NextEra Energy Partners LP (NYSE: NEP) has completed its acquisition of NET Midstream, a privately held developer, owner and operator of a portfolio of seven long-term contracted natural gas pipeline assets located in Texas. NextEra Energy Partners also announced the completion of the acquisition of the 149-megawatt Jericho Wind Energy Center in Ontario, Canada, from a subsidiary of its sponsor, NextEra Energy Resources LLC. In addition, the partnership has closed $600 million of term loans, which completes its financing for the NET Midstream and Jericho acquisitions.
The seven natural gas pipelines in the portfolio are all strategically located, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford shale play, and residential, commercial, and industrial customers in the Houston area.
The NET Mexico Pipeline, the largest pipeline in the portfolio, provides a critical source of natural gas transportation for low-cost, US-sourced shale gas to Mexico under a 20-year ship-or-pay contract with a BBB+-rated, wholly owned subsidiary of Pemex Gas y Petroquimica Basica, a division of Pemex, the Mexican state-owned oil and gas company. The NET Mexico Pipeline is 10% owned by a Pemex subsidiary. The combined acquisition portfolio includes 3.0 billion cubic feet (bcf) per day of ship-or-pay contracts, with on-average investment-grade counterparty credit and long-term contracted assets with a 16-year average contract life. The three largest pipelines in the portfolio have planned growth and expansion projects that, if completed, are expected to provide approximately 1.0 bcf/d of additional contracted volumes.
NextEra Energy Partners acquired NET Midstream for a total transaction value of $2.1 billion, including $934 million in cash consideration and the assumption of $654 million in existing debt, and excluding post-closing working capital and other adjustments. Of the $2.1 billion, $500 million will be deferred, with $200 million payable 18 months after closing contingent upon no breach of representations and warranties by the seller, up to $200 million payable for certain expansion projects contingent upon satisfaction of certain financial performance and capital expenditure thresholds, and, if successful, up to $100 million of capital expenditures for the expansion projects. The $300 million for the expansion projects is expected to be financed almost entirely with incremental future debt.
NextEra Energy Partners expects the NET Midstream acquisition to contribute adjusted EBITDA and CAFD of approximately $145 million to $155 million and $110 million to $120 million, respectively, on an annual run rate basis as of Dec. 31. If certain expansion projects are completed as planned, the acquisition is expected to contribute adjusted EBITDA and CAFD of $190 million to $210 million and $135 million to $155 million, respectively, on an annual run rate basis as of Dec. 31, 2017.
For the NET Midstream acquisition, Wells Fargo Securities served as financial advisor to NextEra Energy Partners and Locke Lord served as legal counsel to the partnership.
In addition, NextEra Energy Partners acquired the 149-MW Jericho Wind Energy Center from its sponsor, NextEra Energy Resources, for a total purchase price of approximately $210 million in cash consideration, plus approximately $19 million in working capital (subject to post-closing adjustments), and assumed approximately $294 million in existing debt. The addition of the Jericho Wind Energy Center in Ontario, Canada, increases NextEra Energy Partners' renewables portfolio to more than 2,072 MW.
NextEra Energy Partners expects the Jericho acquisition to contribute adjusted EBITDA and CAFD of $40 million to $45 million and $20 million to $25 million, respectively, on an annual run rate basis as of Dec. 31.
The annual run rates for the NET Midstream and Jericho acquisitions are included in NextEra Energy Partners' previously provided annual run rate expectations as of Dec. 31 and Dec. 31, 2016.
In addition, NextEra Energy Partners (through a subsidiary) has completed the financing of its $1.5 billion capital need through the execution of several US term loans totaling $600 million in the aggregate. With the term loans, as well as $213 million from the public issuance of common units representing limited partner interests in NextEra Energy Partners and the $702 million investment by NextEra Energy in additional NextEra Energy Partners operating company units, the partnership has completed its necessary financing for the payment of the NET Midstream acquisition cash purchase price, payment of the cash purchase price for the Jericho acquisition and repayment of the $313 million term loan for the purchase of the four wind assets acquired during the second quarter.
NextEra Energy Partners expects to reach a distribution level at an annualized rate of $1.23 per unit by the end of 2015 and, after 2015, expects per unit distributions to grow about 12% to 15% per year through 2020. These distribution levels assume, among other things, normal weather and operating conditions, public policy support for wind and solar development and construction, market demand and transmission expansion support for wind and solar development and access to capital at reasonable cost and terms.
NextEra Energy Partners' adjusted EBITDA and CAFD expectations should be viewed in conjunction with NextEra Energy Partners' cautionary statements and risk factors set forth below and in NextEra Energy Partners' filings with the US Securities and Exchange Commission. Adjusted EBITDA and CAFD do not represent substitutes for net income, as prepared in accordance with generally accepted accounting principles. The expected run rates have not been reconciled to GAAP net income because NextEra Energy Partners did not prepare estimates of the effect of any acquisitions on certain GAAP line items that would be necessary to provide a forward-looking estimate of GAAP net income, and the information necessary to provide such a forward-looking estimate is not available without unreasonable effort.