Why Brookfield Transition embraced $7.9bn nuclear services deal

Brookfield Renewable's CFO Wyatt Hartley told us Westinghouse’s ‘infra-like cashflows’ helped the Global Transition Fund enter the sector.

Brookfield Asset Management’s Global Transition Fund has made the first major investment in the nuclear power sector by an energy transition fund with the acquisition of Westinghouse in a deal worth $7.9 billion.

The $15 billion GTF teamed up with uranium provider Cameco on a 51:49 basis, which will see Brookfield provide $2.3 billion in equity and Cameco $2.2 billion. The existing debt facilities remain in place.

Westinghouse has been acquired from Brookfield Business Partners, the industrials and services business of BAM, which took over the business in 2018 following its bankruptcy in 2017 under Toshiba’s ownership. According to Brookfield Renewable’s chief financial officer Wyatt Hartley, Brookfield Business reoriented the Westinghouse business model away from construction activities and towards fuel fabrication and services for power plants. As a result, Hartley said, margins have increased from about 9 percent to a little over 20 percent.

Despite the Brookfield Business ownership, Hartley said it was in fact Cameco which first approached GTF about the deal, although the Brookfield-to-Brookfield transaction had significant benefits for the $3.4 billion of Westinghouse’s debt.

“Given where it sits in the net-zero future, it made a lot of sense for us to be [Cameco’s] partner,” Hartley told Infrastructure Investor. “Our ownership of 51 percent of the business allowed the debt to stay in place. The debt that was put in place has huge value because it was put in place in a very different market environment and would be very hard to raise that type of debt right now at the cost it was raised at.”

Hartley added that while Brookfield Renewable and the GTF fund firmly see nuclear as part of the energy transition, it sees the services sector as its role for now as part of risk mitigation. More than 50 percent of nuclear power plants globally have Westinghouse technology embedded within them.

“We really like this as a way to play the nuclear space because ultimately, the liability in this business is very limited when it comes to risk,” he explained. “The way the structure works in all the areas Westinghouse has operations, is any risk around service is the liability of the operator and not you as a service company. It makes the risk-adjusted returns a lot easier to make sense of. These are infrastructure-like cashflows in their nature.

“To own nuclear generation, there’s a very different risk analysis you have to do. We’re not saying we would or would not do it, but the evaluation of this business was you had sticky cashflows without significant liabilities.”

Nuclear fallout

Beyond energy transition, one of the market trends Brookfield noted as a reason for the investment was the ongoing theme of energy security in the wake of the Russian invasion of Ukraine. Asked if the BGTF could have made this investment 12 months ago, Hartley’s response was mixed.

“Even a year ago, it was clear the challenges around intermittency in a carbon-free grid were real. The EU added nuclear to its green taxonomy, so those tailwinds were and are very beneficial. Energy security further enhanced that. It’s hard to say whether or not that would have got done, but nuclear being critical to a net-zero economy was present.”

There will, however, be immediate and direct benefits from the geopolitical situation. Eastern European countries such as Poland have since accelerated nuclear development plans, while in June, Ukraine signed an agreement with Westinghouse to supply fuel to all of its nuclear power stations, ending a dependence on Russian supply chain.

Brookfield did not receive any pushback from its LPs with regards to its investment in the nuclear sector, Hartley stated, although he said there were other elements of the deal Brookfield had to get LPs comfortable with.

“The majority of the feedback we got from LPs was very supportive,” Hartley said. “The Brookfield-to-Brookfield transaction required them to get comfortable around the process and we worked closely with them to ensure that on the private equity and GTF side, we had the process in place to ensure that was dealt with appropriately.”