Marcus,
I wanted to follow up on our recent conversations and provide our recommendation on the wind-down election right now that it has ripened. As you know, we delivered our comprehensive strategic options memorandum on July 22 ("Considerations for and Against Exercising Wind-Down Right," prepared for you and Renata), and that memo built on our earlier July 5 analysis of the election mechanics under LP Agreement §7.04(c) and the 18-month dormancy trigger. I'd encourage you to read this email alongside those materials, but my aim here is to give you a clear bottom-line recommendation and the reasoning behind it.
**The Right That Has Ripened**
Under §7.04(c) of the Limited Partnership Agreement of ICM Cascadia Co-Invest, LP (dated July 29, 2022), Ironside, as the limited partner, has the right to elect wind-down of the Vehicle if dormancy exceeds 18 months. The capital-call suspension notice was issued by Meridian Infrastructure GP IV LLC on January 9, 2023, commencing the dormancy period. The 18-month mark was reached on July 9, 2024, and Ironside's wind-down election right is now ripe.
Importantly, this right is ongoing — it does not expire on a specific date. Ironside can exercise at any time going forward, so there is no deadline forcing an immediate decision.
**Our Recommendation: Defer Exercise of the Wind-Down Right**
After careful consideration of the factors laid out in the July 22 memo, we recommend that Ironside **defer** exercising the wind-down election right at this time. We suggest reassessing no later than the end of Q3 2024 or upon receipt of Meridian's anticipated reactivation feasibility assessment, whichever comes first. This is, of course, a recommendation — the decision ultimately rests with your investment team — but we believe the balance of considerations favors patience at this juncture for the reasons outlined below.
**Reasons Supporting Deferral**
*1. The Tentative Concession Framework Is a Significant Positive Development*
On June 30, 2024, the Portland Metropolitan Water District and Cascadia Renewables Holdings, Inc. reached a tentative framework on revised concession terms for the Bull Run Filtration Project. This is directly relevant because the Bull Run concession renegotiation — triggered by the Water District's October 28, 2022 notice citing Oregon SB 1567 — was the root cause of the transaction stall in late 2022 and has been the primary obstacle throughout the dormancy period.
A tentative framework is not a final agreement, and I want to be careful not to overstate its significance. But it is the most meaningful forward movement on this issue in nearly two years. Exercising the wind-down right now would forfeit the benefit of this progress before its outcome is known. The Bull Run concession represents approximately $64 million in annual revenue to Cascadia — a material portion of Cascadia's $487 million FY 2021 revenue. Resolution of the concession terms is critical to any updated valuation and to assessing whether the original transaction economics (enterprise value of $1.95 billion, approximately 14.1x EV/EBITDA) remain viable or need adjustment.
*2. Meridian's Reactivation Assessment Is Expected*
We understand from communications with Charles Delacroix at Breckenridge Sloane & Pratt that Meridian Infrastructure Partners LP is preparing a reactivation feasibility assessment, which Meridian has indicated it intends to circulate to co-investors in the near term. It would be prudent for Ironside to review Meridian's analysis before making a wind-down decision. We expect the assessment to address Meridian's view on revised deal economics, financing alternatives (the Atlas National Bank / Pinnacle Credit Partners debt commitment expired October 31, 2023 and would need to be replaced), and regulatory refiling requirements. Making a decision without the benefit of that analysis would, in our view, be premature.
*3. Preservation of Optionality*
The wind-down election is effectively a one-way door. Once exercised, the Vehicle moves to liquidation and return of remaining assets net of expenses and obligations. There is no mechanism to reverse that election.
Ironside's capital at risk in the Vehicle remains limited. The $22.5 million called in the single August 15, 2022 capital call has been deployed, and the $277.5 million unfunded commitment remains suspended. Annual dormancy operating expenses are approximately $185,000 — a modest carrying cost relative to Ironside's overall infrastructure AUM of approximately $3.2 billion.
Additionally, the Mutual Standstill and Preservation Agreement executed on February 15, 2024 preserves the transaction framework and key documents, maintaining optionality for reactivation. Deferring preserves Ironside's ability to participate in a potentially attractive infrastructure investment if the concession framework and financing can be successfully reset.
*4. Relationship Considerations*
Exercising the wind-down right now — particularly in light of the positive concession framework developments — could strain the relationship with Meridian (David Hargreaves and his team). This may be a relevant consideration given Ironside's broader infrastructure strategy and the potential for future co-investment opportunities with Meridian's platform, which manages approximately $22.5 billion in AUM across its fund family, including the $6.2 billion Fund IV.
**Risks of Deferral**
We want to be transparent about the risks of this approach, which we addressed in greater detail in the July 22 memo:
- The tentative concession framework may not result in definitive terms acceptable to the transaction parties, in which case the fundamental impediment to closing would persist indefinitely.
- The FERC §203 approval (Docket No. EC22-143-000, originally received December 15, 2022) lapsed as of June 15, 2024. Reactivation would require a fresh FERC filing with no guarantee of expedited review or approval on the same terms. The OPUC application (Docket No. UM-2287) remains stayed but would need to be reactivated as well.
- The debt financing — the $975 million senior secured term loan plus $150 million revolver from Atlas National Bank and Pinnacle Credit Partners — has expired and would need to be entirely renegotiated in what may be a materially different interest rate and credit environment.
- Each month of continued dormancy represents additional (albeit modest) carrying costs and continued reservation of Ironside's commitment capacity ($277.5 million unfunded).
- There is no assurance that, even if reactivated, the transaction would close at the originally agreed enterprise value of $1.95 billion. The economics may need to be renegotiated, and Ironside could ultimately find itself in a worse position than a clean wind-down today.
These are real risks, and we do not dismiss them. Our recommendation to defer is based on the judgment that the potential upside from the concession framework resolution and the value of the information Meridian's reactivation assessment will provide outweigh these risks over a defined, relatively short observation period.
**Suggested Near-Term Actions**
We recommend the following steps:
1. **Do not exercise the wind-down right at this time.** No notice should be sent to Meridian GP IV LLC.
2. **Continue monitoring** the concession framework negotiations between the Portland Metropolitan Water District and Cascadia Renewables. We will coordinate with BSP to obtain updates as they become available.
3. **Request from Meridian** a firm timeline for delivery of the reactivation feasibility assessment. We can make this request through Delacroix at BSP or, if you prefer, Ironside can raise it directly with David Hargreaves.
4. **Reassess** the wind-down decision upon receipt of Meridian's reactivation memo and/or by end of Q3 2024, whichever comes first. We will prepare an updated recommendation at that time.
5. We will continue to review the GP's quarterly status reports as they are delivered. (We reviewed the Q2 2024 report on July 15, 2024, and our review memorandum is on file.)
6. On the insurance front, the R&W insurance policy with Northgate Specialty (Policy No. NSW-RI-2022-09814, $195 million coverage limit) remains tolled under the January 20, 2023 Side Letter. No action is needed at present, though reactivation would require engagement with Northgate on reinstatement terms — we will flag timing on that if and when it becomes relevant.
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Marcus, I want to emphasize that the wind-down right remains available to Ironside at any time going forward. Our recommendation to defer does not prejudice that right in any way. If the concession framework falls apart or Meridian's reactivation assessment is unfavorable, the right will still be there and we can move quickly.
Nick, Theresa, and I are available to discuss this by phone at your convenience. Happy to arrange a call with you and Renata and the full C&H team if that would be helpful — just let us know what works.
Best regards,
Pamela
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**Pamela Cross** Partner, Funds & Asset Management Calderwood & Harkness LLP 125 Broad Street, 44th Floor New York, NY 10004 T: (212) 506-7200
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