CONFIDENTIAL TREATMENT REQUESTED BY CALLOWAY-BRIGGS RENEWABLES INC.
**As confidentially submitted to the Securities and Exchange Commission on **
**This Registration Statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.**
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1
** REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933**
CALLOWAY-BRIGGS RENEWABLES INC. (Exact name of registrant as specified in its charter)
Principal Executive Offices:
Calloway-Briggs Renewables Inc. 4200 Ridgeline Parkway, Suite 1100 Austin, Texas 78746 Telephone: (512) [●]
Agent for Service of Process:
Sandra Haverford General Counsel & Corporate Secretary Calloway-Briggs Renewables Inc. 4200 Ridgeline Parkway, Suite 1100 Austin, Texas 78746
Registered Agent in Delaware:
Capitol Statutory Services, Inc. 1209 Orange Street Wilmington, Delaware 19801
Proposed Maximum Aggregate Offering Price: $600,000,000
Registration fee calculated pursuant to Rule 457(o) under the Securities Act of 1933.
Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
This Registration Statement has been confidentially submitted to the Securities and Exchange Commission pursuant to Section 6(e) of the Securities Act of 1933, as amended (the "Securities Act"), as added by Section 106(a) of the Jumpstart Our Business Startups Act (the "JOBS Act"). This Registration Statement shall not be deemed filed for purposes of Section 11 of the Securities Act until the Securities and Exchange Commission orders this Registration Statement effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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.
If an emerging growth 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 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
PART I — PROSPECTUS
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated [●], 2022
PRELIMINARY PROSPECTUS
[●] Shares
CALLOWAY-BRIGGS RENEWABLES INC.
Common Stock
This is an initial public offering of shares of common stock of Calloway-Briggs Renewables Inc. No public market currently exists for our common stock. We are offering [●] shares of our common stock and the selling stockholder identified in this prospectus is offering [●] shares of our common stock. We will not receive any of the proceeds from the sale of shares by the selling stockholder.
We expect the public offering price to be between $[●] and $[●] per share. The midpoint of the estimated range is $22.00 per share. We have applied to list our common stock on the New York Stock Exchange ("NYSE") under the ticker symbol "CBRI."
We are offering approximately 16,895,455 shares of common stock in this offering (the "primary offering"), and the selling stockholder, Pinnacle Vista Capital Partners III, LP, is offering approximately 6,818,182 shares of common stock (the "secondary offering"), for a total base offering of approximately 23,713,636 shares. In addition, we have granted the underwriters a 30-day option to purchase up to 3,559,091 additional shares of common stock at the public offering price less the underwriting discount, representing 15% of the base offering shares. If the underwriters exercise the overallotment option in full, the aggregate offering size will be approximately 27,272,727 shares, for aggregate gross proceeds of $600,000,000.
We are an "emerging growth company" as that term is defined in the Jumpstart Our Business Startups Act of 2012, and we have elected to comply with certain reduced reporting requirements.
Investing in our common stock involves risks. See "Risk Factors" beginning on page [●] of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to purchasers on or about [●], 2022.
Joint Book-Running Managers
Co-Managers
The date of this prospectus is [●], 2022.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision. Some of the statements in this prospectus constitute forward-looking statements. See "Forward-Looking Statements."
Overview of the Company
Calloway-Briggs Renewables Inc. is a leading developer, owner, and operator of utility-scale solar, onshore wind, and battery energy storage system ("BESS") projects across the United States. We are a Delaware corporation headquartered in Austin, Texas, and as of December 31, 2021, we employed approximately 1,240 people.
We were founded in 2014 by Garrett Calloway, our Chairman and Chief Executive Officer, and Elaine Briggs, our President of Development, each of whom possesses over two decades of experience in the energy sector. Since our founding, we have grown from a small development-stage company into one of the largest independent renewable energy platforms in the country. Our portfolio encompasses a broad range of renewable energy technologies — utility-scale solar photovoltaic ("solar PV"), onshore wind, and lithium-ion battery energy storage — and spans some of the highest-resource regions in the United States, including Texas, New Mexico, Arizona, California, and Oklahoma.
As of December 31, 2021, our operating portfolio comprised approximately 3.8 gigawatts ("GW") of renewable energy capacity across 22 projects. In addition, we had approximately 1.4 GW under construction, including our Mesquite Wind project (420 MW in Oldham County, Texas, expected commercial operation date ("COD") in the third quarter of 2022) and our Cimarron Solar project (350 MW in Doña Ana County, New Mexico, expected COD in the first quarter of 2023). Beyond our operating and under-construction assets, we have a robust development pipeline of approximately 6.2 GW of projects in various stages of development, providing us with significant visibility into our future growth trajectory.
Our business is supported by a strong contracted revenue base. A substantial majority of the electricity generated by our operating portfolio is sold under long-term power purchase agreements ("PPAs") with investment-grade utility and corporate offtakers. These contracts provide predictable cash flows and mitigate exposure to volatile wholesale power markets.
In 2017, Pinnacle Vista Capital Partners III, LP, a fund within the Pinnacle Vista platform managed by Hugh Pemberton and Diane Kovac, made an initial equity investment of $385 million in our company. Pinnacle Vista made a subsequent follow-on investment of $120 million in 2019 to support our accelerated growth plan. Pinnacle Vista's investment has been instrumental in enabling us to scale our development pipeline, fund construction activities, and build out our corporate infrastructure. As of the date of this prospectus, Pinnacle Vista holds approximately 62% of our outstanding common stock. Following this offering, Pinnacle Vista will continue to be our largest stockholder and will hold approximately 44.6% of our outstanding common stock on a base offering basis (or approximately 43.4% if the underwriters exercise their overallotment option in full). As a result of its significant ownership position, we may qualify as a "controlled company" under the rules of the NYSE.
Operating Portfolio and Pipeline
The following table summarizes selected projects within our portfolio:
Key Operating Projects:
Our five largest operating projects represent approximately 1,860 MW of our 3.8 GW operating portfolio. The remaining 17 operating projects, which include a mix of solar, wind, and storage assets located across our five-state footprint, represent approximately 1,940 MW in the aggregate.
Key Projects Under Construction:
In addition to Mesquite Wind and Cimarron Solar, we have additional construction-stage projects that, together with the projects listed above, bring our total under-construction capacity to approximately 1.4 GW.
Key Development-Stage Projects:
Our development pipeline includes these and additional projects totaling approximately 6.2 GW in aggregate. We believe this pipeline, which includes both greenfield development and advanced-stage opportunities, positions us well for continued growth over the next several years.
Summary Financial Data
The following table sets forth selected summary financial data for the periods indicated. This information should be read in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
(1) Adjusted EBITDA is a non-GAAP financial measure. See "Selected Consolidated Financial Data — Non-GAAP Financial Measures" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure
Our revenue has grown at a compound annual growth rate of approximately 24.8% from fiscal year 2019 to fiscal year 2021, driven primarily by the expansion of our operating portfolio through the completion and commencement of operations of new projects. We achieved profitability on a net income basis in fiscal year 2020 and have continued to improve our net income in subsequent periods as we have scaled our operating portfolio and benefited from operating leverage across our platform.
Competitive Strengths and Growth Strategy
We believe the following competitive strengths differentiate us from our peers and position us for continued success:
• Diversified Portfolio Across Solar, Wind, and Storage Technologies. Unlike many of our peers who focus on a single renewable energy technology, we develop, own, and operate solar PV, onshore wind, and BESS projects. This diversification mitigates technology-specific risks and enables us to offer a comprehensive suite of solutions to our utility and corporate offtakers.
• Proven Development Track Record with Significant Pipeline. Since our founding in 2014, we have successfully developed, constructed, and brought to commercial operation approximately 3.8 GW of renewable energy capacity. Our 6.2 GW development pipeline provides a visible pathway for continued growth.
• Long-Term Contracted Revenue Base. A substantial majority of our operating portfolio is contracted under long-term PPAs with investment-grade counterparties, providing predictable cash flows and mitigating exposure to volatile wholesale electricity prices. The weighted average remaining PPA tenor across our operating portfolio is approximately 14 years.
• Experienced Management Team with Deep Industry Expertise. Our management team brings decades of combined experience in energy project development, construction, finance, and operations. Our founders, Garrett Calloway and Elaine Briggs, have each been involved in the energy sector for more than 20 years and have overseen the development of projects with aggregate capacity exceeding 10 GW during their careers.
• Strong Financial Profile with Growing Revenue and EBITDA. We have demonstrated consistent revenue and Adjusted EBITDA growth over the past several years, reflecting the ongoing expansion of our operating portfolio and the attractive economics of our projects. Our revenue grew from $312.8 million in fiscal year 2019 to $487.3 million in fiscal year 2021, and our Adjusted EBITDA grew from $138.7 million to $218.6 million over the same period.
Our growth strategy is focused on the following key pillars:
• Developing and constructing our 6.2 GW pipeline of solar, wind, and storage projects;
• Pursuing selective acquisitions of operating or late-stage development assets that are complementary to our existing portfolio;
• Expanding our battery energy storage capabilities, including the development of standalone storage projects and co-located solar-plus-storage and wind-plus-storage hybrid projects;
• Leveraging our platform to grow into adjacent markets and geographies; and
• Optimizing the performance and profitability of our existing operating portfolio.
The Offering — Summary Terms
The following is a summary of the principal terms of this offering. For a more complete description, see "Description of Capital Stock" and "Underwriting" elsewhere in this prospectus.
Use of Proceeds. We estimate that the net proceeds to us from this offering will be approximately $351.3 million (or approximately $425.6 million if the underwriters exercise their overallotment option in full), after deducting the underwriting discount of 5.50% of the public offering price and before deducting estimated offering expenses. We intend to use our net proceeds from this offering as follows:
• approximately $200 million to repay a portion of the outstanding balance of our Term Loan B with Veltrano National Bank (which has an outstanding balance of $612.5 million, bears interest at a rate of SOFR plus an applicable margin, and matures in January 2029);
• approximately $100 million to fund a portion of the construction costs of our Cimarron Solar project (350 MW, Doña Ana County, New Mexico, expected COD Q1 2023); and
• approximately $71.7 million for general corporate purposes, including working capital, potential acquisitions, and development-stage project costs.
If the underwriters exercise the overallotment option in full, we expect to receive additional net proceeds of approximately $74.3 million (after deducting the underwriting discount), which we intend to use for general corporate purposes. We will not receive any proceeds from the sale of shares by the selling stockholder. See "Use of Proceeds."
Lock-Up. Our directors, executive officers, the selling stockholder, and holders of 1% or more of our pre-IPO common stock have agreed, subject to certain exceptions, not to sell or transfer any shares of our common stock for 180 days following the date of the final prospectus without the prior written consent of Hargrove Keating & Co. See "Shares Eligible for Future Sale — Lock-Up Agreements."
Risk Factors. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page [●] of this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.
Ownership and Sponsor
The following table summarizes the approximate ownership of our common stock immediately before and immediately after this offering:
Pinnacle Vista Capital Partners III, LP is a Delaware limited partnership managed by Pinnacle Vista Capital Management LLC, a private equity firm with approximately $14.2 billion of assets under management. Pinnacle Vista's Series III Fund (2016 vintage, $4.8 billion in committed capital) made its initial investment of $385 million in our company in 2017 and a follow-on investment of $120 million in 2019. The Series III Fund is co-managed by Hugh Pemberton and Diane Kovac, the Co-Founders and Managing Partners of Pinnacle Vista Capital Management LLC. Both Mr. Pemberton and Ms. Kovac serve on our Board of Directors as designees of Pinnacle Vista.
Following this offering, Pinnacle Vista will continue to hold approximately 55,181,818 shares, representing approximately 44.6% of our post-IPO outstanding shares on a base offering basis (or approximately 43.4% if the underwriters exercise their overallotment option in full). As a result, we may qualify as a "controlled company" under the NYSE rules, and we may avail ourselves of certain exemptions from the NYSE's corporate governance requirements available to controlled companies. See "Management — Independence" and "Risk Factors — Risks Related to Our Organizational Structure and Governance."
Emerging Growth Company Status
We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"). As an emerging growth company, we may take advantage of certain reduced reporting requirements that are otherwise generally applicable to public companies, including, among other things:
• providing only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;
• not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002;
• reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements; and
• exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these and other reduced reporting requirements until the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering, or such earlier time that we cease to be an emerging growth company. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period; (iii) the date on which we are deemed a "large accelerated filer" under the Exchange Act; or (iv) the last day of the fiscal year following the fifth anniversary of the date of this offering. Our fiscal year 2021 revenue of $487.3 million is below the $1.235 billion threshold.
We have elected to take advantage of certain of the scaled disclosure accommodations available to emerging growth companies, and as a result, the information we provide stockholders may be different from what you might receive from other public companies in which you hold equity interests.
Corporate Information. Calloway-Briggs Renewables Inc. was incorporated in the State of Delaware. Our principal executive offices are located at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746, and our telephone number is (512) [●]. Our employer identification number is 83-4027615.
Our website address is [●]. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. We have included our website address in this prospectus solely as an inactive textual reference. You should not rely on any such information in making your decision whether to purchase our common stock.
RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the following risk factors, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto. If any of the following risks actually occur, our business, assets, properties, financial condition, or results of operations could be materially and adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially and adversely affect our business, assets, properties, financial condition, or results of operations. Throughout these risk factors, references to events or conditions that could have a "material adverse effect" refer to a material adverse effect on our business, assets, properties, financial condition, or results of operations, taken as a whole.
Risks Related to Our Business and Industry
Our business depends on the continued growth of the renewable energy industry and a favorable policy environment, which may not continue.
The renewable energy industry has benefited from declining technology costs, favorable federal and state policies (including tax incentives, renewable portfolio standards, and other regulatory mandates), and increasing consumer and corporate demand for clean energy. If these favorable conditions do not continue, or if there is a reversal in policy direction at the federal, state, or local level, demand for renewable energy projects could decline, and our ability to develop, construct, and finance new projects could be materially adversely affected. Changes in political priorities, regulatory regimes, or public sentiment toward renewable energy could reduce the attractiveness of our projects and adversely impact our growth prospects. Any reduction in the demand for renewable energy, whether resulting from changes in public policy, technological disruptions, or other factors, could have a material adverse effect on our business, financial condition, and results of operations.
Our projects under construction and in our development pipeline are subject to risks of construction delays, cost overruns, and failure to achieve commercial operation dates.
Our Mesquite Wind project (420 MW, Oldham County, Texas, expected COD Q3 2022) and our Cimarron Solar project (350 MW, Doña Ana County, New Mexico, expected COD Q1 2023) are currently under construction, and we have a development pipeline of approximately 6.2 GW of projects in various stages of development. The construction and development of renewable energy projects involve numerous risks, including delays in obtaining or maintaining permits, approvals, and interconnection agreements; supply chain disruptions and equipment delivery delays; cost overruns resulting from increases in the cost of materials, labor, or equipment; unforeseen engineering or environmental challenges; adverse weather conditions; and labor disputes or shortages. Any significant construction delay or cost overrun with respect to projects under construction or in our development pipeline could adversely affect the expected returns from such projects, delay or prevent the achievement of commercial operation, result in the forfeiture of deposits or security, trigger default provisions under our construction financing arrangements, or otherwise have a material adverse effect on our business, financial condition, and results of operations.
We rely on third-party EPC contractors, equipment suppliers, and O&M providers, and their failure to perform could adversely affect our business.
We engage third-party engineering, procurement, and construction ("EPC") contractors for the construction of our renewable energy projects and rely on third-party suppliers for key equipment, including solar PV modules, wind turbines, inverters, and battery storage systems. We also engage third-party providers for certain operations and maintenance ("O&M") services. The failure of any of these third parties to perform their obligations in a timely and satisfactory manner could result in construction delays, cost overruns, operational disruptions, or reduced project performance. In addition, our EPC contractors, equipment suppliers, and O&M providers may experience financial difficulties, labor shortages, or other challenges that could impair their ability to fulfill their contractual obligations. There can be no assurance that we will be able to identify and engage qualified third-party contractors and suppliers on acceptable terms, and any failure to do so could have a material adverse effect on our business.
Technology risk and evolving industry standards could adversely affect our projects.
The renewable energy industry is characterized by rapid technological change and evolving industry standards. Our projects utilize solar PV panels, wind turbines, and lithium-ion battery storage systems that are subject to ongoing technological development. Advances in technology could render our existing equipment or project designs less competitive or obsolete. In addition, the performance of our projects depends on the reliability and efficiency of the equipment we deploy, which may be subject to defects, degradation, or other performance issues. We cannot guarantee that the technologies we deploy will perform as expected over the projected useful lives of our projects, and any significant underperformance could adversely affect our revenue and results of operations.
We face significant competition from other renewable energy developers, utilities, and fossil-fuel generators.
The renewable energy industry is highly competitive. We compete with a large number of other renewable energy developers, independent power producers, regulated and unregulated utilities, and other market participants for project development opportunities, equipment and contractor resources, interconnection capacity, offtake contracts, and financing. Many of our competitors have greater financial resources, more extensive development pipelines, or longer operating histories than we do. Increased competition could result in lower PPA prices, reduced margins, or the inability to win new development opportunities, any of which could have a material adverse effect on our business.
Our operations are subject to risks related to weather, natural resource variability, and climate change.
The amount of electricity generated by our solar and wind projects is dependent on the availability of solar irradiance and wind resources at our project sites, which are inherently variable and subject to significant fluctuations on a daily, seasonal, and annual basis. Periods of below-average wind speeds or solar irradiance, whether due to natural variability, climate patterns, or other factors, could materially reduce the electricity output of our projects and adversely affect our revenue and results of operations. In addition, extreme weather events such as hurricanes, tornadoes, hailstorms, floods, wildfires, and ice storms could damage our facilities or disrupt our operations, resulting in significant repair costs and lost revenue. Climate change may alter long-term weather patterns and resource availability in ways that are difficult to predict, potentially affecting the performance of our projects over their useful lives.
We depend on interconnection agreements and grid access, and we are exposed to transmission congestion and curtailment risk.
Our ability to deliver electricity from our projects to the grid depends on our interconnection agreements with transmission system operators and the availability of transmission capacity. Delays in obtaining or maintaining interconnection agreements, or limitations on available transmission capacity, could prevent us from delivering electricity from our projects to the grid. In addition, our projects may be subject to curtailment — a reduction in output ordered by the grid operator to maintain system reliability or manage congestion — which would reduce our revenue. Transmission congestion is particularly relevant in certain of the markets in which we operate, including the Electric Reliability Council of Texas ("ERCOT") market. Any sustained or significant curtailment of our projects could have a material adverse effect on our revenue and results of operations.
Cybersecurity risks related to our SCADA systems and operational technology could disrupt our operations.
We rely on Supervisory Control and Data Acquisition ("SCADA") systems and other operational technology to monitor and control our renewable energy projects. These systems are vulnerable to cyberattacks, including hacking, malware, ransomware, phishing, and other unauthorized intrusions. A successful cyberattack on our SCADA systems or other operational technology could disrupt the operation of our projects, result in the loss or corruption of data, or compromise the safety of our employees and the public. In addition, we may be subject to regulatory investigation or penalties in the event of a cybersecurity breach. We have invested in cybersecurity measures to protect our systems, but there can be no assurance that such measures will be effective in preventing all cyberattacks.
Our significant indebtedness could adversely affect our business and financial condition.
As of December 31, 2021, our total debt was approximately $1.71 billion. Our substantial indebtedness could have important consequences, including limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other purposes; requiring a significant portion of our cash flow from operations to be dedicated to debt service, thereby reducing the funds available for operations, capital expenditures, and other purposes; increasing our vulnerability to economic downturns, adverse industry conditions, and competitive pressures; and limiting our flexibility in planning for, or reacting to, changes in our business and industry. Our ability to make scheduled debt payments and to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Risks Related to Our Regulatory and Permitting Environment
Changes to federal, state, or local regulations governing renewable energy could adversely affect our business.
Our business is subject to extensive federal, state, and local regulation. Changes in the regulatory environment, including the adoption of new laws or regulations or changes in the interpretation or enforcement of existing laws or regulations, could adversely affect our ability to develop, construct, and operate renewable energy projects or increase the costs associated with doing so. In particular, changes to regulations governing wholesale electricity markets, environmental permitting, land use, or interconnection could materially adversely affect our business.
We depend on federal Investment Tax Credits and Production Tax Credits, and any reduction or elimination of these credits could adversely affect our business.
Certain of our solar projects have been financed, in part, using federal Investment Tax Credits ("ITCs") under Section 48 of the Internal Revenue Code, and certain of our wind projects have been financed using federal Production Tax Credits ("PTCs") under Section 45 of the Internal Revenue Code. These tax credits have been a significant driver of the economics of our projects and have facilitated our access to tax-equity financing. The ITC and PTC have been subject to periodic extensions, modifications, and phase-downs by Congress. Any legislative changes that reduce, eliminate, or accelerate the phase-down of the ITC or PTC could materially adversely affect the economics of our future projects, reduce our ability to attract tax-equity financing, and otherwise have a material adverse effect on our business, financial condition, and results of operations.
We are subject to regulation by FERC, NERC, and state public utility commissions, and changes in such regulation could adversely affect our business.
We sell wholesale electricity and capacity in markets regulated by the Federal Energy Regulatory Commission ("FERC") and are subject to reliability standards promulgated by the North American Electric Reliability Corporation ("NERC"). We have obtained Exempt Wholesale Generator ("EWG") status and market-based rate authority from FERC. We are also subject to the jurisdiction of various state public utility commissions in the states in which we operate. Changes in the regulations or policies of FERC, NERC, or state public utility commissions could adversely affect our ability to sell wholesale electricity, increase our compliance costs, or otherwise adversely affect our business.
Environmental permitting risks, including those related to endangered species, avian and bat mortality, and wetlands, could delay or prevent the development of our projects.
The development and operation of renewable energy projects are subject to environmental permitting requirements under federal, state, and local laws, including the National Environmental Policy Act ("NEPA"), the Endangered Species Act ("ESA"), the Clean Air Act, and the Clean Water Act. Our wind projects, in particular, are subject to concerns regarding avian and bat mortality, and we are required to implement mitigation plans to address these concerns. Delays or denials in obtaining environmental permits, or the imposition of conditions or mitigation measures that significantly increase the cost of development, could delay or prevent the construction of our projects and have a material adverse effect on our business.
Land-use and zoning restrictions could limit our ability to develop projects.
Our projects require access to large tracts of land, typically secured through long-term leases, surface-use agreements, and easements. Local zoning, land-use, and building regulations may restrict or prohibit the development of renewable energy projects in certain areas. Opposition from local communities, landowners, or other stakeholders could result in the denial of land-use permits or the imposition of conditions that make a project economically unfeasible. In addition, changes in land-use regulations or zoning ordinances could adversely affect our ability to develop projects in our pipeline.
Risks Related to Our Tax-Equity Structures
We depend on tax-equity financing for certain of our projects, and the availability of tax-equity capital may be limited.
We have utilized tax-equity financing structures to monetize the ITCs and PTCs associated with certain of our renewable energy projects. For example, our Solaris West project is financed through a partnership-flip tax-equity structure with Veltara Basin Financial LLC, which invested $280 million. The availability of tax-equity financing depends on, among other things, the willingness and capacity of institutional investors to invest in renewable energy projects in order to utilize the associated tax benefits. A reduction in the supply of tax-equity capital, whether resulting from changes in tax law, changes in investor appetite, or other factors, could adversely affect our ability to finance our projects on favorable terms and could increase our cost of capital.
We are exposed to ITC recapture risk if certain requirements are not met.
If a project for which we have claimed an ITC is disposed of, or ceases to be used in a qualifying manner, within a specified recapture period (generally five years from the date the property is placed in service), we may be required to recapture a portion of the ITC. An ITC recapture event could result in a significant tax liability and could trigger default provisions under our tax-equity partnership agreements. We structure our projects and operations to comply with the requirements for the ITC, but there can be no assurance that the Internal Revenue Service will not challenge our compliance or that we will not inadvertently trigger an ITC recapture event.
The HLBV methodology used for our tax-equity partnerships involves complexities that could affect our financial reporting.
We use the hypothetical liquidation at book value ("HLBV") method to allocate income and losses among the partners in our tax-equity partnerships. The HLBV methodology is complex and involves significant judgment, including judgments regarding the appropriate allocation of income, losses, and distributions among the partners at each reporting date. Changes in the assumptions or inputs used in the HLBV methodology could result in significant volatility in our reported earnings. In addition, the SEC has historically scrutinized the HLBV methodology in its review of registration statements, and we may receive comments from the SEC staff regarding our application of this methodology.
We are subject to partnership-flip compliance risks.
Our tax-equity partnerships are structured as partnership-flip transactions, under which the allocation of tax benefits and cash distributions changes (or "flips") upon the occurrence of certain events, such as the achievement of a specified after-tax return by the tax-equity investor. These structures must comply with applicable IRS guidance, including Revenue Procedure 2007-65. Any failure to comply with the requirements for partnership-flip treatment could result in the recharacterization of the partnership for tax purposes, which could trigger tax liabilities, default provisions under our tax-equity partnership agreements, and other adverse consequences.
Risks Related to Our Financial Condition and Capital Structure
Our substantial indebtedness and the restrictive covenants in our credit agreements may limit our operational flexibility.
As of December 31, 2021, our total debt was approximately $1.71 billion, comprising the following principal credit facilities:
• Corporate Revolving Credit Facility: $400 million commitment with Veltrano National Bank as Administrative Agent, maturing in January 2027;
• Term Loan B: $650 million aggregate principal ($612.5 million outstanding), with Veltrano National Bank as Administrative Agent, maturing in January 2029;
• Mesquite Wind Construction Facility: $165 million with Prairie Commercial Bank, N.A., expected conversion from construction to term in December 2024; and
• Cimarron Solar Construction Facility: $143 million with Prairie Commercial Bank, N.A., expected conversion from construction to term in March 2025.
Our Corporate Revolving Credit Facility and Term Loan B contain financial and operating covenants that, among other things, require us to maintain specified leverage and interest coverage ratios and restrict our ability to incur additional indebtedness, make investments, pay dividends or other restricted payments, sell assets, and enter into certain transactions with affiliates. Our failure to comply with these covenants could result in an event of default under our credit agreements, which could lead to the acceleration of our outstanding indebtedness and the exercise of remedies by our lenders. Any such acceleration or exercise of remedies could have a material adverse effect on our financial condition.
We may need additional capital to fund our growth, and our access to capital markets may be limited.
The development and construction of renewable energy projects are capital-intensive. We expect to require significant additional capital to fund the construction of projects currently under construction and in our development pipeline, as well as to pursue potential acquisitions. Our ability to access the capital markets on favorable terms, or at all, depends on a number of factors, many of which are beyond our control, including general economic conditions, credit market conditions, interest rates, and the market price of our common stock. If we are unable to access sufficient capital on acceptable terms, we may be unable to pursue our growth strategy, which could have a material adverse effect on our business and results of operations.
We are exposed to variable interest rate risk.
A portion of our indebtedness bears interest at variable rates. Increases in interest rates would increase our debt service costs and reduce our cash available for operations, capital expenditures, and other purposes. While we have entered into interest rate hedging arrangements to mitigate a portion of this risk, there can be no assurance that such arrangements will be sufficient to fully protect us from the adverse effects of rising interest rates.
Risks Related to Our Organizational Structure and Governance
Pinnacle Vista will continue to be a significant stockholder after this offering, and our interests may not always be aligned.
Following the completion of this offering, Pinnacle Vista Capital Partners III, LP will beneficially own approximately 44.6% of our outstanding common stock (or approximately 43.4% if the underwriters exercise their overallotment option in full). As a result, Pinnacle Vista will have significant influence over the outcome of matters submitted to our stockholders for a vote, including the election and removal of directors, the approval of significant corporate transactions, and amendments to our amended and restated certificate of incorporation and amended and restated bylaws. In addition, under the Amended and Restated Stockholders' Agreement that will become effective upon the closing of this offering, Pinnacle Vista will have the right to designate directors for nomination to our Board of Directors, subject to step-down provisions based on ownership thresholds. The interests of Pinnacle Vista may not always be aligned with the interests of our other stockholders, and Pinnacle Vista may exercise its influence over our company in a manner that is not in the best interests of other stockholders.
We may qualify as a "controlled company" under NYSE rules and may avail ourselves of certain exemptions from the NYSE's corporate governance requirements.
As a result of Pinnacle Vista's significant post-IPO ownership , we may qualify as a "controlled company" under the rules of the NYSE. As a controlled company, we would be exempt from certain NYSE corporate governance requirements, including the requirements that a majority of our Board of Directors be composed of independent directors, that our nominating and corporate governance committee be composed entirely of independent directors, and that our compensation committee be composed entirely of independent directors. If we avail ourselves of these exemptions, you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
Anti-takeover provisions in our charter, bylaws, and Delaware law could prevent or delay a change in control.
Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the closing of this offering, will contain a number of provisions that could discourage, delay, or prevent a change in control of our company or changes in our management. These provisions include a classified Board of Directors with three-year staggered terms, advance-notice requirements for stockholder nominations and proposals, supermajority voting requirements for certain charter and bylaw amendments, the elimination of the ability of stockholders to take action by written consent (after the closing of this offering), restrictions on the ability of stockholders to call special meetings, and a forum-selection clause designating the Delaware Court of Chancery as the exclusive forum for certain stockholder actions. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have the effect of discouraging, delaying, or preventing a change in control. These anti-takeover provisions could limit the price that investors would be willing to pay for shares of our common stock and could entrench management.
We depend on key management personnel, including Garrett Calloway, Elaine Briggs, and Marcus Yoon.
Our success depends, in significant part, on the continued services of our key management personnel, including Garrett Calloway (Chairman and Chief Executive Officer), Elaine Briggs (President, Development), and Marcus Yoon (Chief Financial Officer). The loss of any of these individuals could adversely affect our ability to execute our business strategy and could have a material adverse effect on our business. We cannot assure you that we will be able to retain these or other key employees or to attract and retain qualified replacements.
Risks Related to this Offering and Ownership of Our Common Stock
There is no prior public market for our common stock, and the trading price of our shares may be volatile.
Prior to this offering, there has been no public market for our common stock. There can be no assurance that an active trading market will develop for our shares following this offering, or that the trading price of our shares will not decline below the initial public offering price. The trading price of our common stock may fluctuate significantly in response to various factors, many of which are beyond our control, including quarterly variations in our results of operations, changes in financial estimates by securities analysts, general market conditions, and other factors described in these risk factors.
We do not intend to pay dividends on our common stock for the foreseeable future.
We do not anticipate paying cash dividends on our common stock for the foreseeable future. We intend to retain all available funds and future earnings for operations, capital expenditures, and debt service. In addition, the payment of dividends is restricted under the terms of our Corporate Revolving Credit Facility and Term Loan B with Veltrano National Bank. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, contractual restrictions, capital requirements, business prospects, and other factors that our Board of Directors may deem relevant.
New investors in this offering will experience significant dilution.
The initial public offering price of our common stock is expected to be substantially higher than the pro forma net tangible book value per share immediately after this offering. Accordingly, new investors purchasing shares of our common stock in this offering will experience immediate and substantial dilution. See "Dilution."
Future sales of shares by existing stockholders, including upon the expiration of the 180-day lock-up period, could depress the stock price.
Upon the completion of this offering, our directors, executive officers, Pinnacle Vista, and holders of 1% or more of our pre-IPO common stock, collectively holding 100,000,000 shares , will be subject to 180-day lock-up restrictions. Upon the expiration of these lock-up restrictions (or upon earlier release by Hargrove Keating & Co. ), these shares will become eligible for sale in the public market, subject in some cases to the volume limitations and other requirements of Rule 144 under the Securities Act. In addition, Pinnacle Vista holds demand registration rights, piggyback registration rights, and S-3 shelf registration rights under the Registration Rights Agreement, which would facilitate the public sale of its shares. The perception that substantial sales of shares could occur, or actual sales of substantial amounts of shares, could depress the trading price of our common stock and impair our ability to raise capital through the sale of additional equity securities. See "Shares Eligible for Future Sale."
Risks Related to Environmental Matters
We may be subject to environmental liabilities and remediation obligations at our project sites.
Our project sites may be subject to environmental liabilities arising from the historical or current use of such sites, including contamination from hazardous materials or waste. We have engaged Greenridge Environmental Sciences LLC to conduct Phase I and, where warranted, Phase II environmental site assessments at our project sites. However, these assessments may not identify all potential environmental liabilities, and we may be required to incur significant costs to investigate and remediate contamination at our project sites. Any environmental liabilities or remediation obligations could have a material adverse effect on our business, financial condition, and results of operations.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 16,895,455 shares of our common stock in this offering will be approximately $351.3 million, based on an assumed initial public offering price of $22.00 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and after deducting the underwriting discount of 5.50% of the public offering price. If the underwriters exercise their overallotment option in full, we estimate that the net proceeds to us from this offering will be approximately $425.6 million. We will not receive any of the proceeds from the sale of shares by the selling stockholder, Pinnacle Vista Capital Partners III, LP.
We intend to use the net proceeds from this offering as follows:
• Approximately $200 million to repay a portion of the outstanding balance of our Term Loan B. Our Term Loan B has an aggregate principal amount of $650 million, of which $612.5 million was outstanding as of December 31, 2021. The Term Loan B bears interest at a rate of SOFR plus an applicable margin and matures in January 2029. Veltrano National Bank serves as Administrative Agent under the Term Loan B Credit Agreement. In connection with this prepayment, we expect to pay a prepayment premium of 1.00%, or approximately $2,000,000. The Term Loan B was incurred to finance the acquisition and development of certain of our operating and construction-stage projects and for general corporate purposes.
• Approximately $100 million to fund a portion of the remaining construction costs of our Cimarron Solar project. The Cimarron Solar project is a 350 MW utility-scale solar PV project located in Doña Ana County, New Mexico, with an expected COD in the first quarter of 2023. The project is also being financed with a $143 million construction-to-term facility provided by Prairie Commercial Bank, N.A.
• Approximately $71.7 million for general corporate purposes, including working capital, potential acquisitions, and development-stage project costs.
If the underwriters exercise their overallotment option in full, the additional net proceeds of approximately $74.3 million (after deducting the underwriting discount) will be used for general corporate purposes.
The foregoing represents our current intentions with respect to the use of net proceeds from this offering based on our present plans and business conditions. We may find it necessary or advisable to alter our plans. Pending the uses described above, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing instruments, including U.S. government securities, money market funds, and certificates of deposit.
A $1.00 increase (decrease) in the assumed initial public offering price of $22.00 per share, after deducting the underwriting discount, would increase (decrease) the net proceeds to us from this offering by approximately $15.9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $20.8 million, assuming that the initial public offering price remains the same.
DIVIDEND POLICY
We do not anticipate paying cash dividends on our common stock for the foreseeable future. We currently intend to retain all available funds and future earnings, if any, for use in the operation, expansion, and continued development of our business, including the construction of projects in our pipeline and the servicing of our outstanding indebtedness.
The payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, cash requirements, contractual restrictions, capital requirements, business prospects, and such other factors as our Board of Directors may deem relevant. Our Corporate Revolving Credit Facility and Term Loan B Credit Agreement with Veltrano National Bank contain covenants that restrict our ability to pay dividends and make other restricted payments, and any future indebtedness we incur may contain similar restrictions.
Under Delaware law, dividends may be paid only from surplus or, if there is no surplus, from net profits for the fiscal year in which the dividend is declared or for the preceding fiscal year. Because we are a holding company, our ability to pay dividends depends on our receipt of distributions and other payments from our subsidiaries, which are also subject to contractual restrictions under their respective project-level financing arrangements.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2021, presented on:
(1) an actual basis;
(2) a pro forma basis, giving effect to the Reclassification and other pre-IPO reorganization transactions as if they had occurred on December 31, 2021; and
(3) a pro forma as adjusted basis, giving further effect to (a) the sale of 16,895,455 shares of common stock by us in this offering at an assumed initial public offering price of $22.00 per share, (b) the receipt by us of estimated net proceeds of approximately $351.3 million (after deducting the underwriting discount and estimated offering expenses), (c) the application of approximately $200 million of such net proceeds to repay a portion of our Term Loan B (plus the prepayment premium of approximately $2.0 million), and (d) the application of approximately $100 million of such net proceeds to fund a portion of the construction costs of our Cimarron Solar project.
This table should be read in conjunction with "Use of Proceeds," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
(1) Cash and cash equivalents on a pro forma as adjusted basis reflects the receipt of estimated net proceeds from this offering, the repayment of $200 million of our Term Loan B (including the $2.0 million prepayment premium), and the application of approximately $100 million to fund a portion of the construction costs of the Cimarron Solar project.
(2) On an actual basis, our capitalization reflects the historical capital structure of the Company. On a pro forma basis, our capital structure reflects the Reclassification of all outstanding equity interests into 100,000,000 shares of common stock, par value $0.01 per share. On a pro forma as adjusted basis (base offering), our common stock reflects 123,713,636 shares outstanding (including 16,895,455 primary shares issued in this offering). On a pro forma as adjusted basis (full overallotment), our common stock reflects 127,272,727 shares outstanding (including 20,454,545 primary shares and overallotment shares issued in this offering).
The share and per share information in the table above excludes the following:
• 12,727,273 shares of common stock reserved for issuance under the 2022 Omnibus Equity Incentive Plan, which we expect to adopt in connection with this offering; and
• 2,545,455 shares of common stock reserved for issuance under the 2022 Employee Stock Purchase Plan, which we expect to adopt in connection with this offering.
DILUTION
If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share after giving effect to this offering. Dilution results from the fact that the initial public offering price per share is substantially in excess of the pro forma net tangible book value per share attributable to existing stockholders.
As of December 31, 2021, our pro forma net tangible book value (after giving effect to the Reclassification and other pre-IPO reorganization transactions) was approximately $[●], or approximately $[●] per share based on 100,000,000 shares of common stock outstanding.
After giving effect to (i) the sale by us of 16,895,455 shares of common stock in this offering at an assumed initial public offering price of $22.00 per share, and (ii) the receipt by us of estimated net proceeds of approximately $351.3 million (after deducting the underwriting discount and estimated offering expenses), our pro forma as adjusted net tangible book value as of December 31, 2021 would have been approximately $[●], or approximately $[●] per share based on 123,713,636 shares of common stock outstanding after this offering. This represents an immediate increase in pro forma net tangible book value of approximately $[●] per share to existing stockholders and an immediate dilution of approximately $[●] per share to new investors purchasing shares of common stock in this offering.