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Press release from Business Wire

Capstone Infrastructure Corporation Prices Financing of Hydro Power Facilities and Sets New Dividend Policy

Friday, June 01, 2012

Capstone Infrastructure Corporation Prices Financing of Hydro Power Facilities and Sets New Dividend Policy13:53 EDT Friday, June 01, 2012 TORONTO (Business Wire) -- Capstone Infrastructure Corporation (TSX: CSE; CSE.DB.A; CSE.PR.A – the “Corporation”) today announced it has priced an approximately $100 million debt offering comprising $80.4 million of senior secured bonds and $20.2 million of subordinated secured bonds (collectively, the “Bonds”) to recapitalize its hydro power facilities. The financing is expected to close on or around June 6, 2012. The Corporation also announced that its Board of Directors has established a new common share dividend policy under which the Corporation intends to pay a quarterly dividend of $0.075 per share, or $0.30per share on an annualized basis. “The size and terms of this financing are generally consistent with our expectations and underline the attractiveness of high quality hydro power facilities to Canadian investors. This financing additionally enables us to eliminate the levelization liability that forms part of the power purchase agreement at our Wawatay hydro power facility. Overall, we now have a much stronger balance sheet to support growth initiatives,” said Michael Bernstein, President and Chief Executive Officer. “In addition, we are now in a position to establish a new dividend policy, which reflects improved clarity on the range of outcomes at the Cardinal facility and our view on our current portfolio's long-term cash flow profile following 2014 as we continue to work towards concluding a new contract. Our new dividend policy is intended to provide stable and attractive income for shareholders while enabling us to retain cash that can be reinvested in growth opportunities.” Completion of Refinancing Initiatives Following the repayment of the approximately $27 million levelization debt balance at the Wawatay hydro facility along with transaction-related costs, the net proceeds of the financing are expected to be approximately $72 million. In addition, the Corporation will establish debt service and maintenance reserve accounts, which will be initially cash funded, in the amount of approximately $4 million.As a result, approximately $68 million of the net proceeds from the financing will be used to repay a portion of the approximately $80 million outstanding on the Corporation's CPC-Cardinal credit facility, which matures on September 28, 2012. The senior secured and subordinated secured bonds are fully amortizing with 28-year and 29-year terms, and bear interest at fixed rates of approximately 4.6% and 7.0%, respectively. The Bonds are secured by the hydro power facilities alone and are non-recourse to the Corporation's other businesses. TD Securities Inc. acted as sole arranger on the private placement of the Bonds. The Corporation is currently finalizing a new corporate credit facility with its existing lenders to refinance the remaining approximately $12 million outstanding under the CPC-Cardinal credit facility. New Common Share Dividend Policy The Board of Directors of the Corporation has established a new dividend policy under which the Corporation intends to pay $0.075 per common share quarterly, or $0.30 per common share on an annualized basis, which provides an attractive yield to shareholders. As negotiations with the Ontario Power Authority have progressed but not yet concluded, the Corporation's new dividend policy reflects management's view on current Ontario power market and fiscal dynamics and its expectation for the cash flow Cardinal will generate following the expiry of its current power purchase agreement at the end of 2014. The Corporation's dividend policy is determined by the Board of Directors of the Corporation and is based on the Corporation's cash flows, earnings, financial requirements, the satisfaction of solvency tests imposed under corporate law for the declaration of dividends and other relevant factors. The new policy will commence with the second quarter 2012 dividend, which the Board of Directors has declared in the amount of $0.025 per common share payable on July 16, 2012 to shareholders of record on June 29, 2012. The ex-dividend date is June 26, 2012. The second quarter 2012 dividend has been pro-rated to reflect the dividends previously declared for the months of April and May 2012. Based upon the new dividend policy, subsequent quarterly dividends are expected to be in the amount of $0.075 per common share. Based upon the Corporation's current portfolio and operations, management expects the new dividend will remain stable with the potential for growth over time as the Corporation executes its growth strategy. With the implementation of the new dividend policy, the Corporation expects to retain additional cash that can be reinvested in new growth opportunities. Based on its current portfolio, the Corporation is targeting a long-term payout ratio, which is based on Adjusted Funds from Operations (AFFO), of approximately 70% to 80%. “While Capstone has faced some challenges over the past two quarters, our businesses are running well and our portfolio is sound operationally,” added Mr. Bernstein. “We've addressed our refinancing requirements, provided clarity to investors on our dividend and are working to conclude a new contract for Cardinal. We remain confident that our efforts to enhance the value of our portfolio will enable us to provide shareholders with an attractive total return in the years ahead.” The dividends paid by the Corporation on its common shares are designated “eligible” dividends for purposes of the Income Tax Act (Canada). An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents. In respect of the Corporation's July 16, 2012 common share dividend payment, the Corporation will issue common shares in connection with the reinvestment of dividends under the Corporation's Dividend Reinvestment Plan. The price of common shares purchased with reinvested dividends will be the previous five-day volume weighted average trading share price on the Toronto Stock Exchange, less a 5% discount. A distribution of $0.025 per unit will also be paid on July 16, 2012 to holders of record on June 29, 2012 of Class B Exchangeable Units of MPT LTC Holding LP, which is a subsidiary entity of the Corporation. About Capstone Infrastructure Corporation Capstone Infrastructure Corporation's mission is to build and responsibly manage a high quality portfolio of infrastructure businesses in Canada and internationally in order to deliver a superior total return to shareholders by providing reliable income and capital appreciation. The Corporation's portfolio currently includes investments in gas cogeneration, wind, hydro, biomass and solar power generating facilities, representing approximately 370 MW of installed capacity, a 33.3% interest in a district heating business in Sweden, and a 50% interest in a regulated water utility in the United Kingdom. Please visit www.capstoneinfrastructure.com for more information. Notice to Readers Certain of the statements contained within this document are forward-looking and reflect management's expectations regarding the future growth, results of operations, performance and business of Capstone Infrastructure Corporation (the “Corporation”) based on information currently available to the Corporation. Forward-looking statements and the financial outlook are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements and the financial outlook may not be appropriate for other purposes. These statements and the financial outlook use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “estimate”, “plan”, “believe” or other similar words: These statements and the financial outlook are subject to known and unknown risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and the financial outlook and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements and the financial outlook within this document are based on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions set out in the management's discussion and analysis of the results of operations and the financial condition of the Corporation (“MD&A”) for the year ended December 31, 2011 under the heading “Results of Operations”, as updated in subsequently filed interim MD&A of the Corporation (such documents are available under the Corporation's profile on www.sedar.com). Other material factors or assumptions that were applied in formulating the forward-looking statements and the financial outlook contained herein include or relate to the following: that the business and economic conditions affecting the Corporation's operations will continue substantially in their current state, including, with respect to industry conditions, general levels of economic activity, regulations, weather, taxes and interest rates; a full year of contribution from the Amherstburg Solar Park, the Swedish district heating business (“Värmevärden”) and the UK water utility (“Bristol Water”, adjusted for the reduced ownership interest as of May 10, 2012); a TransCanada Pipelines (“TCPL”) gas transportation toll of approximately $2.24 per gigajoule in 2012; the level of gas mitigation revenue earned by the Cardinal facility; that there will be no unplanned material changes to the Corporation's facilities, equipment or contractual arrangements, no unforeseen changes in the legislative, regulatory and operating framework for the Corporation's businesses, no delays in obtaining required approvals, no unforeseen changes in rate orders or rate structures for the Corporation's power infrastructure facilities, Värmevärden or Bristol Water, no unfavourable changes in environmental regulation and no significant event occurring outside the ordinary course of business; the refinancing of the Corporation's Capstone Power Corporation-Cardinal Power credit facility; that there will be no further amendments by the Ontario government to the regulations governing the mechanism for calculating the Global Adjustment (which affects the calculation of the price escalators under each power purchase agreement (“PPA”) for the Cardinal facility and the hydro power facilities located in Ontario); ; the Swedish Krona to Canadian dollar exchange rate; the UK pound sterling to Canadian dollar exchange rate; the accounting treatment for Bristol Water's business under International Financial Reporting Standards, particularly with respect to accounting for maintenance capital expenditures; the amount and timing of capital expenditures by Bristol Water; and that Bristol Water will operate and perform in a manner consistent with the regulatory assumptions underlying its current asset management plan, including, among others: real and inflationary increases in Bristol Water's revenue, Bristol Water's expenses increasing in line with inflation, and capital investment, leakage, customer service standards and asset serviceability targets being achieved. Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forward-looking statements and the financial outlook, actual results may differ from those suggested by the forward-looking statements and the financial outlook for various reasons, including risks related to: variability and payments of dividends on the Corporation's common shares, which are not guaranteed; volatile market price for the Corporation's securities; availability of debt and equity financing; default under credit agreements; credit risk, prior ranking indebtedness and absence of covenant protection for holders of the Corporation's convertible debentures; dependence on subsidiaries and investees; acquisitions; geographic concentration and non-diversification; foreign exchange risk; reliance on key personnel; insurance; shareholder dilution; derivatives risks; changes in legislation and administrative policy; competition; private companies and illiquid securities; operational performance; PPAs; fuel costs and supply; contract performance; Amherstburg Solar Park technology risk; land tenure and related rights; environmental, health and safety regime; regulatory regime and permits; force majeure; influence of the UK water regulator (“Ofwat”) price determinations; failure of Bristol Water to deliver capital investment programs; failure of Bristol Water to deliver water leakage target; Ofwat's introduction of the Service Incentive Mechanism and the serviceability assessment; economic environment, inflation and capital market conditions; pension plan obligations; operational risks; competition; default under Bristol Water's artesian loans, bonds, debentures and credit facility; seasonality and climate change; labour relations; special administration; general risks inherent in the district heating sector; industrial and residential contracts; default under Värmevärden Bonds; and minority interest. Further information regarding these risk factors is contained in the Corporation's Annual Information Form dated March 21, 2012 (which is available under the Corporation's profile on www.sedar.com). The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to differ materially from the results and events discussed in the forward-looking statements and the financial outlook. The forward-looking statements and the financial outlook within this document reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements and the financial outlook. Non-GAAP Financial Measures “Adjusted Funds from Operations” is a non-GAAP financial measures and do not have any standardized meaning prescribed by International Financial Reporting Standards. As a result, these measures may not be comparable to similar measures presented by other issuers. The Corporation defines AFFO as Adjusted EBITDA less Adjusted EBITDA generated from businesses with significant non-controlling interests plus dividends received from businesses with significant non-controlling interests and scheduled repayments of principal on loans receivable from equity accounted investments, less the following items for businesses without significant non-controlling interests: interest paid; income taxes paid; dividends paid on the preferred shares included in shareholders' equity; and maintenance capital expenditure payments and scheduled repayments of principal on debt, net of changes to the levelization liability. Capstone Infrastructure CorporationSarah Borg-Olivier, 416-649-1325Senior Vice President, Communicationssborg-olivier@capstoneinfrastructure.com