Juno Beach, Fla.-based NextEra Energy Partners announced Monday that it agreed to buy Meade Pipeline Co. from Cabot Oil & Gas, AltaGas, Ares EIF and Vega Energy for $1.37 billion, with Texas lawyers from two firms playing a part.
Locke Lord counseled NextEra, including Houston partners Bill Swanstrom, Eric Larson and Brandon Renken and associate Jennie Simmons.
NextEra’s in-house legal team included NextEra Energy Inc. general counsel Charles Sieving and NextEra Energy Resources general counsel Mitch Ross and senior attorneys Barry Levinson and Bobbie King.
Orrick represented the sellers, including partner Brad Gathright and associate Grace Lentz along with litigation partner Jeffrey Johnson and senior career associate Chris Richart. The Houston team had help on tax matters from the firm’s New York office and regulatory issues from its Washington, D.C., office.
Wells Fargo advised NextEra, including Hugh Babowal, Eric Fornell and Aaron Smith, and BMO Capital Markets assisted the sellers, including Christopher Dopp and Gregg Warren in Houston.
The deal includes around $90 million in capital contributions through 2022 related to the pipeline’s expansion.
The purchase price works out to 13.1 times this year’s EBITDA, which is in-line with recent long-haul transactions but variances exist in counterparty credit quality, analysts at Tudor, Pickering, Holt said in a note.
Meade Pipeline holds a 39% stake in the Central Penn Line, a 185-mile intrastate natural gas pipeline in Pennsylvania that’s 61% owned by Williams Cos. It’s part of a pipeline system that’s regulated by the Federal Energy Regulatory Commission that moves natural gas in Appalachia’s Marcellus Shale region to the mid-Atlantic and southeastern regions of the U.S.
The pipeline has the capacity to transport and deliver up to 1.7 billion cubic feet of natural gas per day. It’s backed by a minimum 14-year contract with an investment-grade-equivalent customer.
The Marcellus has long been known as lacking pipeline capacity to carry natural gas to where it’s needed, which has led some producers to flare it.
NextEra Energy Inc. chairman and CEO Jim Robo said in a statement that the deal further expands the partnership’s investment in long-term contracted natural gas pipelines, which will help mitigate potential resource volatility in the portfolio. He said Meade is expected to yield a double-digit return to NextEra’s unit holders and generate a cash-available-for-distribution yield of around 14%.
“This is NextEra Energy Partners’ second third-party acquisition, which helps extend the partnership’s best-in-class long-term growth visibility and further strengthen its investor value proposition,” he said, adding that the deal removes the need for additional asset acquisitions until 2021.
NextEra plans to finance the initial purchase price with $820 million in partially amortizing project finance debt, including $760 million related to the operating project and a $60 million draw of the expansion project debt facility.
NextEra also entered into an agreement for a roughly $170 million convertible equity portfolio financing with BlackRock Global Energy & Power Infrastructure, which will get an equity interest in the pipeline (that NextEra aims to buy back) and a 1% coupon over four years. The rest of the funding will come from debt capacity at NextEra’s holding company.
Management expects to fund the expansion with $160 million in project debt, including the $60 million draw that is expected at the transaction’s closing, which is in addition to the $760 million in project debt for the operating project. NextEra said it has firm commitments in place for all of the project debt.