Nextera Energy Partners LP (NYSE:NEP) stock rose 0.040% (As on July 2, 11:21:11 AM UTC-4, Source: Google Finance) after Shelby Tucker of RBC Capital downgraded the company to Sector Perform from Outperform with a price target of $30, down from $38. With insufficient growth from wind repowerings and about $3.7B CEPF liabilities post-2026, the firm believes the model will not be able to sustain long-term dividend growth of 5%-8% and that the company will need to evaluate a dividend cut. NextEra Energy’s plans to repower 1.3GW is estimated to yield $70 million of CAFD, which could “partially offset the financing headwinds from upcoming maturities,” the analyst wrote. A dividend cut of around 50% “would reset the payout ratio to below 60%, which helps offset the CEPF liabilities and provides a payout ratio cushion through the late years of the CEPF buyout periods,” he added.
On the other hand, the company has closed on its previously disclosed agreement with Kinder Morgan, Inc. to sell its Texas natural gas pipeline portfolio for $1.815 billion. “With the Texas natural gas pipeline portfolio sale complete, the partnership has sufficient proceeds available to address the equity buyouts of the STX Midstream and NEP Renewables II convertible equity portfolio financings.”
The Texas natural gas pipeline portfolio is primarily comprised of seven pipelines, which provide natural gas to Mexico and power producers and municipalities in South Texas. The total 2023 calendar-year adjusted EBITDA for the Texas natural gas pipeline portfolio is expected to be approximately $180 million, with roughly 70% associated with the transmission portion of the portfolio and the remaining 30% associated with the midstream pipelines. The sale price represented an approximate 10 times multiple on the estimated calendar-year 2023 adjusted EBITDA.
Upon receiving Hart-Scott-Rodino antitrust approval and meeting all remaining closing conditions, NextEra Energy Partners received net proceeds of $1.4 billion, after extinguishing project-related debt and associated interest rate swaps of approximately $430 million. With the STX Midstream convertible equity portfolio financing already paid off, NextEra Energy Partners expects to use the remaining net proceeds to complete the NEP Renewables II buyouts on their stated minimum buyout dates of June 2024 and June 2025, respectively. NextEra Energy Partners’ adjusted EBITDA expectations represent projected (a) revenue less (b) fuel expense, less (c) project operating expenses, less (d) corporate G&A, plus (e) other income less (f) other deductions including IDR fees.