PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT WORK PRODUCT
SUMMARY DUE DILIGENCE REPORT AND RISK MATRIX
CASCADIA RENEWABLES HOLDINGS, INC.
Prepared by: Calderwood & Harkness LLP 125 Broad Street, 44th Floor New York, NY 10004
C&H Matter Number: 1023-00001
September 1, 2022
Prepared for:
Ironside Capital Management LP 590 Madison Avenue, 38th Floor New York, NY 10022
Attention:
Marcus J. Calloway, Founder & Chief Investment Officer Renata Obasi, Senior Managing Director, Infrastructure
Distribution: Confidential — limited to the internal infrastructure investment team of Ironside Capital Management LP. This document may not be reproduced, distributed, or disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
C&H Team:
Pamela Cross — Responsible Partner Nicholas Stern — Billing Partner Theresa Kim — Lead Associate Owen Fischer — Working Associate
Tax Input: Sylvia Hartwell — Specialist Partner, Tax
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I. Executive Summary
A. Purpose and Scope
This Summary Due Diligence Report and Risk Matrix (this "Report") consolidates the principal findings of Calderwood & Harkness LLP's ("C&H") legal due diligence investigation of Cascadia Renewables Holdings, Inc. ("Cascadia" or "CRH"), an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, OR 97204. This Report is intended to provide a comprehensive overview of the material legal risks and considerations associated with the proposed acquisition of Cascadia, and to identify recommended protections and negotiating positions for inclusion in the definitive equity purchase agreement (the "EPA").
The due diligence investigation was conducted in connection with the proposed acquisition of 100% of the issued and outstanding equity of Cascadia by Cascadia Acquisition Corp. (the "Buyer"), a newly formed Delaware corporation wholly owned by Meridian Infrastructure Partners Fund IV, LP ("Fund IV") and ICM Cascadia Co-Invest, LP ("ICM Co-Invest" or the "Vehicle"). The acquisition is structured as a direct purchase of shares from the existing shareholders of Cascadia, with the Buyer to be capitalized through equity contributions from Fund IV and ICM Co-Invest, and senior secured debt financing arranged by Atlas National Bank, N.A.
This Report has been prepared for Ironside Capital Management LP ("Ironside" or "ICM") in its capacity as the sole limited partner (holding a 99.99% limited partnership interest, representing a capital commitment of $299,970,000) in ICM Co-Invest. ICM serves as the co-investment manager for ICM Co-Invest and is the principal beneficiary of the due diligence investigation as the party underwriting the co-investment allocation alongside Fund IV.
The diligence workstreams covered by this Report and the underlying memoranda encompass the following subject-matter areas:
(i) corporate structure and organizational matters;
(ii) material contracts, including power purchase agreements, concession agreements, and other commercial arrangements;
(iii) regulatory permits and licenses, including federal and state regulatory approvals required to consummate the transaction;
(iv) real property and easements, including fee-owned land, leased parcels, easements, rights-of-way, and land-use entitlements;
(v) environmental liabilities and compliance, including Phase I and Phase II environmental site assessments;
(vi) employment and benefits, including management rollover arrangements, collective bargaining agreements, and benefit plans;
(vii) litigation and proceedings, including pending and threatened claims, investigations, and enforcement actions; and
(viii) intellectual property, including patents, trademarks, proprietary technology, and software licenses.
Separate individual memoranda have been issued for each of the foregoing workstreams, and this Report cross-references each such memorandum by date. A complete index of all due diligence memoranda is set forth in Appendix A. This Report is intended as a summary document and should be read in conjunction with the individual workstream memoranda, which contain more detailed analysis, document references, and supporting discussion.
B. Transaction Overview
The principal terms of the proposed transaction are summarized below. All financial figures are based on the most recently available information as of the date of this Report and are subject to customary purchase-price adjustments at closing, including a working-capital adjustment mechanism.
Valuation:
• Aggregate enterprise value: $1,950,000,000
• Equity value (estimated): $1,050,000,000, calculated as enterprise value less approximately $900,000,000 of net debt at Cascadia (to be refinanced at closing through the senior secured credit facilities described below)
• Implied EV/EBITDA multiple: approximately 14.1x, based on Cascadia's fiscal year 2021 EBITDA of $138,000,000 ($1,950,000,000 ÷ $138,000,000)
Financial Performance (FY 2021):
• Revenue: $487,000,000 (per audited financial statements prepared by Halstead & Greer LLP)
• EBITDA: $138,000,000 (per audited financial statements prepared by Halstead & Greer LLP)
Sources and Uses:
The transaction is expected to be financed through a combination of equity contributions from Fund IV and ICM Co-Invest, and senior secured debt financing arranged by Atlas National Bank, N.A. with Pinnacle Credit Partners LLC serving as co-lender. The sources and uses are summarized in the table below:
Selling Shareholders:
The existing shareholders of Cascadia, and their respective equity holdings, are as follows:
• Timberline Growth Equity Fund III, LP — 62% of issued and outstanding equity
• Weir Family Trust — 18% of issued and outstanding equity (Jonathan M. Weir, Trustee)
• Management Rollover Pool — 20% of issued and outstanding equity (approximately 25 members, expected to roll 50% of their holdings, representing approximately 10% of total equity, into the post-acquisition equity structure)
Representation and Warranty Insurance:
A representations and warranty insurance policy has been placed with Northgate Specialty Insurance Co. under Policy No. NSW-RI-2022-09814, providing coverage in the amount of $195,000,000 (representing 10% of enterprise value). The premium deposit for the R&W policy is $4,875,000. The terms and coverage of the R&W policy are discussed in detail in C&H Memorandum: R&W Insurance Policy Review and Coverage Analysis (dated August 31, 2022).
Key Advisors:
• Financial advisor to Meridian: Blackthorn Advisory Group LLC
• Auditor and tax advisor to Cascadia: Halstead & Greer LLP
• Environmental consultant: Clearwater Environmental Consulting Inc.
C. Diligence Information Sources
C&H's due diligence investigation was based on review of the following categories of information and materials:
(i) Documents and information posted to the virtual data room maintained by Cascadia and its counsel, Ridgeway, Ashford & Malone PC (Nina R. Castellano, Lead Partner). The virtual data room, hosted on a third-party platform, contained approximately 4,800 documents organized across 17 principal folders corresponding to the principal diligence workstreams. C&H reviewed documents in each folder and submitted follow-up diligence requests as appropriate.
(ii) Management presentations delivered by Jonathan M. Weir (Chief Executive Officer) and Sandra K. Llewellyn (Chief Financial Officer) of Cascadia, including a detailed overview of Cascadia's business, operations, financial performance, and strategic outlook. Management presentations were conducted via videoconference on July 15, 2022 and August 3, 2022, with follow-up written responses to C&H's management questionnaire provided on August 12, 2022.
(iii) Environmental site assessment reports prepared by Clearwater Environmental Consulting Inc., including Phase I Environmental Site Assessment reports for all material facility locations and Phase II Environmental Site Assessment reports for selected water-treatment facility locations.
(iv) Audited financial statements for Cascadia for fiscal years 2019, 2020, and 2021, prepared by Halstead & Greer LLP.
(v) Public records searches conducted in Oregon, Washington, and Idaho, including searches of UCC filings, judgment liens, tax liens, bankruptcy filings, and other public records.
(vi) Regulatory filings and public records maintained by the Federal Energy Regulatory Commission ("FERC"), the Oregon Public Utility Commission ("OPUC"), and applicable state agencies in Oregon, Washington, and Idaho.
(vii) Discussions with Breckenridge Sloane & Pratt LLP (Charles A. Delacroix, Lead Partner), outside counsel to Meridian Infrastructure Partners Fund IV, LP, regarding coordination of buy-side diligence and EPA negotiation strategy.
(viii) Discussions with Garvey Lennox LLP (Steven F. Yun, Lead Partner), outside counsel to Timberline Growth Equity Fund III, LP (the majority selling shareholder), regarding seller diligence disclosures, EPA representations, and indemnification positions.
D. Overall Risk Assessment Summary
Based on its review of the documents and information described above, and subject to the qualifications and limitations set forth in Section XIV of this Report, C&H has categorized the identified risk items across three tiers:
• High Risk: Issues that present a material risk to the transaction or to Cascadia's post-closing business, financial condition, or value, and that require specific and robust mitigation through EPA protections, indemnification, insurance, or other mechanisms.
• Medium Risk: Issues that present a moderate risk that, while not individually expected to be dispositive, warrant specific attention in the EPA negotiation and targeted mitigation through representations, covenants, closing conditions, or other protections.
• Low Risk: Issues that present a manageable level of risk, are either unlikely to materialize or are expected to have limited financial impact, and can be adequately addressed through standard EPA representations, customary insurance, and routine post-closing monitoring.
The results of C&H's risk assessment are summarized as follows:
C&H has not identified any issue that, in its professional judgment, constitutes a "showstopper" or that would, standing alone, warrant a recommendation to abandon the proposed transaction. However, several areas warrant specific EPA protections, indemnification coverage, and ongoing monitoring through the period between signing and closing and, in certain cases, post-closing. The three High-risk items — (i) the Bull Run Filtration Project concession concentration risk, (ii) overall revenue concentration risk in long-term contracts, and (iii) aggregate regulatory approval execution risk — are discussed in detail in the relevant sections of this Report and are consolidated in the Risk Matrix set forth in Section XI.
A consolidated tabular summary of all identified risk items, together with recommended mitigants and action item owners, is set forth in the Risk Matrix in Section XI below and in the expanded Risk Matrix attached as Appendix B.
II. Corporate Structure and Organizational Matters
A. Summary of Findings
Cross-reference: C&H Due Diligence Memorandum: Cascadia Corporate Structure and Subsidiaries (dated August 8, 2022, prepared by Owen Fischer).
Cascadia Renewables Holdings, Inc. is an Oregon corporation originally incorporated on March 14, 2012. It serves as the holding company for a group of operating subsidiaries organized under the laws of Oregon, Washington, and Idaho, each of which holds and operates one or more of Cascadia's infrastructure assets. As of the date of this Report, Cascadia's operating asset portfolio comprises the following:
• 14 hydroelectric facilities, located across Oregon, Washington, and Idaho, with an aggregate installed capacity of approximately 1,240 megawatts;
• 6 wind farms, located across Oregon and Washington, with an aggregate installed capacity of approximately 760 megawatts; and
• 3 water-treatment concessions, located in the Portland and Eugene metropolitan areas in Oregon, serving approximately 1.8 million residential and commercial customers.
C&H reviewed the following categories of organizational documents for Cascadia and each of its material subsidiaries:
• Articles of incorporation (or equivalent formation documents) and all amendments thereto;
• Bylaws (or equivalent governing documents) and all amendments thereto;
• Shareholder agreements, investor rights agreements, and related governance documents;
• Minutes of meetings of the board of directors and shareholders for the preceding three fiscal years;
• Certificates of good standing and foreign qualification certificates in each jurisdiction in which Cascadia or its subsidiaries are organized or qualified to do business;
• Authorized versus issued share capital; and
• Capitalization table and schedule of equity holders.
The capitalization table reflects the following shareholder structure as of the date of this Report:
B. Key Observations
Based on its review, C&H has not identified any material deficiencies in Cascadia's corporate governance framework or organizational documents. The following observations are noted:
(i) Subsidiary Formation and Good Standing. Each of Cascadia's material subsidiaries has been properly formed and is in good standing in its respective jurisdiction of organization. C&H reviewed certificates of good standing from the Oregon Secretary of State, the Washington Secretary of State, and the Idaho Secretary of State for each subsidiary, and all certificates were dated within 30 days of the date of this Report.
(ii) Intercompany Agreements. Cascadia and its subsidiaries are party to a series of intercompany agreements, including management services agreements, cost-sharing arrangements, and intercompany loan agreements. These agreements are generally consistent with market practice for a holding-company structure of this type and do not present unusual terms or conditions. The intercompany agreements will need to be reviewed for any provisions that may be triggered by, or require amendment in connection with, the change of control at closing.
(iii) Shareholder Agreement. Cascadia's existing shareholder agreement, dated as of June 28, 2012 (as amended), contains customary provisions regarding minority consent rights, board composition, transfer restrictions, and drag-along / tag-along rights. Upon the acquisition of 100% of Cascadia's equity by the Buyer at closing, the existing shareholder agreement will terminate by its terms, and the minority consent rights and transfer restrictions will cease to be operative.
(iv) Management Rollover Mechanics. As noted above, the Management Rollover Pool currently holds approximately 20% of Cascadia's issued and outstanding equity. It is anticipated that the approximately 25 members of the Management Rollover Pool will roll over 50% of their respective equity holdings (representing approximately 10% of total pre-transaction equity) into the post-acquisition equity structure. The rollover will be effected through a series of contribution and exchange transactions, the mechanics of which will need to be coordinated with the EPA provisions, the management stockholders' agreement to be entered into at closing, and the applicable tax structuring. C&H's tax group (Sylvia Hartwell, Specialist Partner) is engaged to advise on the tax-efficient structuring of the rollover.
C. Risk Rating
Overall Risk Level: Low
C&H has not identified any issues in the corporate structure or organizational matters workstream that would warrant a risk rating higher than Low. The corporate structure is clean, subsidiaries are properly organized and in good standing, and the governance framework is consistent with market practice.
Recommended Mitigant: Standard EPA representations regarding due organization, good standing, and capitalization of Cascadia and each of its subsidiaries, together with a customary bring-down condition at closing requiring that such representations remain true and correct in all material respects as of the closing date. The closing deliverables should include updated certificates of good standing and officer's certificates confirming the accuracy of the capitalization table.
III. Material Contracts
A. Summary of Findings
Cross-reference: C&H Due Diligence Memorandum: Cascadia Material Contracts Summary (dated August 22, 2022, prepared by Theresa Kim).
Cascadia's revenue base is predominantly anchored in long-term power purchase agreements ("PPAs") and municipal water-service concession agreements, which together account for the substantial majority of Cascadia's consolidated revenue. C&H reviewed all contracts identified by Cascadia's management as "material contracts" for purposes of the diligence exercise, including all contracts with annual revenues or expenditures in excess of $5,000,000 and all contracts containing change-of-control, assignment, or termination provisions that could be triggered by the proposed transaction.
The weighted-average remaining life of Cascadia's contract portfolio, as of the date of this Report, is approximately 22 years. This long-dated revenue profile is a key attribute of the investment thesis and supports the premium valuation multiple reflected in the agreed enterprise value.
C&H reviewed the following categories of material contracts:
• Power purchase agreements (hydroelectric and wind);
• Water-treatment concession agreements;
• Operations and maintenance ("O&M") agreements;
• Fuel supply agreements (limited; certain biomass co-generation components);
• Interconnection and transmission agreements;
• Equipment leases and technology licenses; and
• Insurance contracts (property and casualty, business interruption).
B. Bull Run Filtration Project Concession
The single most significant individual contract in Cascadia's portfolio is the 40-year water-treatment concession with the Portland Metropolitan Water District (the "Bull Run Concession"), originally executed on or about April 12, 2018. The Bull Run Concession relates to the Bull Run Filtration Project, a large-scale water-treatment facility serving the Portland metropolitan area.
Key terms and observations regarding the Bull Run Concession are as follows:
(i) Revenue Significance. The Bull Run Concession generates annual revenue of approximately $64,000,000, representing approximately 13.1% of Cascadia's FY 2021 consolidated revenue of $487,000,000. It is, by a material margin, the single largest individual contract in Cascadia's portfolio.
(ii) Concession Terms. The Bull Run Concession provides for a 40-year term (expiring approximately 2058), with fixed pricing escalators tied to a composite index of CPI and construction cost indices. The concession includes detailed performance benchmarks, operational standards, and termination provisions, including termination for cause (concessionaire default) and termination for convenience by the District (subject to a substantial termination payment to the concessionaire).
(iii) Change-of-Control Provisions. The Bull Run Concession contains a change-of-control provision requiring prior written consent of the Portland Metropolitan Water District to any direct or indirect change in control of the concessionaire entity. C&H understands that preliminary discussions regarding the required consent have been initiated by Cascadia's management, but formal consent has not yet been obtained as of the date of this Report.
(iv) Oregon SB 1567 (2022). The Oregon State Legislature enacted Senate Bill 1567 during its 2022 session ("SB 1567"), which introduces new regulatory requirements applicable to municipal water-service concessions, including enhanced performance standards, reporting obligations, and provisions permitting municipal counterparties to initiate renegotiation proceedings under certain circumstances. At the time of this Report, no renegotiation notice has been received by Cascadia from the Portland Metropolitan Water District; however, the enactment of SB 1567 introduces a degree of regulatory change risk that could, in the future, affect the terms of the Bull Run Concession or the economic value thereof.
(v) Impact Assessment. Any material renegotiation, amendment, or termination of the Bull Run Concession would have a significant impact on Cascadia's revenue base and enterprise value. Given that the Bull Run Concession represents approximately 13.1% of consolidated revenue and is the largest single-counterparty exposure in the portfolio, this risk merits specific and robust mitigation through the EPA.
C. Power Purchase Agreements
C&H reviewed the PPAs associated with each of Cascadia's 14 hydroelectric facilities and 6 wind farms. The principal observations are as follows:
(i) Term and Counterparty Profile. The PPAs are generally long-dated, with initial terms ranging from 15 to 30 years. The counterparties are predominantly investment-grade electric utilities and municipal power agencies in the Pacific Northwest. The creditworthiness of the PPA counterparty base is generally strong, and C&H did not identify any individual counterparty exposure that, by itself, would warrant a High-risk designation (with the exception of the Bull Run Concession discussed above, which is a concession agreement rather than a PPA).
(ii) Pricing Mechanisms. The pricing structures across the PPA portfolio vary by facility and vintage. The majority of PPAs employ fixed pricing with CPI-based escalators, providing a degree of inflation protection. A smaller number of PPAs are partially indexed to wholesale electricity market prices, which introduces a degree of commodity price exposure. C&H reviewed the pricing terms of each material PPA and did not identify any unusual or adverse pricing provisions.
(iii) Change-of-Control Provisions. A majority of the PPAs contain change-of-control provisions requiring notice to the counterparty upon a change in control of Cascadia or the applicable subsidiary. A subset of these PPAs require the affirmative consent of the counterparty to any assignment or transfer of the agreement in connection with a change of control. C&H has prepared a detailed schedule of all change-of-control and assignment provisions in the PPA portfolio, and this schedule is being used to develop the closing conditions checklist for purposes of tracking the required consents and notices.
(iv) Assignment and Consent Requirements. C&H recommends that the receipt of consents under all PPAs that represent individually significant revenue streams be included as a condition to closing under the EPA, or, in the alternative, that the EPA include a representation by the sellers that all required consents have been obtained (or will be obtained) prior to or concurrently with closing. The failure to obtain any individual consent is not expected to be materially adverse, given the diversified nature of the portfolio, but the aggregate consent risk warrants attention.
D. Other Material Contracts
In addition to the Bull Run Concession and the PPA portfolio, C&H reviewed the following categories of material contracts:
(i) O&M Agreements. Cascadia is party to operations and maintenance agreements with third-party operators for certain wind farm facilities. These agreements are generally on market terms and do not contain unusual provisions. Certain O&M agreements include change-of-control notice requirements but do not require counterparty consent to assignment.
(ii) Equipment and Technology Licenses. Cascadia licenses certain proprietary equipment and technology from third-party manufacturers and technology providers, including turbine manufacturers and SCADA system providers. The license agreements are generally non-exclusive, and C&H did not identify any provisions that would impair Cascadia's ongoing use of the licensed technology post-closing.
(iii) Interconnection and Transmission Agreements. Cascadia and its subsidiaries are party to interconnection agreements and transmission service agreements with regional electric utilities and the Bonneville Power Administration. These agreements are critical to the operation of Cascadia's generation assets and are generally long-dated and on standard terms.
(iv) Insurance Contracts. C&H reviewed Cascadia's property and casualty insurance program, including business interruption coverage, general liability coverage, and umbrella/excess coverage. The coverage limits and terms are generally consistent with market practice for an infrastructure platform of Cascadia's size and asset profile.
E. Risk Rating
Bull Run Filtration Project Concession Concentration Risk: High
The Bull Run Concession represents the single largest individual contract in Cascadia's portfolio, generating approximately $64,000,000 in annual revenue (approximately 13.1% of FY 2021 consolidated revenue). The concentration of revenue in a single contract with a single municipal counterparty, combined with the regulatory change risk introduced by Oregon SB 1567 (2022), warrants a High-risk designation.
Recommended Mitigants:
• EPA special indemnity for losses arising out of or relating to the Bull Run Concession, including losses resulting from renegotiation, amendment, or termination of the concession;
• Specific EPA representation by the sellers regarding the current terms and status of the Bull Run Concession, including a representation that no notice of renegotiation, default, termination, or modification has been received or issued as of the signing date;
• MAC/MAE protection in the EPA specifically encompassing material adverse changes in the terms of the Bull Run Concession or in the regulatory environment applicable thereto (including the impact of Oregon SB 1567);
• R&W insurance coverage under the Northgate Specialty policy (coverage limit $195,000,000) to backstop the sellers' representations regarding the Bull Run Concession;
• Ongoing monitoring of Oregon SB 1567 developments and Portland Metropolitan Water District communications through the pre-closing period and post-closing.
Change-of-Control Consent Risk Across Contract Portfolio: Medium
Multiple PPAs and concession agreements in Cascadia's portfolio contain change-of-control provisions requiring notice to, or consent from, the applicable counterparty. While C&H does not expect any individual consent to be withheld, the aggregate consent risk across the portfolio warrants a Medium-risk designation.
Recommended Mitigants:
• Closing condition requiring receipt of consents under all material contracts where consent is required and where the failure to obtain consent could result in a right of termination or other adverse consequence;
• EPA representation by the sellers regarding all change-of-control provisions in material contracts and the status of required consents;
• Bring-down condition at closing regarding the accuracy of the sellers' representations regarding material contracts.
Concentration in PPA Revenue: Medium
While Cascadia's PPA portfolio is diversified across 20 generation facilities and multiple utility counterparties, a significant portion of Cascadia's revenue is derived from a limited number of large PPAs. This concentration, while mitigated by the long weighted-average remaining life of the portfolio (approximately 22 years) and the creditworthiness of the counterparties, warrants a Medium-risk designation.
Recommended Mitigant:
• Diversified counterparty analysis; EPA representations regarding the status of all material PPAs; R&W coverage for breaches of contract-related representations.
IV. Regulatory Permits and Licenses
A. Summary of Findings
Cross-reference: C&H Due Diligence Memorandum: Cascadia Regulatory Permits and Licenses (dated August 18, 2022, prepared by Theresa Kim).
Cascadia and its subsidiaries hold a complex and multi-layered portfolio of federal and state permits, licenses, authorizations, and approvals that are critical to the continued operation of Cascadia's infrastructure assets. The proposed transaction will require the receipt of certain regulatory approvals prior to closing, and C&H has coordinated with Cascadia's management, the sellers' counsel, and Meridian's counsel to develop a regulatory approval strategy and timeline.
B. FERC Hydroelectric Licenses
Cascadia's 14 hydroelectric facilities are licensed under the Federal Power Act, as amended (16 U.S.C. §§ 791a et seq.), and are subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC"). The transfer of FERC hydroelectric licenses in connection with the proposed transaction requires FERC approval under Section 203 of the Federal Power Act. C&H understands that the FERC §203 application will be filed under FERC Docket Number EC22-143-000 (subsequently filed October 19, 2022).
Key observations regarding the FERC hydroelectric licenses are as follows:
(i) License Terms. The FERC licenses for Cascadia's hydroelectric facilities have varying remaining terms. Several licenses have substantial remaining terms (in excess of 20 years), while a smaller number of licenses are approaching their relicensing periods within the next 10 to 15 years. Relicensing proceedings under the Federal Power Act are lengthy and resource-intensive, and the outcome of any future relicensing proceeding cannot be assured.
(ii) FERC §203 Approval. The acquisition of 100% of Cascadia's equity by the Buyer will constitute a change in control of Cascadia's FERC-jurisdictional assets, requiring FERC §203 approval. FERC typically approves Section 203 applications within 60 to 90 days of a complete filing, and C&H does not anticipate material objections to the proposed transaction given the well-capitalized nature of the acquiring parties and the absence of competitive or market-power concerns. FERC approval is expected to be conditional on the filing of license-transfer applications post-closing for each individual hydroelectric license.
(iii) 18-Month Lapse Provision. FERC §203 approvals are subject to an 18-month lapse provision: if the transaction does not close within 18 months of the date of the FERC order granting approval, the approval lapses and a new application must be filed. Given the anticipated closing timeline, this provision is not expected to present a concern, but it should be borne in mind in the event of unexpected delays.
C. State Utility Permits and Water Rights
In addition to FERC jurisdiction, Cascadia's operations are subject to the regulatory oversight of several state agencies:
(i) Oregon Public Utility Commission ("OPUC"). Certain of Cascadia's utility-related assets in Oregon are subject to OPUC jurisdiction. The proposed transaction will require OPUC approval, and C&H understands that the OPUC application will be filed under OPUC Docket Number UM-2287 (subsequently filed October 14, 2022). Oregon precedent is generally favorable for the transfer of utility assets to well-capitalized acquirers, and C&H has engaged experienced Oregon regulatory counsel to assist with the OPUC proceeding.
(ii) Washington and Idaho State Permits. Cascadia holds various state-level permits for its wind and hydroelectric operations in Washington and Idaho. C&H reviewed the applicable permits and did not identify any permits that would require prior regulatory approval for the change of control at closing, although change-of-control notices may be required under certain permits.
(iii) Water Rights. Cascadia and its subsidiaries hold water rights appropriations in Oregon and Idaho that are necessary for the operation of certain hydroelectric and water-treatment facilities. C&H reviewed the water rights certificates and permits and confirmed that all are current and in good standing. No material challenges to Cascadia's water rights were identified.
D. CFIUS Considerations
C&H has recommended that a voluntary notice be filed with the Committee on Foreign Investment in the United States ("CFIUS") in connection with the proposed transaction. This recommendation is based on the critical infrastructure nature of Cascadia's assets, which include hydroelectric generation facilities, wind generation facilities, and water-treatment concessions, rather than on any foreign ownership concern. There is no foreign person or entity in the ownership chain of either Fund IV or ICM Co-Invest, and C&H does not anticipate that CFIUS will identify any national security concerns with respect to the proposed transaction. The voluntary filing is recommended primarily to provide certainty and to preclude the possibility of a subsequent CFIUS inquiry.
A separate memorandum analyzing CFIUS considerations was issued on September 5, 2022.
E. Risk Rating
FERC §203 Approval Timeline: Medium
The FERC §203 approval is a mandatory closing condition, and any material delay in obtaining FERC approval could extend the transaction timeline beyond the financing commitment and EPA outside date. While FERC typically acts within 60 to 90 days of a complete filing, the possibility of FERC staff questions, supplemental information requests, or intervention by third parties cannot be entirely excluded.
Recommended Mitigants:
• Regulatory approval as a closing condition under the EPA;
• Outside date providing adequate runway for FERC approval (current negotiated outside date of December 31, 2022, with extension mechanics);
• FERC typically approves transactions of this type within the anticipated timeline.
OPUC Approval: Medium
The outcome of the OPUC proceeding is expected to be favorable, based on Oregon precedent, but the timing of OPUC approval is somewhat uncertain and may be subject to public-interest review and stakeholder intervention.
Recommended Mitigants:
• Regulatory approval as a closing condition under the EPA;
• Engagement of experienced Oregon regulatory counsel to manage the OPUC proceeding;
• Outside date with extension mechanics to accommodate potential delays.
CFIUS: Low
C&H does not anticipate any adverse finding by CFIUS in connection with the proposed transaction. The voluntary filing is a precautionary measure.
Recommended Mitigant:
• Voluntary CFIUS notice filing; no foreign ownership concerns.
V. Real Property and Easements
A. Summary of Findings
Cross-reference: C&H Due Diligence Memorandum: Cascadia Real Property and Easements (dated August 25, 2022, prepared by Owen Fischer).
Cascadia's real property portfolio encompasses a diverse array of fee-owned land, leased parcels, easements, rights-of-way, and land-use entitlements across Oregon, Washington, and Idaho. The real property holdings are integral to Cascadia's operations and include the sites of all 14 hydroelectric facilities, 6 wind farms, and 3 water-treatment concessions.
C&H reviewed the following categories of real property interests:
(i) Hydroelectric Facility Sites (14). A combination of fee-owned dam sites and parcels held under FERC-licensed land rights. Certain hydroelectric facilities are situated on federally owned land pursuant to FERC licenses, while others are situated on privately owned land acquired by Cascadia or its predecessors.
(ii) Wind Farm Sites (6). Primarily leased agricultural land held under long-term ground leases with private landowners. The ground leases generally have initial terms of 25 to 40 years, with renewal options, and include escalation provisions tied to CPI or fixed annual increases.
(iii) Water-Treatment Facility Sites (3). A combination of fee-owned parcels and municipally leased sites. The Bull Run Filtration Project site is held under a site lease with the Portland Metropolitan Water District that is coterminous with the Bull Run Concession.
B. Key Observations
(i) Title Reports and Surveys. C&H reviewed preliminary title reports and surveys for all major facility locations. The title reports were prepared by nationally recognized title companies and did not reveal any material defects in Cascadia's title to its fee-owned properties, or any material encumbrances or liens other than the existing secured financing liens (which will be satisfied and released at closing).
(ii) Easements and Rights-of-Way. Cascadia holds a substantial number of easements and rights-of-way for transmission lines, access roads, and pipeline corridors associated with its facilities. C&H reviewed the principal easement agreements and confirmed that they are generally in good standing and provide adequate rights for Cascadia's current and anticipated operations.
(iii) Wind Farm Ground Leases. Certain wind farm ground leases are approaching their initial renewal periods within the next 5 to 10 years. C&H reviewed the renewal provisions of these leases and noted that they generally provide for renewal at the lessee's option, at rental rates determined by reference to fair market value or a contractual escalation formula. C&H recommends that the financial model used by Ironside's infrastructure investment team incorporate updated assumptions regarding ground lease renewal economics, including the possibility that renewal rents may exceed current contractual rates.
(iv) Existing Financing Liens. All of Cascadia's real property is subject to mortgage liens and security interests in favor of Cascadia's existing lenders, which will be satisfied and released at closing as part of the refinancing of Cascadia's existing indebtedness.
C. Risk Rating
Wind Farm Ground Lease Renewals: Low
The wind farm ground leases have adequate remaining terms, and the renewal provisions are generally favorable to the lessee. Market comparables in the Pacific Northwest support the expectation that renewal economics will be reasonable, although the possibility of above-trend rental increases cannot be excluded.
Recommended Mitigant: