The 2023 calendar-year adjusted EBITDA for the Texas natural gas pipeline portfolio is projected to reach approximately $181 million.
NextEra Energy Partners, LP (NYSE: NEP) has unveiled a significant milestone in its strategic transition plans. The company announced that it has entered into a definitive agreement with Kinder Morgan, Inc. (NYSE: KMI) to sell its Texas natural gas pipeline portfolio for a substantial $1.815 billion.
John Ketchum, Chairman and CEO of NextEra Energy Partners, expressed the importance of this agreement, emphasizing that the proceeds from the sale will not only retire outstanding project-related debt but also address equity buyouts, including those of the STX Midstream and NEP Renewables II convertible equity portfolio financings.
The transaction involves the sale of NextEra Energy Partners’ Texas natural gas pipeline portfolio, comprising seven pipelines primarily serving Mexico, as well as power producers and municipalities in South Texas. The sale, anticipated to close in the first half of 2024, is contingent on Hart-Scott-Rodino anti-trust approval, certain contract amendments, and customary closing conditions.
The 2023 calendar-year adjusted EBITDA for the Texas natural gas pipeline portfolio is projected to reach approximately $181 million. Of this, about 70% is attributed to the transmission segment, with the remaining 30% associated with the midstream pipelines. The sale price reflects a multiple of around 10 times the estimated calendar-year 2023 adjusted EBITDA.
To facilitate the buyout obligations, the partnership utilized subsidiary and corporate revolvers in late September and early October, completing the final buyouts of approximately $402 million of the STX Midstream CEPF. Additionally, the partnership plans to utilize the corporate revolver for the December 2023 NEP Renewables II buyout of approximately $180 million, in preparation for the planned closing of the sale in the first half of 2024.
Following the sale, NextEra Energy Partners intends to allocate the net proceeds as follows:
- Pay off approximately $425 million of the outstanding project-related debt and associated interest rate swaps for the Texas pipeline portfolio.
- Complete the remaining $1.1 billion buyout under the NEP Renewables II CEPF by June 2025.
- Apply the remaining funds to reduce a portion of the outstanding corporate revolver.
Chairman Ketchum emphasized that regaining a competitive cost of capital is crucial for NextEra Energy Partners as a financing entity. By addressing a significant portion of their CEPF equity buyout obligations through 2026, this transaction is deemed a pivotal step in positioning the partnership for future success.
Looking ahead, NextEra Energy Partners anticipates steady growth, targeting a 6% annual increase in limited partner distributions per unit through at least 2026. For 2023, the partnership expects a fourth-quarter distribution payable in February 2024 at an annualized rate of $3.52 per common unit.
With the successful closing of the pipeline transaction, the partnership foresees no immediate need for growth equity until 2027. The payout ratio is expected to remain in the mid-90s through 2026, and no acquisition is anticipated in 2024 to meet the 6% growth in distribution per unit target.
The partnership also provided run-rate projections for adjusted EBITDA and cash available for distribution (CAFD) at year-end 2023, ranging from $1.9 billion to $2.1 billion and $730 million to $820 million, respectively. These projections do not include the adjusted EBITDA and CAFD associated with the Texas pipeline portfolio, which has been excluded from the forecasts.
It’s important to note that all financial expectations are contingent on various factors, including weather conditions, market demand, policy support, and the successful execution of the partnership’s transition plans.
For a comprehensive list of risk factors that may influence future results, please refer to the accompanying cautionary statements. Adjusted EBITDA and CAFD are not substitutes for net income under GAAP, and their run-rate expectations have not been reconciled to expected net income due to factors related to derivative transactions.