At a time of robust M&A activity in the independent power producer sector, Atlantic Power Corp. intends to take a cautious stance and will instead focus on reducing debt and repurchasing shares to further strengthen the company's cash flow.
"The three times I was involved in selling IPP businesses, the market was very frothy. Sentiment was very bullish. We thought we were getting prices north of our intrinsic value, or at the high end of our intrinsic value range," CEO, President and Director James Moore Jr. said on an Aug. 4 earnings call.
"Today, it doesn't strike me as an opportune time to be selling a business when power prices are down 50%; a lot of the IPP company shares were trading at all-time lows over last year or two at different points. However, there's a lot of M&A news and rumors in the market and we're driven by math, so we'll keep our eye on what happens there."
Focused on delevering its balance sheet, Atlantic Power repaid $29.5 million of term loan and project debt during the second quarter and has repaid $56.9 million year-to-date. The company is committed to repaying debt amounting to $150 million or more this year, which would place its year-end ratio below 4.0-times debt-to-EBITDA.
"[We] now have the financial flexibility to be an aggressive buyer of our shares if they continue to trade at the meaningful discount to intrinsic value that we believe they do. We expect to have $105 to $110 million of discretionary cash available at year-end; this compares to our current market capitalization of approximately $270 million," Moore said in prepared remarks.
Moore said the company has purchased $22 million worth of common and preferred shares on a sporadic basis for the past 20 months. As of June 30, Atlantic Power's liquidity stands at $227 million, including $104 million of unrestricted cash.
"We will focus on generating as much cash flow as possible from our assets and we will be prepared to act boldly and decisively if compelling opportunities are found on or off our own balance sheet," he added.
Atlantic Power reported second-quarter 2017 project adjusted EBITDA of $85.4 million, up from $46.2 million in the same quarter of 2016. Net loss attributable to the company widened to $21.9 million, or a loss of 19 cents per share, compared with a net loss of $18.5 million, or a loss of 15 cents per share, a year ago. Moore said Atlantic Power is on track to achieve its project adjusted EBITDA guidance for 2017 of $250 million to $265 million.