Macquarie Infrastructure Company (MIC) has agreed to buy Bayonne Energy Centre (BEC), a 512-megawatt (MW) gas-fired power generating facility from an affiliate of ArcLight Capital Partners, for approximately $210 million in cash plus the assumption of approximately $510 million of debt maturing in 2021, MIC said in a statement.
In addition to diversifying the company’s Contracted Power and Energy (CP&E) business segment, the acquisition of BEC is also expected to generate earnings before interest, taxes, depreciation and amortisation (EBITDA) of $62 million on an annualised basis as well as increasing MIC’s quarterly cash dividend.
The acquisition, which in addition to the 512MW power plant includes a seven-mile transmission cable that runs underneath the Hudson River, brings MIC’s portfolio of power generating capacity to nearly 800MW. The transaction is expected to close in the first half of 2015.
Located in Bayonne, New Jersey, BEC is in close proximity to another MIC portfolio company, International Matex Tank Terminals (IMTT), an independent bulk liquid terminals business that owns and operates 10 marine terminals in the US. MIC acquired an initial 50 percent stake in the marine terminal operator in May 2006. Last July, the infrastructure investment firm acquired the remaining 50 percent of IMTT.
“We’re pleased to diversify and strengthen our CP&E segment with the acquisition of the Bayonne Energy Centre,” chief executive of MIC and acting chief executive of IMTT, James Hooke, said. “Given its proximity to IMTT-Bayonne, we are familiar with BEC – it is an exceptional business to add to our growing CP&E portfolio,” he added.
MIC expects the close proximity of the two assets to provide the company with other growth opportunities, such as constructing up to 100MW of additional generating capacity on undeveloped land of IMTT and supplying power to IMTT directly from BEC. Furthermore, because BEC’s eight natural gas fuelled turbines are dual-fuel capable – meaning they can operate on ultra-low sulphur diesel as well – BEC can benefit from using IMTT’s existing liquid fuel storage capacity to maximise any pricing advantage in fuel oil compared with natural gas.
According to MIC, the Bayonne Energy Centre has several other attributes that make it attractive. It supplies electricity to the New York City market (NYISO Zone J), one of the most attractive in the country due to its size, its aging power generation fleet and the challenges associated with building new generating capacity in the metropolitan area.
In operation since 2012, BEC is the newest in NYISO Zone J and more efficient than many of the other power plants operating in the same market.
BEC also has tolling agreements with Centrica/Direct Energy for 62.5 percent of its energy production and capacity. These agreements have an average remaining life of 13 years, according to the statement.
“Subject to rating agency affirmation, the Company expects to retain its investment-grade credit rating,” MIC said.
Shortly after the announcement, Standard & Poor’s placed the company’s BBB- corporate credit and senior unsecured ratings on watch.
“In our view, the acquisition will increase Macquarie’s contractual cash flows, but exposes the company to merchant cash flows that we believe can be volatile,” the ratings agency said in a statement.
“We expect to resolve the CreditWatch listing once we have a better understanding of how the acquisition will affect Macquarie’s business risk profile and financial risk profile,” S&P noted.
The ratings agency did, however, keep Bayonne Energy Centre’s BB- project credit rating unchanged.
Macquarie Infrastructure, a wholly-owned subsidiary of Australian asset manager Macquarie Group, declined to comment.