Ecofin US Renewables Infrastructure (RNEW) has announced that it has concluded its strategic review which was launched just over a year ago. As part of the review, RNEW appointed Marathon Capital to undertake a process focused on a sale of all its assets and an extensive marketing exercise was undertaken. However, RNEW says that no buyer was identified for its entire portfolio on acceptable terms and, following careful consideration of the options available, the Board now believes a managed wind down is in shareholders’ best interests. [QD comment: It maybe that some buyers did not want to commit before the results of the US elections are known, given the very different standpoints on renewables subsidies adopted by Trump and Harris. The rise in discount rates may seem at odds with the general trend towards falling rates in the US but it maybe that when sales are concluded that these are a premium to the valuations in the most recent NAV – see below.]
Under the managed wind down, RNEW’s Board “will seek to implement an incremental sales programme” in an orderly manner. It plans to repay borrowings first and then return capital to shareholders, while also aiming to obtain the best available for the assets at the time of their realisations. Later this month, RNEW expects to publish its half-year report for the six months ended 30 June 2024. These are being prepared on a going concern basis, notwithstanding the plan to implement the managed wind down. With the conclusion of the strategic review, Louisa Vincent has decided to step down from the Board with effect from 31 October 2024.
RNEW says that a circular will be prepared for shareholders seeking approval for the managed wind down, which will require an amendment to the existing investment policy. RNEW says that the first sale of assets is already progressing and, assuming a transaction is agreed, will be announced in due course but will be subject to shareholders approving the managed wind down. RNEW intends to maintain its investment trust status and listing during the wind down process. This will allow shareholders to continue to trade the company’s shares.
Dividend suspended in anticipation of future capital returns
RNEW’s Board has decided not to declare a dividend for the second quarter of 2024 and, instead, to focus trust’s cash-flows towards the repayment of borrowings, in anticipation of future returns of capital to shareholders. RNEW will not make any new investments save that investments may be made in existing portfolio companies when considered appropriate to maximise value for shareholders.
Net Asset Value
RNEW has also announced that its unaudited net asset value (NAV) as at 30 June 2024 on a cum-income basis was $0.6503 per Ordinary Share (31 March 2024: $0.7937) or US$89.8m (31 March 2024: US$109.6m).
The contributors to the changes in NAV were:
- a US$17.8m decrease ($0.1291 per share) in the fair market value (FMV) of investments, principally due to a 1.1% increase in discount rates, as well as updates in forecast assumptions and quarterly roll-off of cash flows;
- a US$1.7m decrease ($0.0123 per share) due to an increase in the deferred tax accrual, resulting from the decrease in FMV and the Company’s ability to use tax attributes; and
- a US$0.3m decrease ($0.0020 per share) in cash and accrued financial assets, primarily driven by lower-than-expected energy production and revenue accrual relating to temporarily lower availability and corrective maintenance actions at various sites, fund expenses, and interest expense on the Company’s Revolving Credit Facility.
RNEW says that the weighted average pre-tax discount rate used by its independent valuation service provider, Marshall & Stevens Inc (M&S), to determine the FMV of investments was 8.51% unlevered. The increase in the discount rate was based on M&S’s assessment of: comparable data; sales multiples of recent M&A transactions; and current illiquidity in the M&A marketplace.
