​AltaGas selling $920 million in ‘crown jewel’ B.C. hydro facilities stake to help fund WGL acquisition

The 195-megawatt Forrest Kerr Hydroelectric Facility is one of three subject to the transaction. Image: AltaGas

AltaGas is selling 35 percent of its interest in hydro electric facilities in northwest B.C. for total proceeds of $922 million.

The deal is part of the company’s asset monetization and funding strategy to pay for its $8.4 billion acquisition of American utility WGL Holdings. AltaGas will remain the majority owner and operator of the B.C. facilities.

Located in Tahltan First Nation territory, the facilities are comprised of the 195-megawatt Forrest Kerr Hydroelectric Facility, the 16-megawatt Volcano Creek Hydroelectric Facility, and the 66-megawatt McLymont Creek Hydroelectric Facility. The Facilities had a total capital cost of approximately $1 billion, and are underpinned by 60-year electricity purchase agreements with BC Hydro.

The $922 million transaction price is “significantly above” expectations, analysts with GMP FirstEnergy said on Wednesday.

“We had previously expected proceeds from this asset sale to be in the range of $860 million to $1,100 million, but our assumption was the sale of a 49% stake at 15-20x EBITDA,” GMP FirstEnergy’s Ian Gillies wrote in a research note.

“Though the Northwest hydro assets are considered crown jewels given the strength in cash flows received by the underpinning 60-year power purchase agreements, we believe the attractive price and AltaGas’ ability to maintain majority ownership is positive for the company…AltaGas is now nearly halfway to its $2.0 billion non-core asset sales target to fund the WGL acquisition, with the remaining asset sales expected to be announced in 2018.”

Gillies added that, “despite our positive view on the sale price, we expect there to be some consternation around whether selling a minority interest in a high free cash flow asset for a U.S. utility is the right decision over the long term.”

The minority stake in these assets is being purchased by a joint venture company that is indirectly owned by Axium Infrastructure Inc.and Manulife Financial Corporation.