Transalta Negotiates Strategic Investment with Brookfield

TransAlta Corporation, a TSX- and NYSE-listed Calgary-based power generator and electricity marketer, completed the first tranche of a $750-million strategic investment by an affiliate of Brookfield Renewable Partners. Brookfield invested $350 million in TransAlta in exchange for unsecured, subordinated debentures. The remaining $400 million will be invested in October 2020 in exchange for redeemable, retractable first preferred shares. The debentures and preferred shares (Exchangeable Securities) are exchangeable by Brookfield after December 31, 2024 into up to a 49% equity ownership interest in an entity holding TransAlta’s Alberta hydro assets at a value based on a multiple of the hydro assets’ future adjusted EBITDA.

 

Brookfield has the right to nominate two directors for election to the TransAlta board at each annual meeting of shareholders as long as it owns the Exchangeable Securities. In addition, Brookfield agreed ments with customary exceptions. Brookfield also covenanted to increase its equity ownership in TransAlta to 9% in open market purchases over two years, provided that it is not obliged to purchase common shares at a price of more than $10 per share. Brookfield also received a one-time top-up option that allows it to increase its equity ownership in the entity holding the hydro assets up to 49% in certain circumstances, so long as Brookfield holds at least 8.5% of TransAlta’s common shares and the 20- day VWAP of TransAlta’s common shares is not less than specified fixed thresholds. TransAlta has the right after December 31, 2028, to redeem for cash all or a portion of the Exchangeable Securities, provided that all such securities are redeemed within 36 months of the first optional redemption.

 

The transaction represents a novel use of exchangeable securities to provide for a right of exchange into assets of the issuer.

 

Negotiations were complicated by the emergence of a significant shareholder, Mangrove Partners, which later partnered with Bluescape Energy Partners and which together held 10.1% of TransAlta’s common shares. Mangrove and Bluescape sought to engage with TransAlta to obtain board seats and governance and operational changes. Mangrove and Bluescape subsequently filed a joint Schedule 13D and submitted a notice of intention under TransAlta’s advance notice bylaw to nominate five directors for election at the upcoming shareholders’ meeting. In anticipation of a potential proxy contest at the shareholders’ meeting and to avoid binding a future reconstituted board to a transaction, TransAlta negotiated a right to enable a new board to revisit the Brookfield transaction (Governance Out). Under this novel Governance Out, if two directors not recommended by the board were elected at the 2019 meeting, TransAlta would have the right for 30 days to terminate the Brookfield transaction. Ultimately, Mangrove and Bluescape did not run a proxy contest; instead, Mangrove brought a “public interest” proceeding against TransAlta in opposition to the Brookfield transaction, before the Ontario Securities Commission and Alberta Securities Commission, which was unsuccessful.

 

TransAlta’s single-largest shareholder, RBC Global Asset Management, publicly supported the Brookfield transaction and entered into a customary voting and support agreement with TransAlta in connection with the 2019 meeting. Ultimately, the shareholders elected all of management’s director nominees to the TransAlta board. The first tranche of the Brookfield transaction closed on May 1, 2019.

 

Davies Ward Phillips & Vineberg LLP represented TransAlta, with a team that included Patricia OlaskerVincent MercierJennifer LonghurstDavid Wilson, Gillian Stacey, Anthony Spadaro and Ghaith Sibai (M&A/corporate); Ian Crosbie and Paul Lamarre (tax). TransAlta was represented in-house by Kerry O’Reilly Wilks, Robert Millard and Scott Jeffers.


Torys LLP represented Brookfield, with a team that included Karrin Powys-LybbeNeville JugnauthJanan PaskaranChris Christopher and Daniel Masliyah (corporate/ securities), Rose Bailey (lending), John Tobin and Craig Maurice (tax). Brookfield was represented in-house by Jennifer MazinAndrea Rocheleau, Ronnie Ollo and Adrienne Moore.