NextEnergy issues more preference shares – NextEnergy Solar Fund has entered into an agreement with an investment vehicle owned by Universities Superannuation Scheme, whereby 100,000,000 preference shares will be issued, raising gross proceeds of GBP100m. The net proceeds will be used to repay the existing GBP90m short-term debt facilities and invest in NextEnergy’s pipeline of opportunities.
The rights of the new preference shares are the same as those issued in November 2018, but come with some additional undertakings and covenants.
The board believes that the principal benefits of the Issue are:
- the subscription proceeds will be applied promptly to repay existing short-term debt facilities (GBP90m due in February 2020 and July 2020), removing any short-term refinancing risk, with the balance of the net Issue proceeds being available to invest in pipeline opportunities, most of which are subsidy free;
- the fixed preferred dividend of 4.75 pence per preference share is a lower annual cash cost to the company compared to issuing ordinary shares (2019/20 target dividend of 6.87 pence per ordinary share, expected to increase with RPI annually);
- the Issue allows the company to further optimise its capital structure and increase cash flows compared to refinancing with conventional long-term amortising financing, thereby increasing the cash dividend cover and increasing the levered IRR for ordinary shareholders;
- the company has an unilateral option to redeem all or part of the preference shares at any point after 1 April 2030; and
- the preference shares are not redeemable for cash by USS, other than in the event of a change in control or delisting of the company.
The following is a summary of the key terms of the subscription agreement:
- the gearing ratios (calculated on the basis of Gross Asset Value (“GAV”) and Enterprise Value (“EV”) of the Company in accordance with the Subscription Agreement) will not exceed 50 per cent and that the company will not issue any further preference shares or incur any further borrowings where such issue and/or borrowings would result in these ratios being exceeded;
- the company has granted the Investor certain protective covenants with respect to the undertaking of share buybacks or declaration of dividends payable to the ordinary shares, in particular in circumstances where the relevant gearing ratio would exceed 70 per cent or, following the preference shares becoming convertible in April 2036, 50 per cent in circumstances when the ordinary shares are trading at a discount to NAV over a six month period and, despite the Investor obtaining an independent valuation demonstrating a lower than published NAV, the company has not taken steps to adjust its NAV;
- the EV gearing ratio is not applicable until April 2030 or if the ordinary shares have traded at an average discount of more than 10 per cent in the preceding three months from April 2025;
- In addition to voting rights relating to any changes to the company’s investment policy, certain adjustments will be made to the calculation of the gearing ratios in the event of the company increasing its exposure to non-solar PV assets and any integrated ancillary technologies and/or non UK and OECD market risks have also been provided to the investor.
- In addition, to the extent the company seeks external third party debt funding on certain terms, the investor will have the right to match these financing terms, subject to the conditions and criteria set out under the agreement.
NESF : NextEnergy issues more preference shares
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