First deal for I Squared

The New York fund manager and Veolia Energy North America have agreed to acquire a cogeneration station.

I Squared Capital (ISQ), the New York-headquartered fund manager which is currently raising a debut fund, has teamed with Veolia Energy North America to acquire the 256-megawatt (MW) Kendall Cogeneration Station in Cambridge, Massachusetts.

ISQ, in what constitutes its first transaction, will co-control the asset with Veolia.

The deal is part of an industrial partnership between ISQ and Veolia whereby the two parties will deploy up to $1 billion in equity over the coming two years in combined heat and power (CHP) and district energy systems.

Kendall uses natural gas as its primary fuel source to produce electricity and steam energy. It is the first provider of steam to Boston and Cambridge under long-term contracts with Veolia and Massachusetts General Hospital, the second-largest hospital in the US.

A reconfiguration of the Kendall facility is planned, including a new steam pipeline into downtown Boston. This is expected to provide a reliable energy supply to customers in Boston and Cambridge while reducing carbon emissions by 475,000 tons per year.

“We have identified this sector in the US energy space as providing attractive risk-adjusted returns where we can provide value added through improved operations leveraging our dedicated operating partners with extensive experience in power generation, operations, capex programs and EPC management,” said Sadek Wahba, managing partner at ISQ (pictured above), in a statement.

Adil Rahmathulla, partner at ISQ, said: “I am excited to partner again with Veolia and continue a long-standing relationship developed over the last few years. We expect to grow our CHP platform across the US over the coming period through our strategic joint venture with Veolia and generate significant co-investment opportunities for our investors.”

Rahmathulla added that the deal was sourced on an exclusive basis, resulting in a deal with seller NRG Energy that was not subject to an auction process.

ISQ said its operating team (which includes managing directors with experience at AES, Shell and TXU) were involved on a day-to-day basis in the transaction.

Wahba is the former chief investment officer and global head of Morgan Stanley Infrastructure Partners (MSIP), where he worked with Rahmathulla and Gautam Bhandari, who also moved to ISQ.

In all, the firm has more than 30 employees operating from offices in New York, Houston, London, New Delhi and Shanghai.

The firm’s debut fund is reported to be targeting $2 billion and is advised by placement agent Campbell Lutyens.