertainties     Estimated production, revenues and  Improper assessment of water, wind     Adjusted EBITDA                     and sun resources and associated     For each facility, the Corporation  electricity production     determines an annual long-term      Variability in hydrology, wind     average level of electricity        regimes and solar irradiation     production (LTA) over the expected  Equipment failure or unexpected     life of the facility, based on      operations & maintenance activity     several factors that include,       Unexpected seasonal variability in     without limitation, historically    the production and delivery of     observed water flows or wind or     electricity     solar irradiation conditions,       Variability of facility performance     turbine or panel technology,        and related penalties     installed capacity, energy losses,  Changes to water and land rental     operational features and            expenses     maintenance. Although production    Unexpected maintenance expenditures     will fluctuate from year to year,   Lower-than-expected inflation     over an extended period it should     approach the estimated long-term     average. The Corporation then     estimates expected annual     revenuesfor each facility by     multiplying its LTA by a price for     electricity stipulated in the power     purchase agreement secured with a     public utility or other     creditworthy counterparty. These     agreements stipulate a base price     and, in some cases, a price     adjustment depending on the month,     day and hour of delivery. In most     cases, power purchase agreements     also contain an annual inflation     adjustment based on a portion of     the Consumer Price Index. The     Corporation then estimates annual     operating earnings (Adjusted EBITDA     of the facility) by subtracting     from the estimated revenues the     budgeted annual operating costs,     which consist primarily of     operators' salaries, insurance     premiums, operations and     maintenance expenditures, property     taxes, and royalties; these are     predictable and relatively fixed,     varying mainly with inflation     except for maintenance     expenditures.     Estimated capital improvement       Performance of counterparties, such     program                             as the contractor     The Corporation provides            Delays and cost overruns in the     indications of the costs of the     execution of the capital     capital improvement program based   improvements     on the projected costs provided by  Equipment supply     the contractor, and provides     indications regarding scheduling,     progress and expected benefits of     the program based on its extensive     experience as a developer.     Projected Free Cash Flow and Payout Adjusted EBITDA below expectations     Ratio                               caused mainly by the risks and     The Corporation estimates Free Cash uncertainties mentioned above and     Flow as projected cash flow from    by higher prospective project     operations before changes in        expenses     non-cash operating working capital  Projects costs above expectations     items, less estimated maintenance   caused mainly by the performance of     capital expenditures net of         counterparties and delays and cost     proceeds from disposals, scheduled  overruns in the design and     debt principal payments, preferred  construction of projects     share dividends and the portion of  Regulatory and political risk     Free Cash Flow attributed to        Interest rate fluctuations and     non-controlling interests, plus     availability of financing     cash receipts by the Harrison Hydro Financial leverage and restrictive     L.P. for the wheeling services to   covenants governing current and     be provided to other facilities     future indebtedness     owned by the Corporation over the   Unexpected maintenance capital     course of their power purchase      expenditures     agreement. It also adjusts for      Declaration of dividends at the     other elements, which represent     discretion of the Board     cash inflows or outflows that are     not representative of the     Corporation's long-term cash     generating capacity, such as adding     back transaction costs related to     realized acquisitions (which are     financed at the time of the     acquisition) and adding back     realized losses or subtracting     realized gains on derivate     financial instruments used to fix     the interest rate on project-level     debt.     The Corporation estimates the     Payout Ratio by dividing the most     recent declared annual common share     dividend by the projected Free Cash     Flow.  Although the Corporation believes that the expectations and assumptions on  which Forward-Looking Information is based are reasonable, readers of this  press release are cautioned not to rely unduly on this Forward-Looking  Information since no assurance can be given that they will prove to be  correct. The Corporation does not undertake any obligation to update or revise  any Forward-Looking Information, whether as a result of events or  circumstances occurring after the date of this press release, unless so  required by legislation.    SOURCE  Innergex Renewable Energy Inc.  Jean Trudel, MBA Chief Investment Officer and Senior Vice President -  Communications 450928-2550, ext. 252  Marie-Josée  Privyk, CFA, SIPC Director - Investor Relations 450928-2550, ext. 222    Image with caption: "SM-1 hydroelectric facility, in Quebec (CNW  Group/Innergex Renewable Energy Inc.)". Image available at:  To view this news release in HTML formatting, please use the following URL:  CO: Innergex Renewable Energy Inc. ST: Quebec NI: UTI VNT MNA