GLO.L Regulatory News (GLO)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

7 December 2020

PROPOSED ACQUISITION OF CONTRACTED OPERATING POWER PLANTS IN THE UNITED STATES AND TRINIDAD AND TOBAGO

LOW CARBON ASSETS INCREASE, ENHANCE AND DIVERSIFY CONTOURGLOBAL'S CASH FLOWS AND DIVIDEND COVERAGE

ContourGlobal plc (the "Company" or "ContourGlobal") today announces that it has reached an agreement with Western Generation Partners, LLC ("WGP") to acquire a portfolio of natural gas-fired and Combined Heat and Power assets totalling 1,502 MW located in the US and Trinidad and Tobago (the "Acquired Assets") for $837 million on a debt free, cash free basis (the "Proposed Acquisition").

Key highlights

· The Acquired Assets:

o are attractive, low carbon, principally natural gas-fired, flexible assets located in or adjacent to areas where ContourGlobal has an operating presence;

o benefit from long-term USD-denominated contracts providing a high degree of visibility into the long-term earnings and cash flow outlook; and

o include a highly efficient Combined Heat and Power asset similar to those in the Company's existing Solutions portfolio, including the strategic assets recently acquired in Mexico, thereby leveraging operational and technological expertise.

· The expected Adjusted EBITDA contribution in the first year following completion of the Proposed Acquisition ("Closing") is $92 million, including $5 million of non-recurring integration costs. The expected cash distributions to the parent company in the first year are approximately $40 million.[1]

· The Proposed Acquisition:

o enhances and diversifies cash generation and distributions, further supporting the Company's commitment to grow its dividend by 10% per year;

o enables a substantial entry into the bilaterally contracted segment of the US power market where the company expects to grow with operationally led acquisitions

o adds two baseload power plants essential to their operating region within the Southwest Power Pool (Texas and New Mexico), two asset clusters in California and a small peaking unit in Connecticut;

o provides a significant opportunity for operationally led value creation;

o expands ContourGlobal's longstanding and growing presence in the Caribbean by adding the largest independent power asset in Trinidad and Tobago;

o offers meaningful development and expansion potential including battery storage and hybrid technology; and

o builds on ContourGlobal's established track record of acquiring contracted, low carbon generation assets and creating attractive risk-adjusted returns.

Joseph C. Brandt, President and CEO of ContourGlobal, commented:

"We are very pleased to announce the continued expansion of our Caribbean and Solutions businesses and the entry into the United States market with this acquisition of contracted combined heat and power and flexible natural gas assets. This transaction fits squarely into our strategic and financial approach to acquisitions, which seeks high quality growth through operationally led strategic acquisitions."

"We are materially increasing our Adjusted EBITDA and obtaining opportunities to further expand our presence in these key markets. Two of the three major assets are located in Texas and New Mexico in the US-Mexican integrated natural gas market and very close to our assets and operations in Mexico. The third major asset is located in the Caribbean region, an area where we have been an active operator and developer for a decade. The other assets provide critical flexible generation, supporting the transition to renewables in highly developed, constrained markets."

Strategic rationale

· Attractive, low carbon, natural gas-fired, flexible assets: The Acquired Assets are highly efficient thermal units and provide flexible generation, supporting the growth of renewable system capacity.

· Earnings and cash flow visibility with average weighted remaining contract life of 9 years and potential to extend: The Acquired Assets operate under long-term contracts denominated in USD with high quality off-takers with very limited demand or cost input risk, thereby providing a high degree of visibility into long-term earnings and cash flow outlook. The weighted average contract life is 9 years at inception, with visible re-contracting opportunities that are expected to be implemented post-Closing, extending the weighted average contracted life to over 10 years. In California, the assets have already locked in well priced resource adequacy contracts comparable or in excess to their PPAs and are supported by favorable long-term market fundamentals for natural gas peaking assets in the state.

· Material position in the US's attractive power generation market: The Proposed Acquisition increases ContourGlobal's installed capacity by nearly 30% and provides opportunities to further expand our presence in these key markets. It adds two substantial assets in the Southwest Power Pool (Texas and New Mexico), two clusters of flexible generation assets in California and a flexible generation asset in Connecticut. The assets are either the newest and most efficient assets in their respective markets or integral resources for ensuring reliability and supporting the transition to renewable grids. In all the markets the assets are expected to maintain their competitive positions given the lack of currently contemplated new build baseload capacity in each respective region.

· Adjacent to geographies where ContourGlobal is already active, enhancing operational and cost synergies: Two of the three major Acquired Assets are located in Texas and New Mexico in the US-Mexican integrated natural gas market and within close proximity to our strategic assets and operations in Mexico. The third major Acquired Asset is located in the Caribbean region, expanding ContourGlobal's longstanding presence. We plan to institute operational enhancement measures, preventative maintenance and operating regimes to drive top decile operating performance on par with our existing fleet

· Additional development opportunity in the US and Caribbean: The Proposed Acquisition provides significant future potential for ContourGlobal to create value as a result of its operational platform and capabilities, and the Company expects to further invest in the Acquired Assets and adjacent spaces for incremental commercial optimization, battery storage and hybrid deployment and repowering. 

Attractive financial investment

· Supports growing dividend: The Proposed Acquisition increases and diversifies the Company's cash flow, further supporting the Company's current dividend policy of 10% dividend growth year-on-year and enhancing the Company's dividend coverage.

· Diversifies Adjusted EBITDA contribution: The Proposed Acquisition increases the proportion of USD Adjusted EBITDA contribution to 36% of the total and further diversifies ContourGlobal's technology, currency and geographies.[2]

· Significantly increases Parent Company Free Cash Flow[3] from highly rated counterparties: Together, the Acquired Assets will provide a meaningful increase of CFADS[4] and Parent Company Free Cash Flow from high quality off-takers with a weighted average credit rating of BBB+.

· Generates attractive risk-adjusted return for shareholders: The Proposed Acquisition is expected to generate a risk-adjusted return well in excess of ContourGlobal's cost of capital.

High quality natural gas and cogeneration assets

The Acquired Assets are of varying size, totalling 1,502 MW, and are located in several different markets in the US (SPP/SPS, CAISO (California) and ISO-NE (New England)) and Trinidad & Tobago. The key details in respect of the Acquired Assets are as follows.

· Hobbs - a 604 MW CCGT located in New Mexico within the Southwest Power Pool Market ("SPP") and contracted with Southwestern Public Service Company ("SPS") a subsidiary of Xcel Energy (NASDAQ: XEL) under a long-term tolling agreement through 2033.

· Borger - a 230 MW cogeneration asset located in Texas within the SPP and contracted with SPS for its energy and capacity through 2024 with a defined 10-year extension through 2034 at the present offtake terms. Borger's steam is contracted with the Borger Refinery, which is owned through a 50/50 joint venture between Phillips 66 and Cenovus Energy, through 2024.

· Trinity - a 225 MW gas turbine located in Trinidad and Tobago and contracted with Trinidad & Tobago Electricity Commission (T&TEC) under a long-term tolling agreement through 2029.

· California peaking units - eight individual gas turbines comprising 371 MW (gross) located in the Kern region of southern California within the California Independent System Operator ("CAISO") market.

· Waterside - a 72 MW peaking unit located in Connecticut within the ISO-NE market and contracted with Connecticut Light & Power (CL&P) a subsidiary of Eversource Energy (NYSE: ES) through May 2024.

For the 12 months ended 31 December 2019, the Acquired Assets generated Adjusted EBITDA of approximately $88 million and profit before tax of approximately -$27 million. As at 31 December 2019, the gross value of the Acquired Assets was $689 million.

Transaction consideration, financing and expected timing

The consideration for the Acquired Assets is $837 million on a debt free, cash free basis. ContourGlobal will assume approximately $210 million of existing project net debt with the Acquired Assets. The remaining $627 million of consideration is expected to be financed through existing cash on hand and an acquisition financing facility of up to $460 million, which will be refinanced by parent company and/or project level debt.

The Proposed Acquisition will increase group net debt to Adjusted EBITDA to approximately 5.0X at the time of Closing, which is well-supported by ContourGlobal's strong cash flow generation and the high quality nature of the Acquired Assets and is expected to fall over subsequent financial periods.

The Proposed Acquisition is classified under the Listing Rules as a Class 1 transaction and therefore is conditional, amongst other things, on the approval of ContourGlobal's shareholders. The Proposed Acquisition is expected to complete in Q1 2021, subject to certain Closing conditions.

Summary of the key terms of the Proposed Acquisition

On 7 December 2020, an indirect wholly-owned subsidiary of the Company (the "Buyer") and WGP entered into an agreement in respect of the Proposed Acquisition (the "Acquisition Agreement"). Pursuant to the Acquisition Agreement, WGP has agreed to sell, and the Buyer has agreed to purchase, on the terms and subject to the conditions of the Acquisition Agreement, the entire issued share capital of WGP Holdings II, LLC for consideration of $837 million on a debt and cash free basis, subject to certain customary post-Closing adjustments in respect of cash, debt and working capital. Other adjustments may be made to the consideration payable including, without limitation, if SPS exercises its purchase option or right of first refusal in respect of the Borger facility and the Borger facility is therefore excluded from the Acquired Assets.

Closing is conditional upon the satisfaction or (where legally permitted) waiver of certain conditions under the Acquisition Agreement, including but not limited to: (i) satisfaction of the Shareholder Approval Condition (as defined in the Acquisition Agreement); (ii) the receipt of certain antitrust and regulatory approvals; (iii) no Material Adverse Effect (as defined in the Acquisition Agreement) in respect of WGP Holdings II, LLC and its subsidiaries (the "Target Group") having occurred since the date of the Acquisition Agreement; and (iv) certain consents or waivers from and notifications to: (a) Governmental Authorities (as defined in the Acquisition Agreement); and (b) third parties who are counterparties to various agreements with members of the Target Group in connection with the Proposed Acquisition having been obtained or made. Closing is also subject to the representations and warranties made in the Acquisition Agreement being true and correct on and as of the date of Closing (subject to certain exceptions relating to materiality) and each of the Buyer and WGP having complied in all material respects with the covenants and agreements applicable to such party prior to Closing.

The Buyer and/or WGP have the right to terminate the Acquisition Agreement in certain circumstances, including but not limited to: (i) with the mutual written consent of the Buyer and WGP; (ii) if Closing has not occurred by 4 June 2021 (or such later date as is agreed between the parties); (iii) if the other party has breached the Acquisition Agreement in such a way that would be reasonably be expected to cause any condition in favour of the non-breaching party to not be satisfied and such breach has not been cured within a permitted period; (iv) if any Governmental Authority has permanently and finally prohibited the consummation of the Proposed Acquisition; (v) in certain circumstances where, before Closing, an asset of the Target Group is damaged or destroyed or taken by condemnation by a Governmental Authority and (vi) if the Shareholder Approval Condition has not been satisfied by 15 February 2021 (or, in certain circumstances, 5 March 2021) where all other conditions precedent have been satisfied or waived.

Upon termination of the Acquisition Agreement, in certain circumstances the Buyer will be required to pay WGP a break fee of $17.8 million (equal to 1% of the Company's market capitalisation on December 4, 2020), including in certain circumstances where the Shareholder Approval Condition has not been satisfied by 15 February 2021 (or in certain circumstances 5 March 2021) and the Acquisition Agreement is terminated.

WGP has given covenants customary for a US law-governed acquisition of the size and nature of the Proposed Acquisition regarding the conduct of the business of the Target Group in relation to the period between signing of the Acquisition Agreement and Closing including customary obligations on WGP to procure that the Target Group does not do (or omit to do) certain acts prior to Closing, and an obligation on WGP to procure that the business of the Target Group is conducted in the ordinary course of business consistent with prudent industry practices. WGP has provided representations and warranties that are subject to certain qualifications and limitations which, in each case, are customary for a US law-governed acquisition of the size and nature of the Proposed Acquisition.

The Company has agreed to guarantee the payment obligations of the Buyer under the Acquisition Agreement and has provided such guarantee, dated 7 December 2020.

Further details of the terms and conditions of the Acquisition Agreement will be set out in the circular to be published by the Company in connection with the Proposed Transaction, which is expected to be published in early Q1 2021.

Irrevocable undertaking

ContourGlobal L.P., the Company's majority shareholder holding, as at 4 December 2020, approximately 72.3% of the Company's ordinary share capital has provided an irrevocable undertaking to vote in favour of the resolution to approve the Proposed Acquisition.

Presentation and conference call

The Company will post presentation materials in regards to the Proposed Acquisition on its website shortly and will host a call for investors on December 8, at 9.30 a.m. (UK time). The conference call numbers are as follows: +44 (0) 20 3003 2666 (standard international access); +1 212 999 6659 (US); +41 (0) 22 592 7915 (Switzerland); and +65 6494 8889 (Singapore local). The password will be: ContourGlobal.

The webcast link for the presentation is: https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/7468/124986/Lobby/default.htm.

ENQUIRIES

Investor Relations - ContourGlobal

Alice Heathcote

Tel: +44 (0) 203 626 9077 / +1 646 386 9901

Email: Alice.Heathcote@contourglobal.com

Media - Brunswick

Charles Pretzlik/Will Medvei

Tel: +44 (0) 207 404 5959

Email: contourglobal@brunswickgroup.com

ADVISORS

Cantor Fitzgerald is serving as Financial Advisor to ContourGlobal and Latham & Watkins LLP is serving as Legal Advisor with respect to the Proposed Acquisition.

ABOUT CONTOURGLOBAL

ContourGlobal is listed on the premium segment of the London Stock Exchange (TKR: GLO). ContourGlobal is an international owner and operator of contracted wholesale power generation businesses. Pro-forma for the Proposed Acquisition, it owns and operates approximately 6,307 MW in 119 power plants in 20 countries and four continents.

IMPORTANT NOTICE

This announcement has been issued by and is the sole responsibility of the Company. The information contained in this announcement is for background purposes only and does not purport to be full or complete. The information in this announcement is subject to change without notice. Subject to the UK Listing Rules, the UK Disclosure Guidance and Transparency Rules and the Market Abuse Regulation (EU) No. 596/2014, the issue of this announcement shall not, under any circumstances, create any implication that there has been no change in the affairs of ContourGlobal or the Acquired Assets since the date of this announcement or that the information in this announcement is correct as at any time subsequent to the date of this announcement.

Certain information contained in this announcement, including any information as to ContourGlobal's or the Acquired Assets' strategy, plans or future financial or operating performance constitutes "forward-looking statements". These forward-looking statements can be identified by the use of terminology such as, "aims", "anticipates", "assumes", "believes", "budgets", "could", "contemplates", "continues", "estimates", "expects", "intends", "may", "plans", "predicts", "projects", "schedules", "seeks", "shall", "should", "targets", "would", "will" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements appear in a number of places throughout this announcement and include, but are not limited to, express or implied statements relating to ContourGlobal's business strategy and outlook; ContourGlobal's and the Acquired Assets' future results of operations; ContourGlobal's and the Acquired Assets' future financial and market positions; expectations as to future growth; general economic trends and other trends in the industry in which ContourGlobal and the Acquired Assets operate; the impact of regulations on ContourGlobal and its operations; and the competitive environment in which ContourGlobal and the Acquired Assets operate.

By their nature, forward-looking statements are based upon a number of estimates and assumptions that, whilst considered reasonable by the Directors and the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those indicated, expressed or implied in such forward-looking statements. Forward-looking statements are not guarantees of future performance. Any forward-looking statements in this announcement reflect the Directors' and the Company's current view with respect to future events and are subject to certain risks relating to future events and other risks, uncertainties and assumptions. The forward-looking statements contained in this announcement speak only as at the date of this announcement. The Directors and the Company disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in their expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the UK Prospectus Regulation Rules, the UK Listing Rules, the UK Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and the Market Abuse Regulation (EU) No. 596/2014. You are cautioned against placing undue reliance on any forward-looking statement in this announcement.

A copy of the Circular when published will be available from the registered office of the Company and on the Company's website at http://www.contourglobal.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.