Content
Liquidity & Capital Resources
At December 31, 2008, the Fund had $57.3 million available on its $150.0 million credit facility. This facility, combined with cash generated by operating activities, is expected to provide adequate liquidity for the Fund in 2009. A $100-million medium-term note will mature on December 21, 2009, and is expected to be refinanced at market-based rates that are consistent with the risk profile of the Fund. To ensure that the Fund has sufficient liquidity to refinance the medium-term note in the event of a disruption in capital markets, the Manager is seeking to secure additional committed standby credit facilities from commercial banks and/or Enbridge Inc.
The Fund’s current liabilities routinely exceed current assets. Current liabilities include current maturities of long-term debt. Excluding current maturities of long-term debt, the Fund does not have a working capital deficit. The Fund’s cash balance at December 31, 2008, of $17.3 million includes $9.9 million held in trust in Alliance Canada, pursuant to finance agreements within Alliance Canada.
Operating Activities
Cash provided by operating activities was $98.1 million for the year ended December 31, 2008, compared to $80.6 million in 2007. The CESCA bankruptcy settlement of $6.1 million received in January 2008 positively impacted cash from operating activities. Additionally, higher earnings from operations and changes in operating assets and liabilities also contributed to higher cash flow from operating activities.
Investing Activities
Cash used for investing activities for the year ended December 31, 2008 was $63.6 million, a $7.6-million decline from the prior year comparative period. This decrease reflected the timing of the expenditures on the Westspur Expansion and the NRGreen facilities. Spending on the Westspur Expansion began in the third quarter of 2007 and was completed on June 1, 2008. The Loreburn, Estlin and Alameda facilities were completed and brought into service in May, July and November of 2008, respectively; however, the majority of the expenditures on these facilities were incurred in 2007.
Capital expenditures are categorized as either maintenance or enhancement. Maintenance capital expenditures are determined based on the capital requirements necessary to maintain the service capability of the existing assets and include the replacement of system components and equipment that are worn, obsolete or completing their useful life.
Enhancement expenditures include capital expansion projects and other projects that improve the service capability of existing assets, extend asset useful lives, increase capacities from existing levels, reduce costs or enhance revenues or enable the Fund to respond to government regulations and developing industry standards. Maintenance capital expenditures are funded through cash from operations, whereas enhancement capital expenditures are funded through debt and, as required, the issuance of equity.
Financing Activities
Financing activities for the year ended December 31, 2008, consisted of monthly distributions to unitholders, changes in outstanding indebtedness in the Fund’s credit facility and the non-recourse credit facilities and repayment of non-recourse long-term debt in Alliance Canada. Monthly distributions to unitholders increased as a result of the 7.5% increase in the annual distribution rate announced in May 2008.
In March 2008, NRGreen secured new credit facilities consisting of a construction facility of $52.5 million and an operating facility of $5.0 million. Upon completion of the fourth NRGreen waste heat recovery facility, in November 2008, the construction facility converted to a two-year term revolving credit facility. Under this agreement, NRGreen has pledged its property as collateral and assigned its material agreements, including its power purchase agreements with SaskPower, to its lender.
At any time or as part of any request for the extension of the term of the operating facility, NRGreen may convert all or part of the two-year term revolving facility into the operating facility. The operating facility is an extendible revolving facility that matures on August 31, 2011. In March 2008, NRGreen drew on the credit facility and distributed $20.0 million as a return of equity to the Fund. The Fund used this payment to pay down debt outstanding under its own credit facility, which had been drawn on to fund capital expansion at NRGreen. Obligations under the NRGreen credit facility are non-recourse to the Fund.
Payments due for contractual obligations over the next five years and thereafter are as follows:
|
(millions of dollars) |
Total |
Less than 1 year |
2 years | 3 years | 4 years | 5 years | After 6 years |
|
Long-term Debt 1 |
282.0 |
100.0 |
– |
92.0 |
– |
– |
90.0 |
|
Non-recourse Long-term Debt 1 |
761.1 |
30.9 |
58.5 |
36.3 |
96.4 |
39.9 |
499.1 |
|
Operating Leases |
38.4 |
3.2 |
2.9 |
2.6 |
3.2 |
3.0 |
23.5 |
|
1,081.5 |
134.1 |
61.4 |
130.9 |
99.6 |
42.9 |
612.6 |
- Includes amounts outstanding under credit facilities at December 31, 2008, in their year of expiry. Amounts are shown net of deferred financing charges.
In July 2007, Alliance Canada acquired a $12.4-million investment in asset-backed commercial paper (ABCP), issued by a structured investment trust. As a result of deteriorating liquidity in the ABCP market in mid-2007, Alliance Canada was unable to redeem this investment upon its maturity on August 31, 2007.
A restructuring plan involving the conversion of the asset-backed commercial paper into medium-term notes was put forward for approval. On January 21, 2009, the Pan-Canadian Committee (the Committee) announced it had fully implemented the restructuring plan. The result of the restructuring plan implementation on January 22, 2009, was that Alliance Canada received various classes of Master Asset Vehicle (MAV) notes in exchange for Alliance Canada’s investment in the asset-backed commercial paper. The MAV notes consist of 48% MAV2 Class A-1 notes, 42% MAV2 Class A-2 notes, 7% MAV2 Class B notes and 3% MAV2 Class C notes. The Class A-1 and A-2 notes, 90% of the notes received, carry an “A” rating from DBRS and the Class B and Class C notes are not rated. The legal maturity of the notes is July 15, 2056, but the actual expected repayment of the notes, if held to maturity, is January 22, 2017. The Fund recognized a fair value discount of $0.4 million in 2007 and $0.8 million in the first quarter of 2008 to adjust the value of the investment to factor in the notes received from the restructuring being rated at less than AAA. This estimate of fair value may differ from the actual fair value that will be realized.
The Fund does not anticipate that the investment in the Master Asset Vehicle notes will have any significant impact on Alliance Canada’s operations or ability to meet upcoming debt obligations.