Dynegy to fund ECP’s share of the initial equity contribution and pay ECP a revised discounted floor price of $375 million.
Dynegy Inc. has announced its intent to acquire Energy Capital Partners’ (ECP) 35% interest in the Atlas joint venture (JV) which the two companies formed in February 2016 to purchase ENGIE’s 9,058 megawatt U.S. fossil portfolio. Upon completion of the ENGIE portfolio acquisition, Dynegy will own 100% of the acquired business.
Under the terms of the agreement, Dynegy will acquire ECP’s stake in the JV by assuming ECP’s share of the upfront equity funding at closing, then paying ECP the revised discounted floor price of $375 million post-closing for a total transaction value of $750 million (assuming the transaction closes on October 1, 2016). When the Atlas JV was originally formed, ECP provided Dynegy with the ability to buy its 35% interest in the JV using a predetermined methodology which included a minimum floor price of 2.25x ECP’s net investment in the venture. Based on expected partner equity contributions at the time, the minimum buyout price totaled $934 million including ECP’s initial capital contribution. By taking steps to reduce the upfront capital requirement and the minimum buyout multiple, the cost of the buyout is reduced by $184 million and accelerates the full integration of the ENGIE portfolio into Dynegy’s existing business.
“As we indicated in February, Dynegy’s intent has consistently been to fully own the ENGIE U.S. fossil portfolio. The significant improvement in the financial markets since announcing the transaction in February provided an excellent opportunity for us to approach ECP about an earlier timetable,” said Robert C. Flexon, President and CEO, Dynegy. “This transaction accelerates our company’s transformation, enabling us to increase our presence further in the most desirable markets with high quality assets.”
As a result of reaching this agreement with ECP, Dynegy envisions financing the acquisition of the ENGIE portfolio at the Dynegy Inc. level instead of pursuing a portfolio-level financing as previously planned with an expected benefit of reducing annual cash interest costs by approximately $40 million. By eliminating the structural and financial complexity of the joint venture, not only does Dynegy expect to reduce the cost of capital associated with the transaction, but also increase potential synergies and efficiently use the company’s NOLs, leading to meaningful increases in free cash flow to Dynegy. Dynegy’s acquisition of ECP’s interest in the JV does not impact ECP’s previously disclosed commitment to purchase $150 million in Dynegy Inc. common stock for $10.94/share at transaction closing which will result in ECP becoming Dynegy’s largest shareholder at that time.
Post-closing, the combined company will have approximately 34,700 MW of generation assets with a presence in all major competitive markets in the U.S. The company’s fleet continues to undergo a significant transition with the addition of ENGIE’s U.S. fossil portfolio and the previously announced shutdown of various coal units, resulting in a portfolio that is 71% gas and 29% coal by year-end 2017.
The acquisition of ENGIE’s U.S. fossil portfolio remains on track to close in the fourth quarter of this year.
