AT - Atlantic Power Corp

[ander]

Spread is widening to the $3.03 re: common last couple of days (i.e., stock price coming in). Anyone see any news?

[gfp]

I think the "news" is the release of the full merger proxy with the 'background of the arrangement' discussion giving color on the likelihood that there will be a higher offer.

 

https://www.sec.gov/Archives/edgar/data/1419242/000110465921025824/tm216864-1_prem14a.htm

 

Spread is widening to the $3.03 re: common last couple of days (i.e., stock price coming in). Anyone see any news?

[ander]

I think the "news" is the release of the full merger proxy with the 'background of the arrangement' discussion giving color on the likelihood that there will be a higher offer.

 

https://www.sec.gov/Archives/edgar/data/1419242/000110465921025824/tm216864-1_prem14a.htm

 

Spread is widening to the $3.03 re: common last couple of days (i.e., stock price coming in). Anyone see any news?

 

So how are you interpreting it?

 

If there is a lower likelihood of a higher offer -- then the stock could sell off, but currently it's trading at a ~16%+ annualized spread, which would be on the higher end of a spread.

 

If there is a higher likelihood of a higher offer -- then the stock price should trend higher.

 

The other possibility would be the view that investors likely to vote down the deal and there is no higher offer.

 

Thoughts?

[no_free_lunch]

The spread is opening up. Somewhere around a 5% return.  I think the sector is down in general, it could be weighing the deal down.  I sold out and am considering another roll.

[spartansaver]

Is AT exposed at all to the natural gas price swings that happened recently? AT has this in their annual... Wondering what the impact could be if they were paying $1k/MMBTU for natural gas.

 

"We do not typically hedge the entire exposure of our operations against commodity price volatility. To the

extent we do not hedge against commodity price volatility, our business, results of operations and financial condition

may be improved or diminished based upon movement in commodity prices."

[ander]

Any views on results?

 

https://investors.atlanticpower.com/2021-03-04-Atlantic-Power-Corporation-Releases-Fourth-Quarter-and-Year-End-2020-Results

 

I noted they said Calstock exploring 5 year renewal option - I believe they had said longer-term, but did not specify 5 years.

[Nelg]

Ander, can you share a summary of your asset build-up model, with details on how you treated PPA re-contracting and electricity prices?

 

I understand their argument that the forward curve prices are down, but I am trying to reconcile my value estimate with their comments that this is a fair value under the forward curve. In my simplistic model, I assumed hydro generates the same CFs post-PPA while everything else goes to 0 after their PPA expiries, then IRR'd everything back to today. On balance, I figured these assumptions were quite conservative.

 

Anyway, it's still shocking they did not conduct a full+formal marketing process. It is ironic they talked about how they got good prices on those biomass plants because they proactively went to sellers who weren't conducting full auctions.

[ander]

Nelg - apologies I just noticed this message.

 

In my initial model, I actually assumed no re-contracting on any of the assets (highly conservative!) with the exception of Curtis Palmer. For Curtis Palmer I had assumed 40% of current EBITDA.

 

Based on the projections that have been outlined in the Proxy (I would take a look at those), there seems to be even additional upside than what I had modeled (the proxy breaks it down by category - and knowing the expiries of the PPA's you can also infer which plants they think will be renewed).

 

Interesting the Debentureholders meeting is now adjourned for April 7th as well. Looks like the probability of the deal getting voted down at this price level is increasing.

 

Ander, can you share a summary of your asset build-up model, with details on how you treated PPA re-contracting and electricity prices?

 

I understand their argument that the forward curve prices are down, but I am trying to reconcile my value estimate with their comments that this is a fair value under the forward curve. In my simplistic model, I assumed hydro generates the same CFs post-PPA while everything else goes to 0 after their PPA expiries, then IRR'd everything back to today. On balance, I figured these assumptions were quite conservative.

 

Anyway, it's still shocking they did not conduct a full+formal marketing process. It is ironic they talked about how they got good prices on those biomass plants because they proactively went to sellers who weren't conducting full auctions.

[SafetyinNumbers]

Nelg - apologies I just noticed this message.

 

In my initial model, I actually assumed no re-contracting on any of the assets (highly conservative!) with the exception of Curtis Palmer. For Curtis Palmer I had assumed 40% of current EBITDA.

 

Based on the projections that have been outlined in the Proxy (I would take a look at those), there seems to be even additional upside than what I had modeled (the proxy breaks it down by category - and knowing the expiries of the PPA's you can also infer which plants they think will be renewed).

 

Interesting the MTNs meeting is now adjourned for April 7th as well. Looks like the probability of the deal getting voted down at this price level is increasing.

 

Ander, can you share a summary of your asset build-up model, with details on how you treated PPA re-contracting and electricity prices?

 

I understand their argument that the forward curve prices are down, but I am trying to reconcile my value estimate with their comments that this is a fair value under the forward curve. In my simplistic model, I assumed hydro generates the same CFs post-PPA while everything else goes to 0 after their PPA expiries, then IRR'd everything back to today. On balance, I figured these assumptions were quite conservative.

 

Anyway, it's still shocking they did not conduct a full+formal marketing process. It is ironic they talked about how they got good prices on those biomass plants because they proactively went to sellers who weren't conducting full auctions.

 

I thought the converts meeting was delayed and approval was received for the MTNs.

 

Delaying the converts meeting may have always been the plan. It certainly scared some holders out (perhaps rightfully so) like divestor.com and widened the spread just as proxies were arriving in the mail. There was also, the possibility once the MTN and convert approvals were received, that would be the ideal time for institutional holders to ask for a bump with less risk.

 

We must also assume, they will delay the April 7 meetings if they don’t have enough votes by then as well and if necessary restrike the record date. Existing holders might be more incentivized to vote yes given the big spread vs those who sold and moved on.

[ander]

Mis-typed. Yes the Debentureholders (not the MTNs).

 

I'm assuming they can only adjourn and seek votes, if enough shareholders have voted yes to the 3rd question re: adjournment proposal. Is that your reading as well?

 

If you vote "no" to that, presumable you are willing to walk from the deal (or I-Squared has to come up with a higher number).

 

 

Nelg - apologies I just noticed this message.

 

In my initial model, I actually assumed no re-contracting on any of the assets (highly conservative!) with the exception of Curtis Palmer. For Curtis Palmer I had assumed 40% of current EBITDA.

 

Based on the projections that have been outlined in the Proxy (I would take a look at those), there seems to be even additional upside than what I had modeled (the proxy breaks it down by category - and knowing the expiries of the PPA's you can also infer which plants they think will be renewed).

 

Interesting the MTNs meeting is now adjourned for April 7th as well. Looks like the probability of the deal getting voted down at this price level is increasing.

 

Ander, can you share a summary of your asset build-up model, with details on how you treated PPA re-contracting and electricity prices?

 

I understand their argument that the forward curve prices are down, but I am trying to reconcile my value estimate with their comments that this is a fair value under the forward curve. In my simplistic model, I assumed hydro generates the same CFs post-PPA while everything else goes to 0 after their PPA expiries, then IRR'd everything back to today. On balance, I figured these assumptions were quite conservative.

 

Anyway, it's still shocking they did not conduct a full+formal marketing process. It is ironic they talked about how they got good prices on those biomass plants because they proactively went to sellers who weren't conducting full auctions.

 

I thought the converts meeting was delayed and approval was received for the MTNs.

 

Delaying the converts meeting may have always been the plan. It certainly scared some holders out (perhaps rightfully so) like divestor.com and widened the spread just as proxies were arriving in the mail. There was also, the possibility once the MTN and convert approvals were received, that would be the ideal time for institutional holders to ask for a bump with less risk.

 

We must also assume, they will delay the April 7 meetings if they don’t have enough votes by then as well and if necessary restrike the record date. Existing holders might be more incentivized to vote yes given the big spread vs those who sold and moved on.

[SafetyinNumbers]

I don’t think they need that third point to delay the meeting before it’s held. I assume that’s if they don’t have enough votes cast to constitute a quorum but I’m not 100% sure.

[wisowis]

Random thoughts since I've been thinking about this one with the increased spread. Honestly I thought it is a guaranteed approval by shareholders, as it was a big premium to where the prefs and commons have been trading for a long, long time. There are also no large shareholders to make a fuss, in contrast to the Great Canadian Gaming takeover, where a few large shareholders even came on the conference call and vented about the takeover price. After all that huffing and puffing by them (that the continue was worth double than what Apollo was offering to pay), they still voted pro-deal after a small bump.

 

Looking at a chart of the debentures, you can't even tell on their chart when the deal was announced. They really aren't getting anything, other than early redemption? The takeover price on the commons is also only ~10% less than the strike price of their debentures. (~$3.78 CAD vs. $4.20 CAD). So if they vote it down, worst case is they keep clipping their 6% coupon until 2025, best case is there is a new offer where the price is above their strike...right?

 

The other thing that is odd about the debentures: the daily volume on these has skyrocketed since March 3rd. Seems unusual that anyone would dump them -- and who is accumulating? There's no associated increase in volume of the commons, it seems to be specific to the debs.

[SafetyinNumbers]

Random thoughts since I've been thinking about this one with the increased spread. Honestly I thought it is a guaranteed approval by shareholders, as it was a big premium to where the prefs and commons have been trading for a long, long time. There are also no large shareholders to make a fuss, in contrast to the Great Canadian Gaming takeover, where a few large shareholders even came on the conference call and vented about the takeover price. After all that huffing and puffing by them (that the continue was worth double than what Apollo was offering to pay), they still voted pro-deal after a small bump.

 

Looking at a chart of the debentures, you can't even tell on their chart when the deal was announced. They really aren't getting anything, other than early redemption? The takeover price on the commons is also only ~10% less than the strike price of their debentures. (~$3.78 CAD vs. $4.20 CAD). So if they vote it down, worst case is they keep clipping their 6% coupon until 2025, best case is there is a new offer where the price is above their strike...right?

 

The other thing that is odd about the debentures: the daily volume on these has skyrocketed since March 3rd. Seems unusual that anyone would dump them -- and who is accumulating? There's no associated increase in volume of the commons, it seems to be specific to the debs.

 

The debentures are probably the safest place to squeeze for an extra payment. Their make whole premium goes down quickly with time so it’s an interesting calculation.

 

I would think a 5 point bump would get it done with 19% already locked up but it depends on how big the opposition is I suppose. 5 points would cost less than US$5m which is not much on the size of the whole deal. Probably worth it to iSquared.

 

For the recent buyers 5+ points up vs 2 points down on a break is a pretty good risk reward. The sellers are probably just looking for liquidity given its trading tight to the existing deal.

 

 

[wisowis]

They amended their proxy: https://investors.atlanticpower.com/download/ATP+Supplement+to+Definitive+Proxy+Statement_2021.03.29.pdf

- Iterate that their dealings with the Substantial Holder [of debs and MTNs] didn't influence the offer price for commons/prefs.
- Explicitly state fees paid to advisor
- Add table for financial estimates up to 2029 provided to advisor.

Sasha posted a comment on his blog that this is a red flag and reduces his estimated probability that the takeover is successful. I don't think I agree -- seems more like they are clarifying information from questions from shareholders, for the best chance that the takeover is successful.

Thoughts?

[SafetyinNumbers]

I think the odds on a break and especially a break on April 7 are estimated too high by the market.

Presumably, if they don’t have the votes on any of the securities on April 7, won’t they just extend the timeline? They don’t have all of the regulatory approvals do they?

If they do need to bump, how much would it cost? US$5m for each security would probably do the trick, if necessary, in my view. Is less than 2% more consideration enough to walk?

[SafetyinNumbers]

ATP announced FERC approval and didn’t delay any of the votes yet. 

Last time they delayed the convert meeting, it was after the close two days before (would be tonight). Still could happen but seems less likely which implies to me they have the votes. We will find out soon enough. The spread has been cut in half since March 23 to 4%.

The deal could close pretty quickly if they get the votes as everything else seems customary. 
 

https://www.newswire.ca/news-releases/atlantic-power-corporation-announces-authorization-of-i-squared-transaction-by-federal-energy-regulatory-commission-804866438.html

[wisowis]

Quote

 

Atlantic Power Announces Common and Preferred Shareholder Approval of I Squared Transaction DEDHAM,

MASSACHUSETTS – April 7, 2021 – Atlantic Power Corporation (NYSE: AT) (TSX: ATP) (“Atlantic Power” or the “Company”) announced that, at today’s special meetings of common shareholders (“Common Shareholders”) of Atlantic Power and preferred shareholders (“Preferred Shareholders”) of Atlantic Power Preferred Equity Ltd. (“APPEL”), shareholders voted to approve the previously announced proposed transaction among Atlantic Power, APPEL, Atlantic Power Limited Partnership and certain affiliates (collectively the “Purchasers”) of infrastructure funds managed by I Squared Capital Advisors (US) LLC (the “Transaction”). Upon closing of the Transaction, all of the common shares of Atlantic Power (“Common Shares”) will be acquired for US$3.03 in cash per Common Share (less applicable withholdings) and all of the preferred shares of APPEL (“Preferred Shares”) will be acquired for C$22.00 in cash per Preferred Share (less applicable withholdings).

The Transaction was approved by approximately 87% of the votes cast by Common Shareholders (in excess of the required percentage of votes cast of 662/3%) and approximately 74% of the votes cast by Preferred Shareholders (in excess of the required percentage of votes cast of 662/3%). In addition, approximately 78% of the votes cast by Preferred Shareholders were voted in favor of the proposed continuance of APPEL under the laws of the Province of British Columbia (in excess of the required percentage of votes cast of 662/3%). Additional details regarding the voting results from the meetings will be filed on SEDAR and EDGAR.

Atlantic Power also announced today that the parties intend to close the Transaction without the approval of the holders of the Company’s 6.00% Series E convertible unsecured subordinated debentures due January 31, 2025 (the “Convertible Debentures”) since less than two-thirds of the votes cast to date by holders of Convertible Debentures have been in favor of the Transaction. Atlantic Power and the Purchasers are currently working though the steps required to close the Transaction without the approval of holders of Convertible Debentures, while still offering the benefit of the “make whole premium” contemplated by the indenture governing the Convertible Debentures. Additional details will be provided once these steps are substantially finalized.

In the interim, Atlantic Power, with the consent of the Purchasers, is adjourning the meeting of holders of its Convertible Debentures (the “Debentureholder Meeting”) currently scheduled to be held at 12:00 p.m. (Toronto time) on April 7, 2021 until 10:00 a.m. (Toronto time) on April 15, 2021. Holders of Convertible Debentures are urged to submit their proxies or voting instructions well in advance of the revised proxy cutoff time of 10:00 a.m. (Toronto time) on April 13, 2021. Unless a sufficient number of Convertible Debentures are voted in favor of the Transaction as currently structured, it is expected that the adjourned Debentureholder Meeting will be cancelled and the condition precedent to the Transaction that the holders of the Convertible Debentures approve the Transaction will be mutually waived.

At this time, the Transaction remains subject to the satisfaction or waiver of certain conditions, including court approval of the Transaction, certain remaining regulatory approvals and third-party consents, approval of the Transaction by holders of Convertible Debentures, and other customary closing conditions. As previously disclosed, the Transaction has already received certain required regulatory approvals, including an advance ruling certificate from the Canadian Commissioner of Competition under the Competition Act (Canada) on February 5, 2021, the expiration of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on March 9, 2021, and the approval of the Federal Energy Regulatory Commission on April 2, 2021. The parties currently expect to close the Transaction in the second quarter of 2021

 

 

[wisowis]

So they're going to "defease" the debs, and hope to close the transaction on May 14.

I picked up a bunch of shares earlier this month (with my CAD on the TSX), but the strength of the CAD has really eaten into the takeover offer (in CAD terms). Whoops.

 

Quote

Atlantic Power Announces Cancellation of Convertible Debentureholder Meeting and Intention to Defease Convertible Debentures DEDHAM, MASSACHUSETTS – April 29, 2021 – Atlantic Power Corporation (NYSE: AT) (TSX: ATP) (“Atlantic Power” or the “Company”) announced today that it has cancelled the meeting of holders of its 6.00% Series E convertible unsecured subordinated debentures due January 31, 2025 (the “Convertible Debentures”) scheduled to be held on April 29, 2021 to consider the previously announced proposed transaction among Atlantic Power, Atlantic Power Preferred Equity Ltd., Atlantic Power Limited Partnership and certain affiliates (collectively the “Purchasers”) of infrastructure funds managed by I Squared Capital Advisors (US) LLC (the “Transaction”). The meeting was cancelled with the consent of the Purchasers and the parties have mutually waived the condition precedent to the Transaction that the holders of the Convertible Debentures approve the Transaction. The parties are currently targeting May 14, 2021 as the closing date for the Transaction

 

[ander]

Has anyone looked into, if transaction closes on May 14th, when does the common get tendered in the U.S. -- or the mechanics / timing?

[wisowis]

Deal closed today: https://investors.atlanticpower.com/Acquisition-by-I-Squared-Capital

Quote

DEDHAM, Mass., May 14, 2021 – Atlantic Power Corporation (NYSE: AT) (TSX: ATP) (“Atlantic Power”), announced today the closing (“Closing”) of its previously announced transaction with affiliates of infrastructure funds managed by I Squared Capital Advisors (US) LLC (the “Transaction”).

Thanks for all the discussion and congratulations everyone.