Riverstone in ‘no rush’ to exit Pattern Energy after IPO

  • Riverstone’s Pattern Energy valued at more than $1B after IPO
  • Private equity firm invested in ex-Babcock & Brown unit
  • Riverstone to get portion of $233M payment for wind assets

Riverstone Holdings is in line to receive a portion of the $232.6 million in proceeds from Pattern Energy’s Sept. 27 initial public offering that has been set aside to purchase wind energy projects from PEG LP, the ownership entity comprised of Riverstone funds and Pattern employees, according to the wind power firm’s IPO prospectus.

The transaction is expected to take place within two years. More specific dollar figures on Riverstone’s payback weren’t available. Riverstone declined to comment on the Pattern Energy IPO, which achieved a valuation north of $1 billion.

Riverstone may also hold a portion of the $56 million in outstanding debt under the firm’s revolving credit facility, which Pattern Energy plans to pay back. PEG LP will also see its B shares, which do not receive dividends, convert to dividend-receiving Class A shares by the end of 2014, or upon the completion of a new wind farm called South Kent in Ontario, Canada, being developed with Samsung Renewable Energy.

Based on the current annual dividend of $1.25 per Class A share, the conversion of 15.6 million Class B shares would provide PEG LP a yearly payment of $19.5 million.

Pattern Energy CEO Mike Garland said IPO investors liked the prospects of the company’s dividend payout rate of about 5.7 percent, coupled with growth that the company offers with a solid pipeline of development projects for new wind farms. Garland served as partner at Babcock & Brown from 1986 to 2009 and led the firm’s North American Infrastructure Group.

“We’ve always been growing our business for the last ten years, and so the combination of the dividend plus the growth I think was very exciting to people,” Garland said in an interview.

Wall Street also welcomed the fact that Riverstone planned to keep skin in the game after buying Pattern Energy in 2009 during the financial crisis, he said. Riverstone purchased the wind development portfolio for Babcock & Brown’s North American Energy Group and had committed $800 million in equity funding by the end of 2010.

“Riverstone has a pretty good reputation of recognizing the concerns of the public and not being overly aggressive on sell-downs,” Garland said. “You’ll find that they know that they have a lot of money tied up in the public company now and they need to treat it well….There will be an exit over time, but they’re in no rush.”

Garland said Riverstone demonstrated its considered exit strategy with oil company Gibson Energy Co. The sell-down of common stock took place “fairly quickly” only because of demand, but it included “nice valuations” for investors and didn’t flood the market, Garland said. Riverstone’s March, 2012 offering of Gibson Energy stock raised gross proceeds of $582 million, according to a statement.

In its IPO, Pattern Energy priced 16 million shares at $22 each, above the $19-$21 price range, for total proceeds of $352 million. Underwriters exercised their option to purchase an additional 2.4 million shares to bring the total raised in the deal to about $405 million.

Since then, the stock has held solidly above $23 a share, locking in a market capitalization of nearly $1.2 billion, based on  51.1 million shares outstanding, including both Class A and Class B shares.

While other wind firms like First Wind, partly backed by private investment firm D.E. Shaw, have failed to go public, the success of Pattern Energy’s IPO could spawn other renewable energy exits. Private equity firms with wind assets include First Reserve Corp and Terra Firma.

Looking ahead, Garland expects public support for renewable power to help fuel growth in wind, while the switch to natural gas from coal-fired generation will fuel growth in gas, along with rising U.S. production of the fuel. Nuclear power development continues but at a slow pace, while hydro power is limited by a lack of supply.

“Over the next five to ten years, most of the new power has to come from gas, wind and solar,” he said. “The only real future for new development of large-scale power supply is going to come from those three in the next five to ten years.  They’re complementary for economic and operational reasons, and on a practical level they’re the only ones that will get built in the next five or ten years in any size.”

At the time of Riverstone’s investment in 2009, the firm had teamed up with the Carlyle Group on its energy-focused private equity funds, but those two firms separated in 2011. The 2009 press release announcing Riverstone’s investment in the former wind unit of Babcock & Brown did not mention Carlyle Group.