Sale Proceeds, Combined with Strong First Quarter Results from the U.S. Transportation and Storage Business, and an Associated Reduction in Working Capital Requirements, Will Drive Approximately $485 Million of Debt Repayment
AltaGas Ltd. ("AltaGas" or the "Company") (TSX: ALA) today announced the sale and closing of a transaction to monetize the company's U.S. Transportation and Storage business to an entity owned by Six One Commodities LLC and Vega Energy Partners, Ltd. for total cash proceeds of approximately $344 million ( US$275 million ). The non-core asset sale represents another important step in advancing AltaGas' strategy of re-focusing the company on its two core businesses, while continuing to de-risk and de-lever the platform and reduce the volatility of cash flows.
Randy Crawford , President and Chief Executive Officer commented, "We are pleased to advance our strategic plan of focusing, de-leveraging and de-risking our Company. The monetization of the U.S. Transportation and Storage business positions us to accelerate the timeline of getting to our target of being below 5.0x Net Debt to normalized EBITDA 1 . Specifically, we believe we are positioned to reduce our Net Debt to normalized EBITDA ratio by up to 0.5x over the course of 2021 relative to the run-rate level we exited 2020. Ongoing leverage reduction will remain a top priority as we continue to grow the business. We are also fortunate to be selling the U.S. Transportation and Storage business after a strong financial contribution from the segment in the first quarter related to significant weather-driven natural gas price volatility. This created an incremental deleveraging event that will benefit all of our stakeholders."
AltaGas' total near-term deleveraging is estimated at approximately $485 million and is comprised of three main components, including: 1) $344 million of cash proceeds that were received through the divestiture; 2) the reduced working and other capital requirements of the U.S. Transportation and Storage business that will no longer be required post the sale; and 3) robust profitability from the U.S. Transportation and Storage business during the first quarter due to strong natural gas prices and volatility seen in the quarter. The third component of the deleveraging will be recorded in AltaGas' Q1 2021 financial statements that are scheduled to be released on April 29, 2021 , before market open. The closing and effective date of the transaction is today with AltaGas continuing to record the operating results of the business during the first quarter and approximately the first three weeks of the second quarter of 2021.
AltaGas' U.S. Transportation and Storage business was a smaller component of the Company's operations and included a number of natural gas transportation and storage contracts, including approximately 31 Bcf of leased and managed storage capacity. The sale does not include AltaGas' 10% equity stake in the Mountain Valley Pipeline or the Company's 5.1% equity stake in the Mountain Valley Pipeline Southgate expansion. The business has been reported as part of AltaGas' Midstream operations since closing the WGL acquisition in 2018 and did not have any material overlap with AltaGas' U.S. Utilities platform. The business produced US$21.2 million of normalized EBITDA in 2020 and US$16.2 million of average annual normalized EBITDA over the trailing five-year period from 2016 to 2020. The business has fluctuating working capital requirements throughout the year, which typically peak heading into the winter and then hit seasonal lows in March or April, following large natural gas inventory sales over the winter heating season with inventories then being replenished during spring and fall shoulder seasons.
AltaGas continues to execute on the Company's strategy and leverage its distinctive Utilities and Midstream businesses that are both well-positioned to deliver strong and visible growth. As has been publicly messaged in the past, AltaGas is also focused on continued deleveraging and may consider other incremental non-core asset sales, should the right opportunities and market conditions be available. In the years ahead, AltaGas will remain acutely focused on operating long-life infrastructure assets that provide resilient and durable value for the Company's stakeholders. AltaGas is focused on delivering durable and growing EPS and FFO per share that supports steady dividend growth and provides the opportunity for capital appreciation.
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1. | Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to US GAAP financial measures shown in AltaGas' Management's Discussion and Analysis (MD&A) as at and for the period ended December 31, 2020, which is available on www.sedar.com . |
About AltaGas
AltaGas is a leading North American energy infrastructure company that connects NGLs and natural gas to domestic and global markets. The Company operates a diversified, low-risk, high-growth Utilities and Midstream business that is focused on delivering resilient and durable value for its stakeholders. For more information visit: www.altagas.ca or reach out to one of the following:
Jon Morrison
Senior Vice President, Investor Relations & Corporate Development
Jon.Morrison@altagas.ca
Adam McKnight
Director, Investor Relations
Adam.McKnight@altagas.ca
Media Inquiries
1-403-312-0294
media.relations@altagas.ca
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information (forward-looking statements). Words such as "may", "can", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "aim", "seek", "propose", "contemplate", "estimate", "focus", "strive", "forecast", "expect", "project", "target", "potential", "objective", "continue", "outlook", "vision", "opportunity" and similar expressions suggesting future events or future performance, as they relate to the Corporation or any affiliate of the Corporation, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, strategy, expected growth, debt reduction, opportunities and financial results. Specifically, such forward-looking statements included in this document include, but are not limited to, statements with respect to the following: expectation of identified factors driving approximately $485 million of debt repayment; acceleration of the timeline of getting to our target of being below 5.0x Net Debt to normalized EBITDA; belief that Net Debt to normalized EBITDA ratio can be reduced by upwards of 0.5x over the course of 2021 relative to the run-rate level at the end of 2020; anticipated disclosure of first quarter results from U.S. Transport and Storage business on April 29, 2021 ; continued focus on deleveraging; and potential for non-core monetization sales. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events and achievements to differ materially from those expressed or implied by such statements. Such statements reflect AltaGas' current expectations, estimates, and projections based on certain material factors and assumptions at the time the statement was made. Material assumptions include: the U.S./Canadian dollar exchange rate, financing initiatives, the performance of the underlying business; access to capital; acquisition and divestiture activities; taxes; operational expenses; and returns on investments.
AltaGas' forward-looking statements are subject to certain risks and uncertainties which could cause results or events to differ from current expectations, including, without limitation: risk related to operating risks; regulatory risks; climate-related risks, including carbon pricing; changes in law; capital market and liquidity risks; general economic conditions; internal credit risk; foreign exchange risk; debt financing, refinancing, and debt service risk; interest rates; growth strategy risk; and the other factors discussed under the heading "Risk Factors" in the Corporation's Annual Information Form for the year ended December 31, 2020 and set out in AltaGas' other continuous disclosure documents.
Many factors could cause AltaGas' or any particular business segment's actual results, performance or achievements to vary from those described in this press release, including, without limitation, those listed above and the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release as intended, planned, anticipated, believed, sought, proposed, estimated, forecasted, expected, projected or targeted and such forward-looking statements included in this news release, should not be unduly relied upon. The impact of any one assumption, risk, uncertainty, or other factor on a particular forward-looking statement cannot be determined with certainty because they are interdependent and AltaGas' future decisions and actions will depend on management's assessment of all information at the relevant time. Such statements speak only as of the date of this news release. AltaGas does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this news release are expressly qualified by these cautionary statements.
Financial outlook information contained in this news release about prospective financial performance, financial position, or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on AltaGas management's (Management) assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.
Additional information relating to AltaGas, including its quarterly and annual MD&A and Consolidated Financial Statements, AIF, and press releases are available through AltaGas' website at www.altagas.ca or through SEDAR at www.sedar.com .
Non-GAAP Financial Measures
This news release contains references to certain financial measures that do not have a standardized meaning prescribed by US GAAP and may not be comparable to similar measures presented by other entities. The non-GAAP measures and their reconciliation to US GAAP financial measures are shown in AltaGas' Management's Discussion and Analysis (MD&A) as at and for the period ended December 31, 2020 . These non-GAAP measures provide additional information that management believes is meaningful regarding AltaGas' operational performance, liquidity and capacity to fund dividends, capital expenditures, and other investing activities. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with US GAAP.
EBITDA is a measure of AltaGas' operating profitability prior to how business activities are financed, assets are amortized, or earnings are taxed. EBITDA is calculated from the Consolidated Statements of Income using net income (loss) after taxes adjusted for pre-tax depreciation and amortization, interest expense, and income taxes. Normalized EBITDA includes additional adjustments for transaction costs (recoveries) related to acquisitions and dispositions, merger commitment costs (recoveries) due to a change in timing related to certain WGL merger commitments, unrealized losses (gains) on risk management contracts, non-controlling interest of certain investments to which HLBV accounting is applied, losses on investments, gains on sale of assets, restructuring costs, dilution loss and other adjustments to equity income related to the acquisition of Petrogas, gain on re-measurement of previously held equity investment in AIJVLP, COVID-19 related costs, provisions on assets, provisions on investments accounted for by the equity method, distributed generation asset related investment tax credits, foreign exchange losses (gains), and accretion expenses related to asset retirement obligations. In addition to the dilution loss, the other adjustments to equity income primarily included amounts related to severance, transaction costs, and impairment losses related to the acquisition of Petrogas. COVID-19 related costs normalized in 2020 were primarily comprised of credit losses that were incremental and directly attributable to the COVID-19 pandemic and charges incurred to support remote work arrangements. AltaGas presents normalized EBITDA as a supplemental measure. Normalized EBITDA is used by Management to enhance the understanding of AltaGas' earnings over periods. The metric is frequently used by analysts and investors in the evaluation of entities within the industry as it excludes items that can vary substantially between entities depending on the accounting policies chosen, the book value of assets, and the capital structure.
Funds from operations is used to assist Management and investors in analyzing the liquidity of the Corporation. Management uses this measure to understand the ability to generate funds for capital investments, debt repayment, dividend payments, and other investing activities. Funds from operations are calculated from the Consolidated Statements of Cash Flows and are defined as cash from operations, adjusted for net changes in operating assets and liabilities and expenditures incurred to settle asset retirement obligations
Net debt is used by the corporation to monitor its capital structure and financing requirements. It is also a measure of the Corporation's overall financial strength. Net debt is defined as short-term debt (excluding third-party project financing obtained for the construction of certain energy management services projects), plus current and long-term portions of long-term debt, less cash and cash equivalents.
SOURCE AltaGas Ltd.
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