Atlantic Power cuts debt by $800 million, eyes further reduction

By Lisa Kerner

Charlotte, N.C., Aug. 11 – Atlantic Power Corp. made a “meaningful reduction” in its consolidated debt, said chief financial officer Terry Ronan during the company’s second-quarter earnings call on Tuesday.

The company has cut its debt to $1 billion over the last six quarters from $1.8 billion at Dec. 31, 2013. Atlantic Power used $726 million of cash and $76 million of equity for the debt reduction, according to the earnings presentation.

The reduction includes the redemption of $311 million of 9% notes in July using proceeds from the sale of wind projects and $137 million paid through amortization of project-level debt and a term loan. It also includes $33 million of discretionary debt repurchases. Atlantic Power repurchased $13.9 million of convertible debentures during the second quarter. In the first six months of 2015, the company repurchased $20.9 million of convertible debentures and $9 million of 9% notes.

“We expect to amortize another $20 million of project and term loan debt in the second half of this year and $70 [million] to $75 million annually, on average, over the next two years using project-level cash flows,” Ronan said.

Liquidity grew to $492 million at June 30 from $202 million at March 31. Adjusting for the use of the $330.4 million of cash in July for the note redemption, pro forma liquidity is roughly $162 million.

By reducing debt, Atlantic Power said it has improved its credit metrics. The consolidated debt-to-adjusted EBITDA multiple is now six times, down from seven times. The adjusted EBITDA-to-interest coverage ratio has improved to 2.7 times from 2.1 times.

There are no debt maturities in 2018 and $305 million (U.S. dollar equivalent) of convertible debentures remaining in 2017 and 2019. The company said it is exploring opportunities to address the maturities.

The company ended the quarter with cash and cash equivalents of about $394 million.

Ronan feels “a cash reserve of $50 million to $60 million is now adequate for our business.” Atlantic Power no longer needs to carry a cash reserve for interest payments on the 9% notes, and capital needs were eliminated for divested businesses, he said. The company sold its wind assets in June for $350 million.

Boston-based Atlantic Power owns and operates power generation assets.

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