On September 24,2015 Transalta Renewables announced that it priced a $442 million bond for a subsidiary.The bond will be secured by a first ranking charge on Transalta Renewables ;it is senior secured debt.The interest rate will be 3.834%which is a good rate and it will mature in 2028.The bonds will have a rating of BBB.This is an above average to good commercial rate and is only two rankings below A-A-A-.
Operational Statistics
Almost all operational statistics have improved over the same quarter last year.EBITDA at $52 million and funds from operations(FFO) at$43 million have increased by $16 million over 2014.And earnings at $22 million was up from the $6 million recorded last year.These increases are due partly to the contribution from the newly acquired Australian assets.In May they completed the $1.78 billion investment in Transalta's 425 MW gas fired generation assets in Australia.
The New Bond
The new bond will be a $442 million senior secured bond maturing in 2028 and carrying an interest rate of 3.834%.Net proceeds of the financing will be used to make advances to Canadian Hydro Developers on "an intercompany loan agreement".Payments will be made on loans on three facilities (two in Shelburne,Ontario and one on Wolfe Island,near Kingston).The facility at Shelburne is a 200MW wind powered generator and at Wolfe Island also a 200MW wind powered generator.The projects are 100% contracted to IESO and utilize proven turbine technology.
RNW Increases Equity
Transalta spun off 16 wind powered assets and 12 hydroelectric powered generation facilities into Transalta Renewables (RNW).The facilities have an installed generating capacity of 1856 MW.And it has an ownership interest of 1680 MW in the facilities. Transalta put some of the most profitable assets in RNW.In addition,RNW bought for $1.8 billion most of Transalta's Australian assets.With the closing of the Australian transaction RNW increased the dividend by 9% and will increase it another 7% upon completion of construction. The new $442 million bond will be used to pay an intercompany loan with Canadian Hydrodevelopers.The nature of the loan agreement is not clear but it is possible that the loans are secured by equity that Canadian Hydro has in these assets.It is also not clear whether Cdn. Hydro will still have equity in these assets after these payments.If so then RNW will be able to issue other bonds as it does not appear to have much debt and it will soon have new assets coming onstream in Australia.
Summary of the Transaction
There is not much information available on the RNW capital structure so this blog will try and estimate it.Transalta spun off their wind and hydroelectric assets but did it take any debt with it?Probably not much if any.The investment in the Australian assets did not take on much debt and so it is possible that this $442 million bond is about the first debt taken on.If this is approximately true then RNW has lots of debt capacity to buy back assets or expand existing assets.There are other estimates of RNW''s capital structure but at this time neither Transalta nor RNW is making it very clear just how much debt RNW took from it's parent.But we do know that BBB is a good credit rating and 3.834% is a pretty good interest rate.It does not look like the credit rating agency saw much debt on the books. workathon has financial analysis;workathon does utility analysis;workathon does corporate analysis
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