On April 30,2015 Algonquin Power gave a press release telling investors that it has closed a private placement of $160 million senior unsecured 30 year notes with a coupon of 4.13%.The 30 year financing is quite attractive and made possible by a 20 year signed agreement for the delivery of water to Liberty Utilities.They tell us that the proceeds of the private placement will be used to partially fund the $327 million needed to pay for their Park Water System located in California and Montana. ParkWater Systems operates 3 regulated water utilities. in southern California and Western Montana. The deal is expected to close in the second quarter of 2015 and will bring some new revenues and earnings in the third quarter.The acquisition is expected to have property,plant and other assets of $259 million for rate making purposes.
Review of 2014
The closing of this transaction is taken as an opportunity to review Algonquin Power's performance in 2014.This information is taken from past quarterly reports and from information in databases.Revenues for 9 months were $684 million compared to $470 million for 9 months of 2013.While net earnings of $45 million were obtained for 2014 compared to $43 million in 2013.Also they earned adjusted EBITDA of $206 million versus $160 million for 2013.So we can see that Algonquin has had good growth in revenues and adjusted EBITDA but slight growth in net earnings in 2014.However Algonquin made two significant acquisitions in 2014 and both will be closing in 2015.This will make a ssinificant change to it's balance sheet.These transactions are the acquisition of the Park Water Systems(which is discussed above) and the Odell wind project.The Odell wind project is located in Minnesota.These two projects are valued at about $640 million and both are located in U.S.A. Algonquin has also constructed two small wind projects in Canada in 2014.
Too many eggs in the Regulated Basket
This blog has been critical of Algonquin having too many projects generating revenues and earnings from American regulated utilities.Algonquin would be quick to add that it has gotten quite a few good rate awards here.This blog counters with the fact that the probability of continued large awards is decreasing over time.The probability of any rate awards in 2015 being as substantial as in 2013 is slim.This risk has continued with the acquisition of Park Water Systems;this is another regulated utility albeit in a new jurisdiction.Their other large American acquisition,the Odell wind project is not regulated.And it has a 20 year contract with Xcel Energy.This helps to reduce overall risk. Algonquin has taken two countermeasures to soften the risk of getting two or three bad American regulatory decisions..First Algonquin has sold 8 million subscription receipts to another Canadian utility (Emera) so that now Emera owns approximately 25% of Algonquin shares.Secondly it has made several new offerings of common shares to the Canadian public.This does stabilize the ownership but it does not eliminate the probability of a trend to lower rate awards starting to come from American regulators.At least Algonquin has spread it's assets over several state regulators.But it is the position of this blog that Algonquin needs more assets (like the Odell wind project) with long term contracts in place.However Algonquin's tremenduous growth in revenues will continue in 2015 with significant new revenue coming onstream from both the Park and Odell systems.
Growth versus stability
Algonquin Power has specialized in acquiring American water and energy assets at distressed prices.It has done very well here and has picked up very good growth in revenues and adjusted EBITDA.Net earnings have not grown as fast but that is partly as a result of large asset write offs.That aside,Algonquin is on track to hit between $280 and $300 million in adjusted EBITDA in 2015 which is tremenduous growth since 2011.The price of the stock has not yet kept up to the growth in adjusted EBITDA and net earnings since 2011.
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