•The acquisition of Shear Wind by Sprott Power (the "Acquisition") includes two operating assets representing a combined capacity of 63.7 megawatts ("MW"), including the 62.1 MW Glen Dhu asset (the largest wind farm in Nova Scotia)
•80% increase in gross operating assets under Sprott Power management
•Strategic partnerships between Sprott Power and each of Wind Canada Investments and Genera Avante Holdings Canada Inc. ("GAHC"), both subsidiaries of Genera Avante S.L. ("Genera Avante"), with respect to development assets with a potential capacity of over 860 MW and operating assets with power purchase agreements ("PPAs") with Nova Scotia Power Inc. ("NSPI")
•Accretive to free cash flow per Sprott Power share
•Shareholders representing 74% of Shear Wind's shares outstanding have entered into voting support agreements
•Sprott Power entering into $30 million bought deal financing of extendible convertible unsecured subordinated debentures to partially fund the Acquisition
Sprott Power Corp. (TSX: SPZ) ("Sprott Power"), Wind Canada Investments Ltd. ("Wind Canada Investments") and Shear Wind Inc. (TSXV: SWX) ("Shear Wind") are pleased to announce that they have entered into an Arrangement Agreement (the "Agreement") pursuant to which Sprott Power will acquire all of the issued and outstanding shares of Shear Wind (the "Shear Wind Shares"). Pursuant to the Agreement, Sprott Power will acquire each Shear Wind Share for cash consideration of $0.2213, which represents a premium to the 20-day volume-weighted trading price of approximately 20%, corresponding to an aggregate purchase price (the "Purchase Price") of approximately $33 million, as may be adjusted and as further detailed below.
Shear Wind owns a portfolio of operating and development assets in Canada. The operating assets are located in Nova Scotia and have a combined installed capacity of 63.7 MW. They are comprised of a 51% interest in Glen Dhu Wind Energy Limited Partnership ("Glen Dhu LP"), which operates the Glen Dhu wind farm ("Glen Dhu") and has a 20-year PPA with NSPI, and a 100% interest in Fitzpatrick Mountain Wind Energy Inc. ("Fitzpatrick"), which operates the Fitzpatrick Mountain wind farm ("Fitzpatrick Mountain") and has a 15-year PPA with NSPI (collectively, the "Operating Facilities"). The development assets portfolio is comprised of wind projects in various stages of development having a potential aggregate installed capacity of over 860 MW (collectively, the "Prospective Projects").
In connection with the Acquisition, Sprott Power has entered into working agreements with GAHC and Wind Canada Investments pursuant to which, following the closing of the Acquisition, Sprott Power and GAHC will complete an operating joint venture for the Operating Facilities and Sprott Power and Wind Canada Investments will complete a development joint venture for the Prospective Projects. GAHC currently directly owns the remaining 49% of Glen Dhu LP.
Immediately following the Acquisition, GAHC and Wind Canada Investments will make a cash payment of approximately $1.8 million to Sprott Power to increase GAHC's ownership of Glen Dhu LP by 2% (to a total of 51%) and to purchase a 50% interest in Fitzpatrick, resulting in Sprott Power holding a 49% ownership interest in Glen Dhu LP and a 50% ownership interest in Fitzpatrick, in each case indirectly through SP Operating Limited Partnership. In addition, Sprott Power, indirectly through SP Development Limited Partnership, and Wind Canada Investments will enter into a new 50/50 joint development limited partnership for the Prospective Projects.
"The acquisition will increase the assets of Sprott Power from a portfolio including 80 MW currently operating or under construction to 144 MW operating under management when the expected mid October closing occurs", states Mr. Jeff Jenner, President and Chief Executive Officer of Sprott Power. "Shear Wind's development pipeline is also attractive, given its size and location throughout Canada. We look forward to working together with Genera Avante, whose knowledge and expertise from their other projects around the world will make them valuable partners. "
The board of directors of Shear Wind, based on the recommendation of its special committee, unanimously determined that the Acquisition is in the best interests of Shear Wind and recommends that Shear Wind shareholders vote in favour of the Acquisition. Shareholders, including certain directors and officers of Shear Wind, representing 74% of Shear Wind Shares (including minority shareholders representing 24% of the Shear Wind Shares held by minority shareholders) have entered into voting support agreements whereby they have agreed to, among other things, vote in favour of the Acquisition.
Acquisition Enterprise Value
The Acquisition places a value on the Shear Wind enterprise of approximately $79 million. In addition to the approximately $33 million consideration for the Shear Wind Shares, Sprott Power is assuming approximately $51 million in debt (its share of Glen Dhu LP's long-term debt), offset by approximately $5 million in cash-on-hand following certain adjustments.
Key Attributes of the Transaction
Operating Facilities with long term PPAs
Supported by a 20-year PPA and a 15-year PPA with NSPI, respectively, the Glen Dhu and Fitzpatrick Mountain Operating Facilities have a combined installed capacity of 63.7 MW. Glen Dhu is the largest wind farm in Nova Scotia. It was commissioned in 2011, has 19 years left on its PPA, and has a gross operating MW capacity of 62.1 MW. Fitzpatrick Mountain was commissioned in 2007, has eight years left on its PPA, and has a gross operating MW capacity of 1.6 MW.
Expected to provide meaningful synergies between Sprott Power and Shear Wind
Glen Dhu and Fitzpatrick Mountain are within a two hour drive from Sprott Power's Amherst wind farm ("Amherst") in Nova Scotia. This should allow for operational efficiencies and cost savings for Sprott Power. Sprott Power's increased operating base will also benefit from reduced corporate overhead and the operating expertise of Sprott Power's management.
Accretive to distributable cash per share
The Acquisition is expected to be accretive to Sprott Power's distributable cash per share, given the historical and expected free cash flow generated by Shear Wind's Operating Facilities.
Low cost, long-term financing
The total debt that Sprott Power is assuming in the Acquisition is its 49% share of debt in Glen Dhu LP, which as at March 31, 2012, had a balance of approximately $103.7 million (Sprott Power's share would be approximately $50.8 million). This debt currently has an effective interest rate of approximately 6.0% per annum. The loan has principal and interest payments, with the last payment expected in 2029.
Prospective Projects
The Prospective Projects represent a potential aggregate installed capacity in excess of 860 MW of wind projects located throughout Alberta, Saskatchewan, Nova Scotia and New Brunswick at various stages of development. Shear Wind currently owns 100% of the Prospective Projects, but immediately following the Acquisition, these assets and the current loan payable to Wind Canada Investments will be transferred into the new 50/50 joint development limited partnership. Going forward, Sprott Power will fund its contributions to the joint venture through management, the funding of development costs and potential success fees.
Willow Ridge Sale
Willow Ridge is a Prospective Project (the "Willow Ridge Project") currently owned by Shear Wind that may be sold. If the Willow Ridge Project is sold prior to completion of the Acquisition, the Shear Wind shareholders will be entitled to the net cash consideration of the sale of the Willow Ridge Project (less all taxes, costs and expenses) divided by the aggregate number of Shear Wind Shares issued and outstanding. If the Willow Ridge Project is not sold prior to completion of the Acquisition, the Shear Wind shareholders will be entitled to (i) the sum of the amount of any non-refundable cash deposit received by Shear Wind from any potential purchaser of the Willow Ridge Project, and the remaining cash deposit made by Shear Wind in connection with the Willow Ridge Project, (ii) less all taxes, costs and expenses; divided by the aggregate number of Shear Wind Shares issued and outstanding.
Bought Deal Financing of Extendible Convertible Unsecured Subordinated Debentures
In conjunction with the Acquisition, Sprott Power is pleased to announce that, to partially finance the Acquisition, it has entered into an agreement to sell on a bought deal basis (the "Offering"), to a syndicate of underwriters led by Canaccord Genuity Corp. and including TD Securities Inc., National Bank Financial Inc., NCP Northland Capital Partners Inc., Stifel Nicolaus Weisel and Macquarie Capital Markets Canada Ltd. (collectively, the "Underwriters"), $30,000,000 aggregate principal amount of extendible convertible unsecured subordinated debentures (the "Debentures"). It has also granted the Underwriters an option, exercisable in whole or in part at any time up to 30 days following closing of the Offering, to purchase up to an additional $4,500,000 aggregate principal amount of Debentures on the same terms.
The Debentures will have an initial maturity date of October 15, 2012, extendable at Sprott Power's option to December 31, 2012 (the "Initial Maturity Date"), which will automatically be extended to December 31, 2017 (the "Final Maturity Date") upon completion of the Acquisition. If the Acquisition does not close on or prior to 5:00 p.m. (Toronto time) on the Initial Maturity Date, or the Agreement is terminated at any earlier time (in any case, the "Termination Date"), the maturity date of the Debentures will remain as the Initial Maturity Date and, upon maturity, holders thereof will receive the full amount paid for their Debentures, plus accrued and unpaid interest thereon.
The Debentures will have an interest rate of 6.75% per annum payable semi-annually in arrears on June 30 and December 31 in each year, with the first coupon paid December 31, 2012. Each $1,000 principal amount of Debentures will be convertible into approximately 769.23 common shares of Sprott Power at any time following the Acquisition, at the option of the holder, representing a conversion price of $1.30 per share (the "Conversion Price").
The Debentures will not be redeemable before December 31, 2015. Subject to automatic extension, on or after December 31, 2015 and prior to December 31, 2016, Sprott Power may, at its option, redeem the Debentures at par plus accrued and unpaid interest, provided that the weighted average trading price for the Sprott Power Shares on the Toronto Stock Exchange (the "TSX") for the 20 consecutive trading days ending five trading days prior to the applicable date (the "Current Market Price") is not less than 125% of the Conversion Price. From December 31, 2016, the Debentures will be redeemable at Sprott Power's option at any time at par plus accrued and unpaid interest.
In the event that automatic extension has occurred, Sprott Power has the option, subject to regulatory approval, to satisfy its obligations to repay the principal amount of the Debentures upon redemption or at maturity on the Final Maturity Date, provided no event of default has occurred, by issuing that number of Sprott Power Shares obtained by dividing the principal amount of the Debentures by 95% of the Current Market Price.
Upon the occurrence of a change of control, Sprott Power will be required to make an offer to purchase, within 30 days of the change of control, all of the Debentures at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest. Subject to regulatory approval, in the event of certain types of changes of control, holders of the Debentures may elect to convert their Debentures and receive, in addition to the number of Sprott Power Shares they otherwise would have been entitled to under conversion, an additional number of Sprott Power Shares to be set out in the debenture indenture governing the Debentures. If 90% or more of the aggregate principal amount of the Debentures outstanding upon the occurrence of a change of control have been tendered to Sprott Power pursuant to an offer made to the holders of all Debentures, Sprott Power will have the right to redeem all the remaining Debentures at the same price.
The debenture indenture governing the Debentures will contain certain customary events of default and covenants.
A preliminary short form prospectus qualifying the distribution of the Debentures will be filed with securities regulatory authorities in all provinces of Canada, other than Québec.
Completion of the Offering is anticipated to occur on or about August 28, 2012, and is subject to the satisfaction or waiver of various conditions, such as the receipt of normal regulatory approvals, including approval of the TSX.
Closing Date and Conditions to Closing
The Acquisition is expected to proceed as a plan of arrangement under the Canada Business Corporations Act and to close in mid-October 2012. The Acquisition has been unanimously approved by the Board of Directors of Sprott Power and Shear Wind and is subject to approval by Shear Wind shareholders, including approval of the minority shareholders (excluding Wind Canada Investments) in accordance with Multilateral Instrument 61-101 and the policies of the TSX Venture Exchange (the "TSX-V"), and other customary conditions, including court approvals and the receipt of all necessary regulatory approvals (including the TSX and TSX-V).
