NextEnergy Solar issues preference shares – NextEnergy Solar fund (NESF) has announced that it has entered into a conditional subscription agreement with AIP Solco Limited, who have agreed to subscribe to new non-voting Preference Shares of NextEnergy Solar.
AIP Solco Limited
AIP Solco Limited is a wholly owned subsidiary of AIP Infrastructure LP, an investment vehicle backed by three BAE Systems pension schemes and managed by Arjun Infrastructure Partners,
NextEnergy Solar issues preference shares
AIP Solco had conditionally agreed to subscribe £100.om for 100.0m new non-voting Preference Shares to be issued by NextEnergy Solar.
The Preference Shares will carry a preferred right to dividends, at a rate of 4.75%, and to capital in a liquidation.
From 1 April 2036, the holders of the Preference Shares will have rights to convert all or some of their Preference Shares into either ordinary shares of no par value in the capital of NextEnergy Solar in Ordinary Shares or a new class of unlisted B shares, with the B shares carrying rights to dividends and capital in a liquidation that are pari passu with those of the Ordinary Shares.
In parallel, the Company will have the right, at its sole discretion, to redeem the Preference Shares at nominal value in part or whole, at any time starting from 1 April 2030, 6 years prior to the conversion rights awarded to the Preference Shareholders becoming exercisable.
The entitlements of the Preference Shares to Ordinary Shares and / or B shares upon conversion will be calculated by reference to the NAV of the Ordinary Shares and the issue price of the Preference Shares respectively as at the date of conversion.
While NextEnergy Solar will initially raise £100,000,000 from the Subscription, it is seeking authority to issue up to 200,000,000 Preference Shares in total.
Why are NextEnergy Solar issuing preference shares?
Two related reasons:
- to reduce the cost of the company’s current total debt outstanding of £365m representing 38% of the Company’s gross asset value.
- sure up the capital structure of the business
Changes to the investment policy
NextEnergy Solar’s existing investment policy includes limitations on the use of leverage.
In recognition of the priority of payment (in relation to dividends and assets in a liquidation) given to the holders of Preference Shares, it is proposed to amend the Investment Policy in order to include Preference Shares in the calculation of the 50% leverage limit over the company’s gross asset value.
The board of NextEnergy Solar believes this will bring the following benefits to shareholders:
- allows the Company to optimise its capital structure and increase the dividend cover and equity returns for its Ordinary Shareholders.
- an efficient source of funding compared to debt and equity alternatives available to the Company.
- the subsequent issues of up to 100.0m preference shares may take place (assuming the resolutions are passed) and these may repay further debt facilities or finance new investments consistent with the company’s investment policy, thus optimising further the company’s capital structure to the benefit of ordinary shareholders.
- the company intends to issue the balance of the Preference Shares within 12 months of the subscription and expects to carry out a further issue before the end of the calendar year.
- the application of proceeds of Preference Shares issued to the financing of a typical UK solar PV investment of the company is expected to enhance the average dividend cover for Ordinary Shareholders by 0.12x and increase levered IRR by 0.75%.
- For comparison, an issuance of long-term debt financing at current best market terms would have an impact of 0.03x and 0.64% respectively and imply significant restrictive debt covenants.
- the option to redeem Preference Shares at the sole discretion of the company is valuable for ordinary shareholders:
- should more competitive sources of capital become available, the company may issue new capital (debt or equity) to fund the redemption.
- the proceeds of the subscription will be promptly applied to repay existing long-term project financing facilities, thereby generating cash savings starting in the current financial year.
- Should the company repay £162m of debt financing through issuance of Preference Shares, the total debt outstanding would reduce from 38% to 21% of Gross Asset Value.
- in net present value terms, the proposed Subscription of £100m of Preference Shares would generate cash savings of £34.0m compared to issuing Ordinary Shares and lower total dividend cost of the Preference Shares over the period to 31 March 2036 (under current 2.75% long term RPI estimates and using the Company’s unlevered discount rate of 6.75%).
NESF : NextEnergy Solar issues preference shares