Despite some uncertainty surrounding its peers, Threshold Power hopes to become the newest cross-border income trust to raise money in Canada.
Following in the footsteps of Argent Energy Trust and Crius Energy Trust, Threshold has filed for an initial public offering, giving investors the chance to invest in another company that is structured much like Canada's once-popular income trusts.
Though these trusts were banned by the federal government, companies like Threshold can adopt the structure because their assets are U.S.-based, which means they are simply American companies raising funds north of the border.
At first investors loved the idea because the trusts offered them yield when steady returns were hard to come by. But the recent stock market performance of some of these trusts, such as Parallel Energy Trust, has been dismal, with Parallel down over 60 per cent from its IPO price.
However, it's hard to compare existing trusts to Threshold, because the asset mix differs from company to company. Historically, these trusts had conventional oil and gas assets. That's started to change, with Crius focussing on natural gas distribution and now Threshold focused wind power.
Threshold has wind assets across the U.S. and 93 per cent of its capacity is tied up under long-term purchase power agreements, meaning it should theoretically have stable cash flows.
Still, investor appetite for renewable power plays can be hit and miss. Silver Ridge Power Inc. tried its hand at an IPO in Canada this year to raise money for solar power assets, but investors weren't having it. Contrarily, solar power-focused SolarCity Corp. went public in the U.S. in December at $8 (U.S.) per share. The stock is now trading at $42.65.
Should Threshold be successful, it could open the doors for more U.S. companies to fundraise in Canada. Christian Gauthier, co-leader of Bennett Jones' capital markets practice, has worked on every energy cross-border trust that is listed in Canada in the past few years. "A lot of people are sniffing around," he said.
Every time a new deal is filed, Gauthier added, there's a steady roster of potential clients who call him up to ask about the prospects.
Yet a new development in the U.S. could change the game. South of the border, NRG Energy is in the process of spinning out some contracted assets by way of an IPO that will create a brand new yield-oriented company. The deal could raise $400-million, and if successful, will give U.S. power companies another option for raising money instead of coming to Canada.
(Tim Kiladze is a Globe and Mail banking reporter.)
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