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

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 

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 

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% 

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 

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 
    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
    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
    The Corporation estimates the
    Payout Ratio by dividing the most
    recent declared annual common share
    dividend by the projected Free Cash

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: 
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CO: Innergex Renewable Energy Inc.
ST: Quebec
-0- Jun/20/2014 19:14 GMT
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