Sprott Power seeking financing for $33 million to acquire Wind Canada Investments

For the third time in the past year, a Canadian company has chosen to raise cash to fund a takeover by way of an offering of extendible convertible unsecured subordinated debentures.

In the deal, the financing of which is expected to close next week, Sprott Power is buying all the shares of Wind Canada Investments for 22.13¢ each, which will then give it ownership of two operating assets, one of which, Glen Dhu, is the largest wind farm in Nova Scotia. (Wind Canada owns 51% of Glen Dhu.) Sprott Power has raised $30 million, which may be boosted by $4.5 million if the underwriters exercise their options.

The deal, in which investors are being offered a yield of 6.75%, represents a move into the big leagues as it will boost Sprott Power’s operating assets by 80%. The company has operations in Nova Scotia and Ontario. Sprott’s current portfolio is about 80 megawatts, which will rise to 144MW, if the acquisition goes through. But the company, according to its website, had some major plans prior to this transaction, with a development portfolio in Nova Scotia, Quebec, Ontario and Saskatchewan. By 2015 it had plans to generate 500 MW of power.

Sprott Power has locked up the support of Wind Canada shareholders who own 74% of the outstanding shares. Spanish-based Inveravante Inversiones Universales S.L. is Wind Canada’s largest shareholder with a 66% fully diluted stake.

Sprott Power’s focus is on the development, ownership and operation of renewable energy projects. It pays a dividend and is managed by Sprott Power Consulting LP, a business unit of Sprott Inc.

Offerings of extendible convertible unsecured debentures are rare in Canada, with companies planning acquisitions preferring to issue subscription receipts that in effect get converted into common shares when the transaction closes.

On this deal, and as with the other two, that option wasn’t available, because Sprott Power is small with a market cap of $68 million. The option isn’t available because of the large discount to current market price that would have to occur to raise a decent slug of common equity.

Convertibles are attractive because there is no dilution — all the company faces is the need to make the semi-annual payments. And dilution is taken care of, because the conversion price on the debentures is set at a healthy premium (in this case 30%.)

Source: Financial Post, FP Street, Barry Critchley