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EX-32.2 - EX-32.2 - ATLANTIC POWER CORPat-20200331ex322568f4e.htm
EX-32.1 - EX-32.1 - ATLANTIC POWER CORPat-20200331ex321da1320.htm
EX-31.2 - EX-31.2 - ATLANTIC POWER CORPat-20200331ex31273a9bc.htm
EX-31.1 - EX-31.1 - ATLANTIC POWER CORPat-20200331ex3113d8231.htm
EX-10.36 - EX-10.36 - ATLANTIC POWER CORPat-20200331ex10364b803.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to        

 

COMMISSION FILE NUMBER 001‑34691

ATLANTIC POWER CORPORATION

(Exact name of registrant as specified in its charter)

 

 

British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)

55‑0886410
(I.R.S. Employer
Identification No.)

3 Allied Drive, Suite 155
Dedham, MA
(Address of principal executive offices)

02026
(Zip code)

 

(617) 977‑2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading symbol

Name of Exchange on which registered

Common Shares, no par value, and the associated Rights to Purchase Common Shares

AT

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

 

 

If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

The number of shares outstanding of the registrant’s Common Stock as of May 6, 2020 was 93,002,338.

 

 

 

 

ATLANTIC POWER CORPORATION

 

FORM 10‑Q

 

THREE MONTHS ENDED MARCH 31, 2020

 

Index

 

 

General :

    

3

 

PART I—FINANCIAL INFORMATION

 

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

 

4

 

Consolidated Statements of Operations for the three months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

 

5

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

 

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)

 

7

 

Condensed Notes to Consolidated Financial Statements (unaudited)

 

8

ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

35

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

51

ITEM 4. 

CONTROLS AND PROCEDURES

 

51

 

PART II—OTHER INFORMATION

 

 

ITEM 1A. 

RISK FACTORS

 

51

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

52

ITEM 6. 

EXHIBITS

 

55

 

 

 

 

GENERAL

 

In this Quarterly Report on Form 10‑Q, references to “Cdn$” and “Canadian dollars” are to the lawful currency of Canada and references to “$”, “US$” and “U.S. dollars” are to the lawful currency of the United States. All dollar amounts herein are in U.S. dollars, unless otherwise indicated.

 

Unless otherwise stated, or the context otherwise requires, references in this Quarterly Report on Form 10‑Q to “we,” “us,” “our,” “Atlantic Power” and the “Company” refer to Atlantic Power Corporation, those entities owned or controlled by Atlantic Power Corporation and predecessors of Atlantic Power Corporation.

3

ATLANTIC POWER CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

(in millions of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2020

 

2019

    

Assets

    

(unaudited)

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

47.8

 

$

74.9

 

Restricted cash

 

 

0.5

 

 

7.7

 

Accounts receivable

 

 

32.6

 

 

30.4

 

Insurance recovery receivable (Note 13)

 

 

6.1

 

 

13.5

 

Current portion of derivative instruments asset (Notes 6 and 7)

 

 

 —

 

 

0.7

 

Inventory

 

 

15.8

 

 

18.6

 

Prepayments

 

 

6.7

 

 

3.8

 

Income taxes receivable (Note 8)

 

 

2.5

 

 

1.8

 

Lease receivable (Note 14)

 

 

0.4

 

 

0.9

 

Other current assets

 

 

0.3

 

 

0.4

 

Total current assets

 

 

112.7

 

 

152.7

 

Property, plant, and equipment, net

 

 

490.5

 

 

502.1

 

Equity investments in unconsolidated affiliates (Note 4)

 

 

103.7

 

 

96.6

 

Power purchase agreements and intangible assets, net

 

 

137.5

 

 

144.3

 

Goodwill

 

 

21.3

 

 

21.3

 

Operating lease right-of-use assets (Note 14)

 

 

5.9

 

 

6.3

 

Deferred income taxes (Note 8)

 

 

9.8

 

 

10.4

 

Other assets

 

 

0.6

 

 

1.9

 

Total assets

 

$

882.0

 

$

935.6

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

4.7

 

$

8.9

 

Accrued interest

 

 

3.2

 

 

2.6

 

Other accrued liabilities

 

 

13.6

 

 

20.8

 

Current portion of long-term debt (Note 5)

 

 

78.5

 

 

76.4

 

Current portion of derivative instruments liability (Notes 6 and 7)

 

 

18.0

 

 

12.0

 

Operating lease liabilities (Note 14)

 

 

2.0

 

 

2.0

 

Other current liabilities

 

 

0.2

 

 

0.2

 

Total current liabilities

 

 

120.2

 

 

122.9

 

Long-term debt, net of unamortized discount and deferred financing costs (Note 5)

 

 

436.3

 

 

473.5

 

Convertible debentures, net of discount and unamortized deferred financing costs

 

 

74.2

 

 

81.1

 

Derivative instruments liability (Notes 6 and 7)

 

 

16.5

 

 

15.9

 

Deferred income taxes (Note 8)

 

 

24.1

 

 

23.7

 

Power purchase agreements and intangible liabilities, net

 

 

18.5

 

 

19.8

 

Asset retirement obligations, net

 

 

49.8

 

 

51.5

 

Operating lease liabilities (Note 14)

 

 

4.3

 

 

4.8

 

Other long-term liabilities

 

 

4.1

 

 

4.7

 

Total liabilities

 

 

748.0

 

 

797.9

 

Equity

 

 

 

 

 

 

 

Common shares, no par value, unlimited authorized shares; 105,502,338 and 108,675,294 issued and outstanding at March 31, 2020 and December 31, 2019 (Note 11)

 

 

1,252.1

 

 

1,259.9

 

Accumulated other comprehensive loss (Note 3)

 

 

(152.2)

 

 

(140.7)

 

Retained deficit

 

 

(1,134.7)

 

 

(1,164.2)

 

Total Atlantic Power Corporation shareholders’ equity

 

 

(34.8)

 

 

(45.0)

 

Preferred shares issued by a subsidiary company (Note 11)

 

 

168.8

 

 

182.7

 

Total equity

 

 

134.0

 

 

137.7

 

Total liabilities and equity

 

$

882.0

 

$

935.6

 

 

See accompanying notes to consolidated financial statements.

4

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in millions of U.S. dollars, except per share amounts)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

Project revenue:

    

 

    

 

 

    

    

Energy sales (Note 2)

 

$

40.7

 

$

37.0

 

Energy capacity revenue (Note 2)

 

 

28.0

 

 

30.2

 

Other  (Note 2)

 

 

4.1

 

 

5.8

 

 

 

 

72.8

 

 

73.0

 

Project expenses:

 

 

 

 

 

 

 

Fuel

 

 

19.6

 

 

20.0

 

Operations and maintenance

 

 

20.7

 

 

16.5

 

Depreciation and amortization

 

 

15.6

 

 

16.2

 

 

 

 

55.9

 

 

52.7

 

Project other income (loss):

 

 

 

 

 

 

 

Change in fair value of derivative instruments (Notes 6 and 7)

 

 

(5.6)

 

 

(2.4)

 

Equity in earnings of unconsolidated affiliates (Note 4)

 

 

13.7

 

 

12.9

 

Interest, net

 

 

(0.3)

 

 

(0.3)

 

Other income, net

 

 

 —

 

 

0.1

 

 

 

 

7.8

 

 

10.3

 

Project income

 

 

24.7

 

 

30.6

 

Administrative and other expenses:

 

 

 

 

 

 

 

Administration

 

 

6.7

 

 

6.8

 

Interest expense, net

 

 

10.8

 

 

11.1

 

Foreign exchange (gain) loss

 

 

(20.6)

 

 

5.0

 

Other expense, net (Note 6)

 

 

2.6

 

 

4.7

 

 

 

 

(0.5)

 

 

27.6

 

Income from operations before income taxes

 

 

25.2

 

 

3.0

 

Income tax expense (Note 8)

 

 

1.5

 

 

0.6

 

Net income

 

 

23.7

 

 

2.4

 

Net loss attributable to preferred shares of a subsidiary company (Note 11)

 

 

(5.8)

 

 

(6.5)

 

Net income attributable to Atlantic Power Corporation

 

$

29.5

 

$

8.9

 

Net earnings per share attributable to Atlantic Power Corporation shareholders: (Note 10)

 

 

 

 

 

 

 

Basic

 

$

0.28

 

$

0.08

 

Diluted

 

 

0.23

 

 

0.07

 

Weighted average number of common shares outstanding: (Note 10)

 

 

 

 

 

 

 

Basic

 

 

107.2

 

 

108.9

 

Diluted

 

 

134.8

 

 

138.6

 

 

See accompanying notes to consolidated financial statements.

 

5

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions of U.S. dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

 

2019

 

Net income

    

$

23.7

    

$

2.4

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Unrealized loss on hedging activities

 

$

(0.4)

 

$

(0.2)

 

Net amount reclassified to earnings

 

 

0.1

 

 

0.1

 

Net realized and unrealized loss on derivatives

 

 

(0.3)

 

 

(0.1)

 

Foreign currency translation adjustments

 

 

(11.2)

 

 

2.2

 

Other comprehensive (loss) income, net of tax

 

 

(11.5)

 

 

2.1

 

Comprehensive income

 

 

12.2

 

 

4.5

 

Less: Comprehensive loss attributable to preferred shares of a subsidiary company

 

 

(5.8)

 

 

(6.5)

 

Comprehensive income attributable to Atlantic Power Corporation

 

$

18.0

 

$

11.0

 

 

See accompanying notes to consolidated financial statements.

6

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in millions of U.S. dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

 

2020

 

2019

 

Cash provided by operating activities:

    

 

    

    

 

    

    

Net income

 

$

23.7

 

$

2.4

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15.6

 

 

16.2

 

Share-based compensation

 

 

0.4

 

 

0.6

 

Equity in earnings from unconsolidated affiliates

 

 

(13.7)

 

 

(12.9)

 

Distributions from unconsolidated affiliates

 

 

6.0

 

 

5.8

 

Unrealized foreign exchange (gain) loss

 

 

(20.9)

 

 

5.3

 

Change in fair value of derivative instruments

 

 

8.2

 

 

7.1

 

Amortization of debt discount and deferred financing costs

 

 

2.0

 

 

1.9

 

Non-cash operating lease expense

 

 

0.5

 

 

0.4

 

Deferred income taxes

 

 

0.3

 

 

(0.7)

 

Change in other operating balances

 

 

 

 

 

 

 

Accounts receivable

 

 

(2.1)

 

 

5.1

 

Inventory

 

 

2.8

 

 

2.7

 

Prepayments and other assets

 

 

(1.7)

 

 

(1.4)

 

Accounts payable

 

 

(5.7)

 

 

1.9

 

Accruals and other liabilities

 

 

(7.0)

 

 

(5.2)

 

Cash provided by operating activities

 

 

8.4

 

 

29.2

 

Cash (used in) provided by investing activities:

 

 

 

 

 

 

 

Insurance proceeds

 

 

7.4

 

 

 —

 

Proceeds from sales of assets and equity investments, net

 

 

 —

 

 

1.5

 

Purchase of property, plant and equipment

 

 

(10.0)

 

 

(0.3)

 

Cash (used in) provided by investing activities

 

 

(2.6)

 

 

1.2

 

Cash used in financing activities:

 

 

 

 

 

 

 

Common share repurchases

 

 

(8.2)

 

 

(0.1)

 

Preferred share repurchases

 

 

(6.4)

 

 

(7.7)

 

Repayment of corporate and project-level debt

 

 

(21.6)

 

 

(15.8)

 

Cash payments for vested LTIP withheld for taxes

 

 

(0.7)

 

 

 —

 

Deferred financing costs

 

 

(1.5)

 

 

 —

 

Dividends paid to preferred shareholders

 

 

(1.7)

 

 

(1.9)

 

Cash used in financing activities

 

 

(40.1)

 

 

(25.5)

 

Net (decrease) increase in cash, restricted cash and cash equivalents

 

 

(34.3)

 

 

4.9

 

Cash, restricted cash and cash equivalents at beginning of period

 

 

82.6

 

 

70.4

 

Cash, restricted cash and cash equivalents at end of period

 

$

48.3

 

$

75.3

 

Supplemental cash flow information

 

 

 

 

 

 

 

Interest paid

 

$

8.3

 

$

8.2

 

Income taxes paid, net

 

$

0.7

 

$

0.8

 

Accruals for construction in progress

 

$

0.3

 

$

 —

 

 

See accompanying notes to consolidated financial statements.

 

 

7

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

1. Nature of business

 

General

 

Atlantic Power is an independent power producer that owns power generation assets in eleven states in the United States and two provinces in Canada. Our power generation projects, which are diversified by geography, fuel type, dispatch profile and offtaker, sell electricity to utilities and other large customers predominantly under long‑term power purchase agreements (“PPAs”), which seek to minimize exposure to changes in commodity prices. As of March 31, 2020, our portfolio consisted of twenty-one operating projects with an aggregate electric generating capacity of approximately 1,723 megawatts (“MW”) on a gross ownership basis and approximately 1,327 MW on a net ownership basis. Sixteen of the projects are majority‑owned by the Company.  

 

Atlantic Power is a corporation established under the laws of the Province of Ontario on June 18, 2004 and continued to the Province of British Columbia on July 8, 2005. Our shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “ATP” and on the New York Stock Exchange (“NYSE”) under the symbol “AT.” Our registered office is located at 1066 West Hastings Street, Suite 2600, Vancouver, British Columbia V6E 3X1, Canada and our headquarters is located at 3 Allied Drive, Suite 155, Dedham, Massachusetts 02026, USA. Our telephone number in Dedham is (617) 977‑2400 and the address of our website is www.atlanticpower.com. Information contained on Atlantic Power’s website or that can be accessed through its website is not incorporated into and does not constitute a part of this Quarterly Report on Form 10‑Q. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.

 

Basis of presentation

 

The interim condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q have been prepared in accordance with the SEC regulations for interim financial information and with the instructions to Form 10‑Q. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to our financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2019. Interim results are not necessarily indicative of results for the full year.

 

In our opinion, the accompanying unaudited interim condensed consolidated financial statements present fairly our consolidated financial position as of March 31, 2020, the results of operations and comprehensive income for the three months ended March 31, 2020 and 2019, and our cash flows for the three months ended March 31, 2020 and 2019, in accordance with U.S. generally accepted accounting policies. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included.

 

Use of estimates

 

The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. During the periods presented, we have made a number of estimates and valuation assumptions, including the fair value of assets acquired and liabilities assumed in purchase accounting, the useful lives and recoverability of property, plant and equipment, valuation of goodwill, intangible assets and liabilities related to PPAs and fuel supply agreements, the recoverability of equity investments, the recoverability of deferred tax assets, tax provisions, recovery of expected insurance proceeds, the fair value of financial instruments and derivatives, pension obligations, asset retirement obligations and equity-based compensation. In addition, estimates are used to test long-lived assets and goodwill for impairment and to determine the fair value of impaired assets. These estimates and valuation assumptions are based on

8

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

present conditions and our planned course of action, as well as assumptions about future business and economic conditions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Should the underlying valuation assumptions and estimates change, the recorded amounts could change by a material amount.

 

Recently adopted and issued accounting standards

 

Accounting standards adopted

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses”(Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance amends the guidance on measuring credit losses on financial assets held at amortized cost. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted ASU 2016-13 on January 1, 2020 and it did not have a material impact on the condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Changes to Fair value Measurement Disclosures” to modify the disclosure requirements on fair value measurement disclosures. The guidance requires removals of certain disclosures, such as the amount of and reasons for transfers between level 1 and level 2 of fair value hierarchy and the policy for timing of transfers between levels. The guidance further requires modifications and additions surrounding the disclosures of level 3 fair value measurements and related unrealized gains and losses. The guidance is effective for fiscal years beginning after December 15, 2019. We adopted this guidance on January 1, 2020 and it did not have an impact on the condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-09, “Codification Improvements” to remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The scope of the guidance is broad and includes reporting comprehensive income, debt modifications and extinguishments and other sub topics. The guidance is effective for fiscal years beginning after December 15, 2019. We adopted this guidance on January 1, 2020 and it did not have an impact on the condensed consolidated financial statements.

 

Accounting standards to be implemented

 

In August 2018, the FASB issued ASU No. 2018-14, “Compensation -Retirement Benefits -Defined Benefit Plans -General (Subtopic 715-20)”, to improve the effectiveness of benefit plan disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles (“GAAP”) that is most important to users of each entity’s financial statements. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Additionally, the amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and early adoption is permitted for all entities. We are currently evaluating the impact that adoption will have on our disclosures.

 

In December 2019, the FASB issued amendments to the guidance for income taxes through ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for income taxes by removing certain exceptions such as: 1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) the requirement to

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Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. For public entities, the amendments are effective for reporting periods beginning after December 15, 2020. Early adoption is permitted. We are in the process of evaluating the potential impact of the new guidance on our consolidated financial statements.

 

In March 2020, the FASB issued amendments to the guidance for reference rate reform through ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments are elective and are effective upon issuance for all entities. We are in the process of evaluating the potential impact of the new guidance on our consolidated financial statements.

 

2. Revenue from contracts

 

Disaggregation of revenue

 

We have four reportable segments: Solid Fuel,  Natural Gas,  Hydroelectric and Corporate. We revised our reportable business segments in the fourth quarter of 2019 as the result of recent asset acquisitions, PPA expirations and project decommissioning, and in order to align with changes to management’s structure, resource allocation and performance assessment in making decisions regarding our operations. Segment information for the comparative 2019 period has been revised to conform to the new segment presentation. Each segment contains various power generation projects and performance obligations as described above.  For more detailed information about reportable segments, see Note 12,  Segment and geographical information. Revenue by segment consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

    

    

 

 

    

 

 

    

 

    

 

    

Consolidated

 

 

Solid Fuel

 

Natural Gas

 

Hydroelectric

 

Corporate

 

Total

Project revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy sales

 

$

16.8

 

$

6.2

 

$

17.7

$

 

 —

 

$

40.7

Energy capacity revenue

 

 

6.3

 

 

21.7

 

 

 —

 

 

 —

 

 

28.0

Steam energy and capacity revenue

 

 

 —

 

 

2.7

 

 

 —

 

 

 —

 

 

2.7

Waste heat revenue

 

 

0.3

 

 

 —

 

 

 —

 

 

 —

 

 

0.3

Ancillary and transmission services

 

 

 —

 

 

0.7

 

 

0.7

 

 

 —

 

 

1.4

Asset management and operation

 

 

 —

 

 

 —

 

 

 —

 

 

0.2

 

 

0.2

Miscellaneous revenue

 

 

 —

 

 

(0.5)

 

 

 —

 

 

 —

 

 

(0.5)

 

 

 

23.4

 

 

30.8

 

 

18.4

 

 

0.2

 

 

72.8

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

    

    

 

 

    

 

 

    

 

    

    

 

    

    

Consolidated

 

 

 

Solid Fuel

 

 

Natural Gas

 

 

Hydroelectric

 

 

Corporate

 

 

Total

Project revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy sales

 

$

10.4

 

$

9.0

 

$

17.6

 

$

 —

 

$

37.0

Energy capacity revenue

 

 

9.3

 

 

20.9

 

 

 —

 

 

 —

 

 

30.2

Steam energy and capacity revenue

 

 

 —

 

 

0.6

 

 

 —

 

 

 —

 

 

0.6

Ancillary and transmission services

 

 

 —

 

 

4.3

 

 

0.8

 

 

 —

 

 

5.1

Asset management and operation

 

 

0.1

 

 

(0.1)

 

 

 —

 

 

0.2

 

 

0.2

Miscellaneous revenue

 

 

 —

 

 

(0.1)

 

 

 —

 

 

 —

 

 

(0.1)

 

 

 

19.8

 

 

34.6

 

 

18.4

 

 

0.2

 

 

73.0

 

Contract balances

 

Contract liabilities as of March 31, 2020 include a $0.1 million fuel reserve fund at Dorchester (Solid Fuel segment) and a $0.1 million steam sale credit at the San Diego plants (Natural Gas segment). Contract liabilities as of December 31, 2019 include a $0.2 million fuel reserve fund at Dorchester and a $0.1 million steam sale credit at the San Diego plants. We had no contract assets at March 31, 2020 and December 31, 2019.

 

 

 

11

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

3. Changes in accumulated other comprehensive loss by component

 

The changes in accumulated other comprehensive (loss) income by component were as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

Foreign currency translation

    

 

    

 

 

    

Balance at beginning of period

 

$

(140.6)

 

$

(146.4)

Other comprehensive (loss) income:

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

(11.2)

 

 

2.2

Balance at end of period

 

$

(151.8)

 

$

(144.2)

Pension

 

 

 

 

 

 

Balance at beginning and end of period (2)

 

$

(1.7)

 

$

(1.4)

Cash flow hedges

 

 

 

 

 

 

Balance at beginning of period

 

$

1.6

 

$

1.6

Other comprehensive (loss) income:

 

 

 

 

 

 

Net change from periodic revaluations

 

 

(0.6)

 

 

(0.2)

Tax benefit

 

 

0.2

 

 

 —

Total other comprehensive (loss) income before reclassifications, net of tax

 

 

(0.4)

 

 

(0.2)

Net amount reclassified to earnings:

 

 

 

 

 

 

Interest rate swaps(3)

 

 

0.1

 

 

0.1

Tax expense

 

 

 —

 

 

 —

Total amount reclassified from accumulated other comprehensive loss, net of tax

 

 

0.1

 

 

0.1

Total other comprehensive loss

 

 

(0.3)

 

 

(0.1)

Balance at end of period

 

$

1.3

 

$

1.5


(1)

In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.

(2)

Quarterly activity was immaterial.

(3)

This amount was included in interest expense, net on the accompanying consolidated statements of operations.

 

 

 

 

 

12

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

(4)

 

4. Equity method investments in unconsolidated affiliates

 

The following summarizes the operating results for the three months ended March 31, 2020 and 2019, respectively, for our proportional ownership interest in equity method investments:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

Operating results

    

2020

    

2019

Revenue

 

 

 

 

 

 

Frederickson

 

$

8.0

 

$

5.8

Orlando Cogen, LP

 

 

14.6

 

 

15.5

Chambers Cogen, LP

 

 

10.6

 

 

11.5

Craven County Wood Energy, LP (1)

 

 

3.1

 

 

 —

Grayling Generating Station, LP (1)

 

 

1.5

 

 

 —

 

 

 

37.8

 

 

32.8

Project expenses

 

 

 

 

 

 

Frederickson

 

 

5.4

 

 

3.4

Orlando Cogen, LP

 

 

6.3

 

 

7.5

Chambers Cogen, LP

 

 

8.1

 

 

8.6

Craven County Wood Energy, LP (1)

 

 

2.6

 

 

 —

Grayling Generating Station, LP (1)

 

 

1.4

 

 

 —

 

 

 

23.8

 

 

19.5

Project other expenses

 

 

 

 

 

 

Frederickson

 

 

 —

 

 

 —

Orlando Cogen, LP

 

 

 —

 

 

 —

Chambers Cogen, LP

 

 

(0.3)

 

 

(0.4)

Craven County Wood Energy, LP (1)

 

 

 —

 

 

 —

Grayling Generating Station, LP (1)

 

 

 —

 

 

 —

 

 

 

(0.3)

 

 

(0.4)

Net income

 

 

 

 

 

 

Frederickson

 

 

2.6

 

 

2.4

Orlando Cogen, LP

 

 

8.3

 

 

8.0

Chambers Cogen, LP

 

 

2.2

 

 

2.5

Craven County Wood Energy, LP (1)

 

 

0.5

 

 

 —

Grayling Generating Station, LP (1)

 

 

0.1

 

 

 —

Equity in earnings of unconsolidated affiliates

 

$

13.7

 

$

12.9

 

 

 

 

 

 

 

Distributions from equity method investments

 

 

(6.0)

 

 

(5.8)

Surplus of earnings of equity method investments, net of distributions

 

$

7.7

 

$

7.1


(1)

We acquired our equity interests in Craven Country Wood Energy, LP and Grayling Generating Station, LP on August 13, 2019.

 

 

 

 

 

13

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

5. Long‑term debt

 

Long‑term debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

    

 

 

 

 

2020

 

2019

 

Interest Rate

 

Recourse Debt:

 

 

 

 

 

 

 

 

 

 

 

Senior secured term loan facility, due 2025(1)

 

$

360.0

 

$

380.0

 

LIBOR(2)

plus

2.50

%

Senior unsecured notes, due June 2036 (Cdn$210.0)

 

 

148.0

 

 

161.7

 

 

 

5.95

%

Non-Recourse Debt:

 

 

 

 

 

 

 

 

 

 

 

Cadillac term loan, due 2025 (3)(4)

 

 

17.2

 

 

18.7

 

LIBOR

plus

1.61

%

Less: unamortized discount

 

 

(5.2)

 

 

(5.8)

 

 

 

 

 

Less: unamortized deferred financing costs

 

 

(5.2)

 

 

(4.7)

 

 

 

 

 

Less: current maturities

 

 

(78.5)

 

 

(76.4)

 

 

 

 

 

Total long-term debt

 

$

436.3

 

$

473.5

 

 

 

 

 

 

Current maturities consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

 

 

 

 

 

2020

 

2019

 

Interest Rate

 

Current Maturities:

 

 

 

 

 

 

 

 

 

 

 

Senior secured term loan facility, due 2025(1)

 

$

75.5

 

$

72.5

 

LIBOR(2)

plus

2.50

%

Cadillac term loan, due 2025 (3)

 

 

3.0

 

 

3.9

 

LIBOR

plus

1.61

%

Total current maturities

 

$

78.5

 

$

76.4

 

 

 

 

 


(1)

On a quarterly basis, we make a cash sweep payment to fund the principal balance, based on terms as defined in the term loan credit agreement. The portion of the senior secured term loan facility classified as current is based on principal payments required to reduce the aggregate principal amount of senior secured term loan outstanding to achieve a target principal amount that declines quarterly based on a pre-determined specified schedule.

(2)

London Interbank Offered Rate (“LIBOR”) cannot be less than 1.00%. We have entered into interest rate swap agreements to mitigate the exposure to changes in LIBOR of the $360.0 million outstanding aggregate borrowings under our senior secured term loan facility at March 31, 2020. See Note 7, Accounting for derivative instruments and hedging activities for further details.

(3)

We have entered into interest rate swap agreements to economically fix our exposure to changes in interest rates for this non-recourse debt. See Note 7, Accounting for derivative instruments and hedging activities, for further details.

(4)

The Cadillac term loan credit agreement (the “Cadillac Term Loan”) contains various affirmative and negative covenants, including, among other things, the operation of the Cadillac plant, compliance with laws, incurrence of additional debt and restricted payments (as defined in the Cadillac Term Loan). One of the negative covenants requires the Cadillac project to meet certain key financial ratios, including a debt service coverage ratio (as defined in the Cadillac Term Loan). As of March 31, 2020, we determined that the Cadillac project did not fulfill the debt service coverage ratio as required by the Cadillac Term Loan. Due to the breach of the covenant clause, the Cadillac project is prevented from making restricted payments (as defined in the Cadillac Term Loan) until several conditions are met, including, among other things, (i) the debt service coverage ratio for the most-recently ended period of four consecutive fiscal quarters is at least 1.2 to 1.0 and (ii) the projected debt service coverage ratio for the four consecutive fiscal quarters immediately following the period described in (i) is at least 1.2 to 1.0. We have not made any restricted payments (as defined in the Cadillac Term Loan) since July 31, 2019. 

14

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions of U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

Term Loan Amendment and Repricing

In January 2020, Atlantic Power Limited Partnership Holdings (“APLP Holdings”) completed the repricing of the $380 million Term Loan and revolving credit facility (“Revolver”). As a result of the repricing, the interest rate margin on the Term Loan and the Revolver was reduced by 0.25% to LIBOR plus 2.50% with no change to the 1.00% LIBOR floor. An additional 0.25% step down in the interest rate margin will become effective in the event the Leverage Ratio (as defined in the Credit Agreement) is 2.75:1.00 or lower. Additionally, APLP Holdings amended its existing Term Loan to extend the maturity date by two years to April 2025. The repricing also adds customary new provisions relating to the replacement of LIBOR as the benchmark for the Eurodollar Rate (as defined in the Credit Agreement). Targeted debt balances were adjusted to reflect the previously announced anticipated closing of the sale of our Manchief power plant in 2022, resulting in lower targeted debt repayment in 2020 and higher targeted debt repayment in 2022 as compared to the previous schedule. We recorded $0.6 million of new deferred financing costs associated with the amendment, which will be amortized over the remaining terms of the Term Loan and Revolver. Additionally, we wrote off $0.5 million of existing deferred financing costs to interest expense in the three months ended March 31, 2020.

 

Extension of Revolving Credit Facility

 

On March 18, 2020, we executed an amendment to our senior secured revolving credit facility. The amendment provides for an extension of the Revolver maturity date to April 2025, to coincide with the maturity date of the senior Term Loan. Both the Revolver and the Term Loan are at our APLP Holdings subsidiary. At March 31, 2020, we had no borrowings under the Revolver and utilized $78.1 million of borrowing capacity for letters of credit.

In conjunction with the extension, the Revolver capacity was reduced to $180 million from $200 million previously. The amendment allows an upsizing of the Revolver capacity by up to $30 million, to a maximum aggregate amount of $210 million, subject to approval of the two letter of credit issuer banks and increased commitments by existing or new lenders. Such an upsizing would not require a further amendment. There were no other significant changes to the terms of the Revolver. As a result of the extension, we recorded $0.9 million of new deferred financing costs, which will be amortized over the remaining term of the Revolver.

 

 

6. Fair value of financial instruments

 

The following represents the recurring measurements of fair value hierarchy of our financial assets and liabilities that were recognized at fair value as of March 31, 2020 and December 31, 2019. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash and cash equivalents

 

$

47.8

 

$

 —

 

$

 —

 

$

47.8

 

Restricted cash

 

 

0.5

 

 

 —

 

 

 —

 

 

0.5

 

Derivative instruments asset

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total

 

$

48.3

 

$

 —

 

$

 —

 

$

48.3

 

Liabilities: