Attached files
Exhibit
99.1
 |
Ridgewood
Renewable
Power
|
Robert E.
Swanson
Chairman
|
| November 23, 2009 |
| TO: | Shareholders of: | ||
| Ridgewood Power Trust IV | |||
| Ridgewood Power Trust V | |||
| The Ridgewood Power Growth Fund | |||
| RE: | ● | Sale of the Ridgewood Hydro Electric Businesses |
| ● | Cash Distribution to the Power Trusts | |
| ● |
Continuing Work on Sale of
Ridgewood Egypt, Olinda, and
Providence
|
As part of our
ongoing effort to sell the remaining Power Trust assets, I am pleased to
announce that on November 20, 2009 we sold all of our US Hydro and Maine Hydro
facilities. US
Hydro was formed in 2000 and was owned 70.8%
by the Growth
Fund, and 29.2%
by Power
Trust V. Maine
Hydro was formed in 1996 and was owned 50%
by Power
Trust IV and 50%
by Power
Trust V. The combined purchase price totaled $12.7 million, after netting
out reductions relating to estimated net working capital and employee retention
liabilities assumed by the buyers. US Hydro still owns a $1 million
note receivable, which matures in February 2010. When that $1 million
is received in 2010, it will be received by Trust V (29.2%) and the Growth Fund
(70.8%). The US Hydro and Maine Hydro facilities were purchased by
KEI (USA) Power Management Inc. and certain of its subsidiaries. These buyers
are affiliates of Kruger Energy, Inc., a Canada-based international company
focused on green energy.
We announced the
commencement of the sales effort of the Hydros almost two years
ago. The trusts engaged the investment banking firm Ewing Bemiss,
which was the firm we used last year when we sold Penobscot and Eastport (the
waste wood plants in Maine). These hydro assets have been profitable for the
Funds over the years, but in terms of a sale, in addition to the general
terrible market conditions, selling the hydros had two primary challenges.
First, they include small plants located across a wide geographic area, and
second, a majority of the long-term power supply contracts have expired, and
spot electric prices have been (and still are) well below those contracted
rates. When the Funds purchased the respective assets in 1996 and
2000, we calculated our purchase price based primarily on the values of the
remaining years on the premium power sales contracts, not on the residual value
of the hydro plants once the power contracts ran out.
After the premium
power sales contracts ran out, we had to sell electricity on the spot market in
competition with large coal, nuclear and natural gas power
plants. With low spot electric prices, small hydro electric plants
basically need renewable power subsidies, similar to the large solar and wind
power subsidies. There are large
subsidies
for newly
constructed wind, solar, and landfill methane powered (Olinda and
Providence) generating capacity, but essentially none for these very clean,
completely renewable hydro plants that have been producing for decades, and some
have been producing for nearly 100 years. Most of the actual dams for
our Maine projects were constructed 100 to 125 years ago. Even though
these hydros already are built, policies advancing renewable energy should also
favor small hydros, but that has not happened yet.
I give a great deal
of credit to Kruger Energy, who represented the purchasers of these
assets. Kruger Energy has a long-term view and the buyers have
significant financial strength, thereby enabling them to purchase these fine
assets with a view to a time when lip service to renewable power turns into
concrete governmental policies that benefit them. These hydro plants
are irreplaceable because it would be extremely hard at this time to get the
federal and state permits. Even if one could obtain the permits, the
construction cost to replace them would be huge. However, the price
we received is fair, because, just like the value of stocks, people pay for
earnings or cash flow. Without proper renewable subsidies (such as
for wind) as the power contracts expire, cash flow declined, and the value of
our assets declined, despite their theoretical very high replacement
cost. The buyers are in a position to eventually benefit handsomely
when this type of renewable energy production receives what, in my opinion, is
proper financial respect.
CASH
DISTRIBUTIONS TO POWER TRUSTS IV, V AND GROWTH FUND
With this memo, you
will find a check representing a partial distribution. The total amount of the
distribution to the three Funds is approximately $10.7 million. The amounts, per
full unit, are presented below.
|
Distribution
per full
unit
|
|
Cumulative
distributions
per full
unit*
|
|
|
Power Trust
IV
|
$5,000
|
|
$79,913
|
|
Power Trust
V
|
$8,000
|
|
$85,740
|
|
Growth
Fund
|
$1,250
|
|
$40,966
|
|
* Inclusive
of tax credits
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|||
In determining how
much cash to keep in reserve, and how much to distribute at this time, Ridgewood
Renewable Power considered the issues discussed below. Basically,
Trust IV and the Growth Fund continue to hold a significant percentage of two
remaining assets—Providence, in the case of Trust IV, and Ridgewood Egypt in the
case of the Growth Fund.
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Power
Trust IV. Trust IV is distributing approximately 23% of its available
cash. Trust IV has an investment in one remaining project, its 35.2% interest in
electricity production at the Providence Landfill, called the Providence
Project. For several years, as we have been reporting to you, the
Ridgewood Staff have been working to prepare the Providence Project for a major
expansion which, we believe, adds greatly to its value. This asset is being
marketed for sale, but since we cannot predict when a sale will occur, if at
all, we need to retain a significant portion of the cash from both this sale and
the Penobscot and Eastport sale to potentially fund costs relating to the
landfill expansion activities. Trust IV also needs cash reserves for its portion
of potential post-closing liabilities relating to the sale of the Hydros and for
Trust operating expenses.
Power
Trust V. Trust V has a 14.1% interest in one remaining project, the
Ridgewood Egypt water business. However, since Trust V has a relatively small
percentage interest in that asset, with the sale of the Hydros, not only is
Trust V able to distribute a greater percentage of the Hydro net proceeds, but
it is also now free to distribute additional cash that had previously been held
in reserve from the Penobscot and Eastport sale. The distribution the Trust is
making today represents approximately 71% of Trust V’s available
cash.
Growth
Fund. While the Growth Fund now also has one remaining operating asset,
the Ridgewood Egypt water business, it owns 68.1% of that business.
Additionally, due to the lack of distributions from the Egypt business, the
Growth Fund has incurred various trust-level obligations that need to be paid.
After paying off a portion of these trust-level obligations, the Growth Fund is
distributing 36% of the Trust’s available cash. We anticipate that the remaining
trust-level obligations will be paid from the sale of the Egypt business, if,
and when, such a sale occurs.
HOW
RIDGEWOOD CONDUCTED THE ASSET SALE
The first step in
the our process was to conduct a public sale process in which sales information
was prepared and sent to many dozen known investment entities in the renewable
power industry. A number of bids were received in
2008. Ridgewood Renewable Power, on the advice of Ewing Bemiss,
concluded that the Kruger Energy bid was the best from both (i) a financial
point of view and (ii) the most likely to close. Our team then began
negotiating the sale of these facilities. Due to the number of individual
facilities involved and the numerous applicable operating and environmental
regulations, the due diligence process was extensive and time consuming. We
worked hard to shorten the time the due diligence took, but Kruger Energy
proceeded carefully.
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As we all know by
now, in September 2008, the merger and acquisition market fell apart when Lehman
Brothers, AIG, and Merrill Lynch failed or were “rescued”, and the global
economic crisis hit. Lending dried up and purchasers’ targeted rates
of return dramatically increased, meaning that asset values fell steeply. Kruger
Energy maintained that the buyers were still interested in purchasing the
Hydros, but that they still had months to go in due diligence, and that the
price that was indicated in their original non-binding bid would need to be
reduced.
With the assistance
of Ewing Bemiss, we analyzed the revised price from the buyers and concluded
that the revised offer was competitive with the other offers that were likely to
be available. Ewing Bemiss advised us that the reduced price being offered by
the buyers was still fair to the respective Funds from a financial point of
view, and in light of the fact that these operations would likely have lower
profits due to the expiration of the long-term contracts, Ridgewood Renewable
Power made the decision to continue the sale process with Kruger
Energy.
I would like to
point out certain key aspects of the sale:
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|
1.
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Of the $12.7
million purchase price, the buyers paid $7.3 million for Maine Hydro and
$5.4 million for US Hydro. The Funds owning US Hydro will also
receive the $1 million note due in February 2010. We believe
that these are fair prices for the respective facilities. Additionally,
our investment banker, Ewing Bemiss, did their own independent evaluation
and issued a fairness opinion stating that the prices being paid for the
facilities were fair to the Funds from a financial point of
view.
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2.
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The buyers,
as is customary in these types of transactions, required various customary
representations and warranties in connection with the sale. Certain of
these representations and warranties survive the closing, meaning that the
buyers will be indemnified for any loss they experience arising from a
breach of one or more of these representations and warranties. We were
able to obtain insurance to cover almost all of these surviving
representations and warranties. The buyers’ remedies are primarily limited
to the insurance. Having this insurance allowed us to avoid having to
retain large cash reserves relating to the sale, an approach we have
successfully used in past sales. By avoiding large cash reserves, more
money becomes available for distribution to the Funds’ shareholders more
quickly. In addition to the insurance, we were also required to
post a $1.2 million letter of credit for certain potential liabilities
that were not insured.
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3.
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The Hydro
assets were relatively small assets of Trust IV and the Growth Fund; Trust
V is in a shareholder-approved liquidation status, meaning that we are
selling all assets and working towards a final distribution and Trust
termination. As a result, we were able to close the sale
without having the delay and cost to the Funds while we obtained
shareholder consents. Avoiding this delay also allowed us to avoid the
risk that the deal would be adversely affected while we were spending
several months in the consent process. If Ridgewood had
required a multi-month period to obtain consents, the buyers would almost
certainly have required various customary closing “outs” during that
time. Instead, we actually closed as soon as the buyers
concluded their due diligence and the final adjustments were
negotiated.
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RIDGEWOOD
CONTINUES WORK ON SALE OF RIDGEWOOD EGYPT, OLINDA, AND
PROVIDENCE
Our goal remains to
sell all the remaining Power Trust assets as soon as we can. While we cannot
predict the terms or timing of any such sales, or even if any further sales will
occur, we will keep you updated when something substantive happens. I am very
pleased to enclose your check and look forward to future
distributions.
| Ridgewood Renewable Power, as managing shareholder of the Ridgewood Electric Power Trust IV, Ridgewood Electric Power Trust V and The Ridgewood Power Growth Fund (the “Funds”), has made statements in this communication that constitute forward-looking statements, as defined by the federal securities laws, including the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. Forward-looking statements include statements, other than historical information, made regarding events, financial trends, future operating results, financial position, cash flows and other general information concerning possible or assumed future results of operations of the Funds. You are cautioned that such statements are only predictions, forecasts or estimates of what may occur and are not guarantees of future performance or of the occurrence of events or other factors used to make such predictions, forecasts or estimates. Actual results may differ materially from those results expressed, implied or inferred from these forward-looking statements and may be worse. Finally, such statements reflect the Funds’ current views. The Funds undertake no obligation to update the forward-looking statements made herein to reflect events or circumstances that occur after today or to reflect the occurrence of unanticipated events except as required by law. |
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