1023-00001 · Ironside Capital Management LP · Wind-Down & Reactivation

reactivation-feasibility-memo-analysis.docx DOCUMENT Funds

70 / 75 ← → ✕

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

From: Pamela Cross, Nicholas Stern, and Theresa Kim Calderwood & Harkness LLP 125 Broad Street, 44th Floor New York, NY 10004

To: Marcus J. Calloway, Founder & Chief Investment Officer Renata Obasi, Senior Managing Director, Infrastructure Ironside Capital Management LP 590 Madison Avenue, 38th Floor New York, NY 10022

Date: September 15, 2024

Re: Analysis of Meridian Reactivation Feasibility Memo — Key Issues for ICM Cascadia Co-Invest, LP

Matter No.: 1023-00001

Right-click to update Table of Contents

I. Executive Summary

On September 1, 2024, Meridian Infrastructure Partners LP, acting through its general partner, Meridian Infrastructure GP IV LLC (collectively, "Meridian" or the "GP"), circulated a reactivation feasibility memorandum (the "Reactivation Memo") to co-investors in the proposed acquisition of Cascadia Renewables Holdings, Inc. ("Cascadia" or the "Company"). The Reactivation Memo was addressed to Ironside Capital Management LP ("Ironside" or "ICM") in its capacity as the sole limited partner of ICM Cascadia Co-Invest, LP (the "Vehicle"), as well as to Meridian Infrastructure Fund IV, LP ("Fund IV"), the primary equity sponsor in the acquisition. The Reactivation Memo sets forth Meridian's assessment that reactivation of the dormant transaction is feasible in light of recent developments and proposes a target timeline for resuming acquisition activities, with a revised closing target of the third quarter of 2025.

The purpose of this memorandum is to provide Ironside with a comprehensive analysis of the Reactivation Memo, to identify key legal, regulatory, financial, and commercial issues and risks that the Reactivation Memo presents for Ironside and the Vehicle, and to outline the areas requiring further negotiation, diligence, and information-gathering before Ironside can responsibly evaluate whether to support reactivation of the transaction. This memorandum is intended to serve as a framework for Ironside's discussions with Meridian in the coming weeks and to inform the strategic decisions that Ironside will need to make regarding its continued participation in the Cascadia investment.

As background, the Vehicle has been dormant since January 9, 2023 — a period of approximately twenty months — following the GP's issuance of a capital-call suspension notice and its declaration of a Material Impediment Event under Section 7.04 of the Amended and Restated Agreement of Limited Partnership of ICM Cascadia Co-Invest, LP, dated as of July 29, 2022 (the "LP Agreement"). The Material Impediment Event was triggered by the Portland Metropolitan Water District's (the "Water District") notification to Cascadia of its intent to renegotiate the forty-year Bull Run Filtration Project concession, a development that materially affected the Company's revenue profile and the overall economics of the proposed acquisition.

Ironside's wind-down election right under Section 7.04(c) of the LP Agreement ripened on July 9, 2024, which marked the eighteen-month anniversary of the dormancy period. As we advised in our memorandum of July 25, 2024, Ironside elected to defer exercise of its wind-down right pending further developments, including the then-anticipated outcome of the concession renegotiation between the Water District and Cascadia. That deferral remains in effect and does not constitute a waiver of Ironside's election right. We continue to recommend that Ironside preserve this right as a critical component of its negotiating leverage in any reactivation discussions.

The catalyst for the Reactivation Memo is the tentative framework reached on June 30, 2024, between the Water District and Cascadia regarding the terms of a revised Bull Run Filtration Project concession. While the details of this framework have not yet been disclosed in full to Ironside or to this firm, Meridian has indicated that the revised terms, though less favorable than the original 2018 concession, are sufficient to support the economics of the acquisition on revised assumptions.

Notwithstanding the positive signal from the tentative concession framework, reactivation of the Cascadia acquisition faces substantial hurdles across multiple dimensions. These include, without limitation: (1) the lapse of FERC Section 203 approval on June 15, 2024, necessitating a complete re-filing; (2) the need to reactivate stayed OPUC proceedings in Docket No. UM-2287; (3) the expiration of the debt commitment letter from Atlas National Bank, N.A. and Pinnacle Credit Partners LLC on October 31, 2023, requiring the negotiation of entirely new financing arrangements; (4) the expiration of the third extended outside date under the Equity Purchase Agreement on December 31, 2023, with the parties currently operating under a Mutual Standstill and Preservation Agreement; (5) the potential need for an updated valuation of Cascadia to reflect changed circumstances, revised concession terms, and the passage of approximately two years; and (6) significant open questions regarding the economic terms of the co-investment and the allocation of reactivation costs between Fund IV and the Vehicle.

From a financial perspective, Ironside currently has $22,500,000 of called capital at risk in the Vehicle, representing 7.5% of its total $300,000,000 commitment. The remaining $277,500,000 in unfunded commitments remains outstanding and would be subject to additional capital calls if the transaction is reactivated. The Vehicle's total commitment of $300,000,000 represents 28.57% of the aggregate $1,050,000,000 equity contemplated for the acquisition, with Fund IV providing the remaining $750,000,000 (71.43%).

For the reasons set forth in detail below, we recommend that Ironside not commit to reactivation at this stage but instead engage constructively with Meridian while conditioning any commitment on the resolution of the key issues identified in this memorandum. A measured, information-driven approach will best protect Ironside's interests and preserve its optionality, including the continued availability of the wind-down election right.

II. Background and Procedural History

A. Transaction Overview

The proposed transaction involves the acquisition of 100% of the outstanding equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation headquartered in Portland, Oregon. Cascadia is led by its Chief Executive Officer, Jonathan M. Weir, and its Chief Financial Officer, Sandra K. Llewellyn. The acquisition would be effected through Cascadia Acquisition Corp., a newly formed Delaware acquisition subsidiary that was organized as the buyer entity for purposes of the Equity Purchase Agreement (the "EPA").

The transaction was structured at an enterprise value of $1,950,000,000, reflecting an equity value of $1,050,000,000 and approximately $900,000,000 of Cascadia net debt. The implied valuation multiple was approximately 14.1x Cascadia's fiscal year 2021 EBITDA of $138,000,000, a premium to the then-prevailing market for comparable renewable-energy and water-infrastructure platforms, but one that Meridian justified on the basis of Cascadia's long-dated contract portfolio, regulated revenue streams, and embedded growth opportunities.

Cascadia's business encompasses a diversified portfolio of renewable-energy and water-infrastructure assets across the Pacific Northwest, including fourteen hydroelectric facilities, six wind farms, and three water-treatment concessions, with operations spanning Oregon, Washington, and Idaho. For fiscal year 2021, Cascadia reported revenue of $487,000,000 and EBITDA of $138,000,000. The Company's revenue is substantially contracted, with the original diligence indicating a weighted-average remaining contract life of approximately twenty-two years across its portfolio of power purchase agreements ("PPAs") and municipal service contracts.

The selling shareholders in the transaction consist of three groups: Timberline Growth Equity Fund III, LP, which holds approximately 62% of Cascadia's equity and serves as the controlling shareholder; the Weir Family Trust, which holds approximately 18% of Cascadia's equity and is associated with CEO Jonathan M. Weir; and the Management Rollover Pool, which holds approximately 20% of Cascadia's equity, with an expectation that approximately 50% of the management pool would be rolled over into the acquisition entity, thereby preserving management alignment and continuity of operations post-closing.

The sources and uses for the transaction were structured as follows:

Sources of Funds:

Uses of Funds:

The senior secured credit facilities were to be arranged by Atlas National Bank, N.A. as lead arranger and administrative agent, with Pinnacle Credit Partners LLC serving as co-lender. The revolving credit facility of $150,000,000 was to remain undrawn at closing and was intended to provide liquidity for Cascadia's ongoing working-capital needs and capital expenditure program post-acquisition.

B. Dormancy Timeline

The following chronology summarizes the principal events from the onset of the material adverse development through the circulation of the Reactivation Memo. This timeline is also presented in tabular form in Enclosure B to this memorandum.

October 28, 2022. The Portland Metropolitan Water District delivered formal notice to Cascadia of its intent to renegotiate the forty-year Bull Run Filtration Project concession, which had been awarded to Cascadia in approximately 2018. The Water District's notification cited Oregon Senate Bill 1567, enacted in 2022, which provided municipalities with enhanced authority to renegotiate long-term utility concession agreements under certain circumstances. The Bull Run Filtration Project represented approximately $64,000,000 in annual revenue to Cascadia, constituting approximately 13.1% of the Company's fiscal year 2021 total revenue of $487,000,000. The potential renegotiation or loss of this concession represented a material change to the assumptions underlying the transaction.

November 10, 2022. Meridian issued a formal notification to Ironside of the material adverse development, in accordance with the reporting obligations set forth in the LP Agreement and the Side Letter. The notification described the Water District's renegotiation demand and indicated that Meridian was evaluating the potential impact on the transaction.

November 22, 2022 through June 28, 2023. The parties to the EPA executed three successive amendments extending the outside date for the transaction. The first amendment (November 22, 2022) extended the outside date to March 31, 2023. The second amendment (March 28, 2023) further extended the outside date to September 30, 2023. The third amendment (June 28, 2023) extended the outside date to December 31, 2023. Each extension was agreed to by all EPA parties — the buyer, the selling shareholders, and the Company — in order to preserve the transaction framework while the concession renegotiation was pending.

January 9, 2023. Meridian, acting through the GP, issued a capital-call suspension notice and declared a Material Impediment Event under Section 7.04 of the LP Agreement. The suspension notice indicated that no further capital calls would be issued until the GP determined that the Material Impediment Event had been resolved or was no longer continuing. The Vehicle entered dormancy as of this date.

January 20, 2023. A tolling side letter was executed between the relevant transaction parties and Northgate Specialty Insurance Co. with respect to the representations and warranties insurance policy (Policy No. NSW-RI-2022-09814). The tolling letter provided that the coverage period under the R&W policy would be suspended during the dormancy period and would resume upon closing of the acquisition or, if the transaction was terminated, the coverage would be addressed in accordance with the policy's cancellation provisions.

October 31, 2023. The debt commitment letter issued by Atlas National Bank, N.A. and Pinnacle Credit Partners LLC expired. The commitment letter had been extended once from its original expiration date, and Meridian had paid an extension fee of $2,437,500 (representing 0.25% of the $975,000,000 term loan commitment) from Fund IV capital. Neither Atlas nor Pinnacle agreed to a further extension, given the uncertain timeline for the transaction.

December 31, 2023. The third extended outside date under the EPA expired. No party exercised its termination rights under the EPA, leaving the agreement in a state of limbo. The parties entered into negotiations regarding a framework for preserving the transaction structure.

February 15, 2024. The Mutual Standstill and Preservation Agreement (the "Standstill Agreement") was executed among the buyer, the selling shareholders, the Company, and certain other parties. The Standstill Agreement preserved the EPA and ancillary transaction documents in their current form, established a mutual standstill on certain competitive activities, and provided a framework for either reactivation of the transaction or an orderly wind-down, depending on future developments. We provided a detailed analysis of the Standstill Agreement in our memorandum of February 10, 2024.

June 15, 2024. The FERC Section 203 approval (issued December 15, 2022, in Docket No. EC22-143-000) lapsed. The approval had been granted an extended eighteen-month validity period, which expired on this date without the underlying transaction having been consummated. As a result, a new Section 203 application will be required in order to proceed with the acquisition.

June 30, 2024. A tentative framework was reached between the Portland Metropolitan Water District and Cascadia regarding the terms of a revised Bull Run Filtration Project concession. The details of this framework have not been disclosed in full to Ironside or to this firm, but Meridian has indicated that the framework provides a path to resolution of the concession dispute that was the proximate cause of the dormancy.

July 9, 2024. The eighteen-month dormancy mark was reached, triggering the ripening of Ironside's wind-down election right under Section 7.04(c) of the LP Agreement. As noted above, Ironside has deferred exercise of this right pending developments, in accordance with our recommendation of July 25, 2024.

September 1, 2024. Meridian circulated the Reactivation Memo to co-investors, proposing reactivation of the Cascadia acquisition.

C. Current Posture of the Vehicle

As of the date of this memorandum, the Vehicle remains in dormancy, with no investment activity or capital calls having occurred since the January 9, 2023 suspension notice. The following summarizes the current financial and operational posture of the Vehicle:

Capital Called to Date. A single capital call of $22,500,000 was issued and funded on August 15, 2022, representing 7.5% of Ironside's total $300,000,000 commitment. These funds were deployed as set forth in Section IV.E.2 below.

Unfunded Commitment. $277,500,000 remains subject to capital call under the LP Agreement. The unfunded commitment is subject to the capital-call suspension currently in effect and cannot be drawn unless and until the GP lifts the suspension.

Annualized Dormancy Operating Expenses. The Vehicle incurs approximately $185,000 per year in operating expenses during the dormancy period, consisting principally of fund administration fees payable to Kendrick Thorne & Associates LLP, Delaware franchise taxes, registered-agent fees, annual audit fees, and K-1 preparation costs. These expenses are funded from the Vehicle's working-capital reserve.

GP Reporting. The GP has continued to deliver quarterly reports to Ironside throughout the dormancy period, in compliance with its obligations under the LP Agreement and the Side Letter. A total of six quarterly reports have been delivered through the second quarter of 2024, each of which has been reviewed by this firm. The quarterly reports have confirmed the dormancy status, provided updates on the concession renegotiation (to the extent known to Meridian), and reported on Vehicle operating expenses.

Distributions and Investment Activity. No distributions have been made by the Vehicle, and no investment activity has occurred since the dormancy commenced. The Vehicle's sole asset remains the called capital, as deployed in the categories described below.

R&W Insurance. The representations and warranties insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) remains bound but tolled pursuant to the January 20, 2023 tolling side letter. The policy provides coverage of $195,000,000, and a premium deposit of $4,875,000 has been paid from Vehicle capital.

D&O Insurance. A directors' and officers' liability insurance tail policy has been maintained with Sentinel Directors & Officers Underwriters Inc. for the benefit of Cascadia's management team, in anticipation of the proposed change of control. This policy remains in effect.

III. Summary of the Reactivation Memo

A. Meridian's Principal Conclusions

The Reactivation Memo, a copy of which is attached as Enclosure A, sets forth Meridian's assessment that the Cascadia acquisition should be reactivated and brought to closing. The Reactivation Memo was prepared by Meridian's deal team, led by David R. Hargreaves (Managing Partner), Lillian Fong (Partner, Infrastructure), and Graham Whitfield (Vice President, Infrastructure), and reflects input from Meridian's outside counsel, Breckenridge Sloane & Pratt LLP, and its financial advisor, Blackthorn Advisory Group LLC.

Meridian's principal conclusions, as articulated in the Reactivation Memo, are as follows:

First, Meridian concludes that the tentative concession framework reached between the Portland Metropolitan Water District and Cascadia on June 30, 2024, provides a credible path to resolving the material impediment that precipitated the dormancy. While Meridian acknowledges that the revised concession terms are less favorable than the original 2018 concession — both in terms of annual revenue and, potentially, the remaining term of the concession — Meridian asserts that the revised terms preserve sufficient economics to justify proceeding with the acquisition on adjusted assumptions.

Second, Meridian proposes a target reactivation timeline of approximately nine to twelve months from a formal decision to proceed, with a revised closing target of the third quarter of 2025. This timeline contemplates the re-filing of the FERC Section 203 application, the reactivation of the stayed OPUC proceedings, the negotiation of new debt financing, the amendment or replacement of the EPA, and the completion of updated due diligence.

Third, Meridian indicates that Fund IV remains committed to deploying its $750,000,000 equity commitment to the Cascadia acquisition and that Meridian's limited partners in Fund IV have been consulted and are supportive of reactivation. Meridian represents that Fund IV has sufficient available capital to fund its commitment and that no material changes to the Fund IV capital base have occurred during the dormancy period.

Fourth, the Reactivation Memo expresses Meridian's view that the combination of Cascadia's contracted revenue profile, the resolution of the concession dispute, and the long-term fundamentals of the Pacific Northwest renewable-energy and water-infrastructure markets continue to support the investment thesis, notwithstanding the passage of time and the changes in market conditions since the original underwriting in 2022.

B. Key Assumptions in the Reactivation Memo

The Reactivation Memo is predicated on a series of assumptions that Meridian has identified as necessary preconditions for successful reactivation. It is important that Ironside evaluate each of these assumptions critically, as the failure of any one could materially affect the feasibility, timeline, or economics of reactivation. The key assumptions are:

Concession Finalization. The Reactivation Memo assumes that the tentative concession framework reached on June 30, 2024, will be converted into a definitive, binding agreement between the Water District and Cascadia by the fourth quarter of 2024. The Reactivation Memo does not address in detail the risk that negotiations could stall, that the tentative terms could be revised unfavorably, or that the Water District's governing body might fail to approve the definitive agreement.

Financing Availability. The Reactivation Memo assumes that new debt financing can be obtained on commercially reasonable terms. It references Meridian's intention to re-engage Atlas National Bank, N.A. and Pinnacle Credit Partners LLC, with the assistance of Blackthorn Advisory Group LLC, but does not provide evidence that either lender has expressed a willingness to re-engage. The assumption of "commercially reasonable terms" is also undefined and does not address the significant changes in interest rate levels since the original commitment was executed in August 2022.

Regulatory Re-Approval Timeline. The Reactivation Memo assumes that FERC Section 203 approval and OPUC approval can be re-obtained within six to nine months of filing. As discussed in Section IV.A below, this assumption may be optimistic given the need for updated submissions, the potential for changed regulatory policies, and the possibility of new public comment periods or hearing requirements.

Seller Willingness. The Reactivation Memo assumes that the selling shareholders — Timberline Growth Equity Fund III, LP; the Weir Family Trust; and the Management Rollover Pool — remain willing to consummate the transaction at or near the original terms. The Reactivation Memo does not address the possibility that sellers may have pursued or received alternative exit opportunities during the dormancy period, or that seller economics may have changed such that the original terms are no longer acceptable.

R&W Insurance. The Reactivation Memo assumes that the existing R&W insurance policy with Northgate Specialty Insurance Co. can be reactivated on acceptable terms or, in the alternative, that replacement coverage can be procured. The Reactivation Memo does not address the potential for increased premiums, expanded exclusions, or underwriting challenges associated with the transaction's dormancy history.

Operational Continuity. The Reactivation Memo assumes that Cascadia's operations and financial performance have not materially deteriorated during the approximately two-year dormancy period. The Reactivation Memo references Meridian's monitoring of Cascadia's quarterly financial reports (received pursuant to the information rights provisions of the EPA) but does not provide updated financial statements or a detailed analysis of operational developments during the dormancy period.

Each of these assumptions represents a material area of uncertainty that Ironside should address before committing to reactivation. We discuss the specific risks and issues associated with each assumption in the sections that follow.

IV. Key Issues for Ironside

A. Regulatory Re-Approvals

1. FERC Section 203 Re-Filing

The prior FERC Section 203 approval for the Cascadia acquisition was issued on December 15, 2022, in Docket No. EC22-143-000. The approval authorized the proposed disposition of jurisdictional facilities associated with Cascadia's hydroelectric assets, subject to certain standard conditions relating to license-transfer filings, informational requirements, and compliance reporting. The approval was originally granted with a twelve-month validity period, which was subsequently extended to eighteen months at the request of the applicants. That extended validity period expired on June 15, 2024, without the transaction having been consummated.

As a consequence of the lapse, a new Section 203 application will be required in order to proceed with the acquisition. Meridian's outside counsel, Breckenridge Sloane & Pratt LLP (Charles A. Delacroix), is expected to handle the re-filing. The Reactivation Memo assumes that the new application can be filed promptly and that approval can be obtained within the six-to-nine-month timeline contemplated for regulatory re-approvals generally.

We note, however, that several factors may affect the timeline and outcome of a new Section 203 filing:

First, the historical timeline for the original filing — filed October 19, 2022, and approved December 15, 2022, a period of approximately two months — may not be indicative of the timeline for a re-filing. FERC staff may require updated submissions reflecting developments during the dormancy period, including the revised concession terms, changes to Cascadia's financial position, and any developments in the competitive landscape for hydroelectric generation in the Pacific Northwest. FERC may also require new environmental or competitive analyses, or may open a public comment period that was not required in connection with the original filing.

Second, the composition and policy orientation of FERC may have changed since the original approval was issued in December 2022. Changes in Commission membership, staff leadership, or policy priorities could result in different substantive requirements, additional conditions, or a more extended review process. We are not aware of any specific FERC policy changes that would adversely affect this application, but the risk of changed circumstances should be acknowledged.

Third, the re-filing will entail costs, including filing fees, legal fees for the preparation and prosecution of the application, and potentially consultant fees for updated analyses. These costs should be allocated between Fund IV and the Vehicle in accordance with the applicable provisions of the LP Agreement and the Co-Investment Allocation Agreement.

C&H Recommendation: Ironside should require Meridian to confirm that all FERC re-filing costs are borne by Fund IV (or the acquisition entity, Cascadia Acquisition Corp.) and not charged against the Vehicle's capital. Ironside should also request that Meridian commit to filing the new Section 203 application within a defined timeframe (e.g., within thirty days of a formal decision to reactivate) and provide Ironside with copies of all filing materials and correspondence with FERC.

2. Oregon Public Utility Commission Proceedings (OPUC Docket No. UM-2287)

The OPUC application for approval of the Cascadia acquisition was originally filed on October 14, 2022, in Docket No. UM-2287. The proceedings were stayed at the joint request of the parties in February 2023, following the commencement of the dormancy period. The stay has remained in effect since that time, and no substantive action has been taken in the docket.

Reactivation of the transaction will require that the OPUC proceedings be un-stayed and brought to a conclusion. This process presents several challenges:

The passage of approximately twenty months since the stay was imposed means that the record before the OPUC is substantially stale. The Commission is likely to require updated information in several categories, including but not limited to: current audited financial statements for Cascadia and the acquiring entities; a description of the revised concession terms for the Bull Run Filtration Project; an updated ownership structure for the acquisition entity (reflecting any changes in Fund IV's limited-partner base or in the co-investment structure); and an updated assessment of the transaction's impact on Oregon ratepayers and the public interest.

It is possible that the OPUC will determine that the passage of time and the changed circumstances warrant a substantially new proceeding, rather than a simple reactivation of the existing docket. This could involve the scheduling of new evidentiary hearings, the submission of new pre-filed testimony, and potentially a new public comment period. The involvement of intervenors — including consumer advocacy organizations, competing utilities, and environmental groups — may extend the timeline further.

The Oregon regulatory environment may have evolved during the dormancy period. New commissioners may have been appointed, and the Commission's priorities or policy positions may have shifted. In particular, the enactment of Oregon SB 1567 in 2022 (which provided the basis for the Water District's concession renegotiation demand) may signal a broader trend toward enhanced regulatory scrutiny of long-term utility concession agreements, which could affect the OPUC's approach to the Cascadia transaction.

The Reactivation Memo's assumption of six to nine months for OPUC approval may be optimistic, particularly if the Commission determines that a new or substantially revised proceeding is required. Based on our experience with comparable Oregon regulatory proceedings, a timeline of nine to fifteen months may be more realistic if significant supplementation of the record is needed.

C&H Recommendation: Ironside should request that Meridian engage Oregon regulatory counsel early in the reactivation process to assess the likely scope and timeline of the OPUC proceedings and to develop a strategy for expediting the process. Ironside should also consider whether it wishes to engage its own Oregon regulatory counsel to monitor the proceedings independently, particularly given the potential for conditions or requirements that could affect the economics of the co-investment.

3. CFIUS. The transaction received clearance through the voluntary notice process administered by the Committee on Foreign Investment in the United States ("CFIUS"). The CFIUS review was acknowledged on September 20, 2022, and no further action was required. Because there have been no changes in the foreign-ownership profile of the acquiring entities — Meridian Fund IV and the Vehicle are both domestic entities with no foreign limited partners triggering CFIUS jurisdiction — the CFIUS clearance remains in effect and no additional filing is required. We do not consider this a material issue for reactivation purposes.

B. Financing Refresh

1. Debt Commitment Letter Status

The debt commitment letter that was originally executed in August 2022 by Atlas National Bank, N.A. (as lead arranger and administrative agent, committing $650,000,000 of the senior secured term loan) and Pinnacle Credit Partners LLC (as co-lender, committing $325,000,000 of the senior secured term loan) expired on October 31, 2023. The commitment letter had been extended once from its original expiration date, and an extension fee of $2,437,500 (calculated as 0.25% of the $975,000,000 aggregate term-loan commitment) was paid by Meridian from Fund IV capital. Neither lender agreed to a further extension.

The total debt package for the transaction comprised a $975,000,000 senior secured term loan and a $150,000,000 revolving credit facility. Without a committed financing source, the transaction cannot be consummated, and obtaining a new debt commitment is therefore one of the most critical prerequisites for reactivation.

The Reactivation Memo indicates that Meridian intends to approach Atlas and Pinnacle about providing a new commitment, with Blackthorn Advisory Group LLC serving as financial advisor in connection with the financing process. However, the Reactivation Memo does not provide evidence that either Atlas or Pinnacle has expressed a willingness to re-engage with the transaction, nor does it address the terms on which a new commitment might be available.

We identify several key concerns for Ironside with respect to the financing refresh:

Interest Rate Environment. The interest rate environment has changed materially since the original commitment letter was executed in August 2022. The Federal Funds Rate has increased significantly, and credit spreads in the leveraged lending market have fluctuated. Higher base rates and potentially wider spreads will increase the all-in cost of borrowing for the acquisition, which will directly reduce the returns available to equity investors, including Ironside. The impact of higher borrowing costs on the Vehicle's projected internal rate of return ("IRR") and multiple on invested capital ("MOIC") could be substantial.

Market Flex Provisions. Any new commitment letter will likely include market-flex provisions that grant the lenders the right to adjust pricing, structure, and other terms in connection with the syndication of the credit facilities. Given the transaction's history — including the approximately two-year dormancy period, the concession renegotiation, and the lapse of the prior commitment — lenders may insist on broader flex provisions than those contained in the original commitment letter. Broader flex provisions introduce additional uncertainty regarding the final terms of the financing and could further erode equity returns.

Lender Conditions Precedent. Lender conditions precedent in a new commitment letter may be more stringent than those in the original commitment, reflecting the increased risk profile of the transaction. Conditions may include, for example, requirements for updated financial due diligence, confirmation of the revised concession terms, evidence of regulatory re-approvals, and potentially a lower loan-to-value ratio, which would increase the required equity contribution.

Due Diligence. A new commitment will almost certainly require updated financial due diligence on Cascadia, including audited financial statements for fiscal years 2022 and 2023 (prepared by Halstead & Greer LLP, Cascadia's independent auditor) and interim financial statements for 2024. The lenders will need to underwrite the revised revenue and cash-flow profile of the Company, taking into account the impact of the revised concession terms and any other changes during the dormancy period.

Alternative Lenders. There is no assurance that Atlas National Bank, N.A. and Pinnacle Credit Partners LLC will be willing to re-engage with the transaction. If one or both lenders decline to participate, Meridian will need to approach alternative lenders, which could result in different and potentially less favorable terms, a longer timeline for obtaining a committed financing, and additional transaction costs. The need to bring in new lenders would also require additional due diligence and may introduce new relationship dynamics that could complicate the closing process.

2. Impact on Transaction Economics and Returns

The interplay between higher debt costs and the potential adjustment to Cascadia's enterprise value has significant implications for the returns available to equity investors. Higher interest expense reduces free cash flow available for distributions and debt repayment, which in turn reduces equity returns on both an IRR and MOIC basis. The impact is amplified by leverage — in a transaction with $975,000,000 in term-loan debt against $1,050,000,000 in equity, even modest increases in the cost of debt have a meaningful effect on equity returns.

Ironside should undertake a comprehensive modeling exercise to assess the impact of current financing rates on projected returns under various scenarios. This exercise should include base-case, upside, and downside scenarios, with sensitivity analyses around key assumptions including the interest rate on the term loan, the revised annual revenue from the Bull Run concession, the overall enterprise value of Cascadia, and the exit timeline and valuation multiple.

In addition, the original EV/EBITDA multiple of approximately 14.1x (based on fiscal year 2021 EBITDA of $138,000,000) should be reassessed in light of current market conditions. Comparable transaction multiples for renewable-energy and water-infrastructure platforms may have shifted during the dormancy period, and it is important to determine whether the original valuation multiple remains supportable in the current market environment.

Ironside should request that Meridian provide updated financial projections for Cascadia, including the impact of the revised concession terms on Bull Run Filtration Project revenue, and should consider engaging an independent financial advisor to prepare a parallel analysis.

3. Allocation of Extension and Refiling Costs

As noted above, the extension fee of $2,437,500 paid in connection with the first extension of the original debt commitment letter was borne by Meridian Fund IV. This established a precedent for the allocation of financing-related costs to Fund IV rather than the Vehicle.

Ironside should confirm that any new commitment fees, ticking fees, break fees, or other costs associated with obtaining new debt financing are similarly allocated to Fund IV and are not charged against the Vehicle's capital or its unfunded commitment. The LP Agreement and the Co-Investment Allocation Agreement (dated July 29, 2022) contain provisions governing the allocation of expenses between Fund IV and the Vehicle, and these provisions should be reviewed carefully to ensure that they adequately protect Ironside's position in the context of a reactivation.

We note that the Reactivation Memo does not address the allocation of financing-related costs between Fund IV and the Vehicle. This is an important gap that should be addressed in Ironside's discussions with Meridian. Given that the decision to extend the EPA and to enter into the Standstill Agreement — both of which preserved the transaction through the dormancy period — was driven primarily by Meridian as GP, the costs of restoring the financing arrangements should appropriately be allocated to Fund IV.

C. EPA Reinstatement or Replacement

1. Current Status

The Equity Purchase Agreement for the acquisition of Cascadia was originally executed on September 15, 2022, among Cascadia Acquisition Corp. (as buyer), Cascadia Renewables Holdings, Inc. (as the Company), and the selling shareholders. The EPA was subsequently amended three times to extend the outside date for closing, with the third amendment (dated June 28, 2023) establishing a final extended outside date of December 31, 2023.

The third extended outside date expired on December 31, 2023, without closing having occurred. No party exercised its termination rights under the EPA, leaving the agreement in a state that is technically neither terminated nor in effect. In order to provide clarity and preserve the transaction framework, the parties executed the Mutual Standstill and Preservation Agreement on February 15, 2024. The Standstill Agreement, which we analyzed in our memorandum of February 10, 2024, preserves the EPA and ancillary transaction documents in their current form, imposes mutual standstill obligations on certain competitive activities, and establishes a framework for either reactivation of the transaction or orderly wind-down.

2. Options for EPA

There are two principal options for restoring the EPA to an operative state:

Option A — Fourth Amendment to EPA. Under this approach, the parties would execute a fourth amendment to the existing EPA, which would reinstate the agreement with a new outside date and incorporate any necessary updates. These updates would include, at a minimum: revised representations and warranties to reflect current facts; updated disclosure schedules; a new financing condition reflecting the terms of the new debt commitment; revised closing conditions to reflect the revised concession terms and the need for new regulatory approvals; and any necessary adjustments to the purchase price or price-adjustment mechanisms. The advantage of this approach is that it preserves the existing contractual framework and avoids the need to negotiate an entirely new agreement. The disadvantage is that it may be difficult to incorporate the magnitude of changes required through an amendment, and there is a risk that the accumulated amendments may create ambiguity or interpretive challenges.

Option B — New EPA. Under this approach, the parties would negotiate and execute a replacement purchase agreement that reflects current circumstances, including the revised concession terms, the new financing arrangements, and updated representations, warranties, and schedules. The advantage of this approach is that it provides an opportunity for a clean and comprehensive agreement that reflects the current state of affairs. The disadvantage is that negotiation of a new agreement will be more time-consuming and costly than an amendment, and there is a risk of introducing new negotiating points that could delay or derail the transaction.

The Reactivation Memo appears to favor Option A — a fourth amendment to the existing EPA — as the more expeditious approach. We note, however, that regardless of which option is pursued, certain elements will be required:

(a) Updated Cascadia disclosure schedules reflecting developments during the dormancy period;

(b) Bring-down of representations and warranties, with appropriate qualifications for the passage of time;

(c) Refreshed financial statements, including audited statements for fiscal years 2022 and 2023 and interim 2024 financials;

(d) Updated environmental assessments, including refreshed Phase I and Phase II reports from Clearwater Environmental Consulting Inc.;

(e) A revised financing condition reflecting the terms of any new debt commitment letter;

(f) Revised conditions to closing addressing the need for new FERC and OPUC approvals; and

(g) Potentially revised purchase-price or price-adjustment mechanisms reflecting the revised concession terms and any other changes in Cascadia's financial profile.

3. Selling Shareholder Willingness

A threshold question for reactivation is whether the selling shareholders remain willing to consummate the transaction. The Reactivation Memo assumes that the sellers — Timberline Growth Equity Fund III, LP (represented by Hugh Callister); the Weir Family Trust (represented by Jonathan M. Weir); and the Management Rollover Pool — will continue to support the transaction at or near the original terms. However, this assumption is untested.

Two years of dormancy may have materially changed the circumstances of the selling shareholders. Timberline Growth Equity Fund III, LP, as the controlling shareholder with a 62% stake, may be subject to its own fund-life constraints or may have received — or be entertaining — alternative exit opportunities. The fund's limited partners may have different views on the desirability of the Cascadia exit than they held in 2022. The Weir Family Trust may have revisited its estate-planning and wealth-management objectives. Management may have experienced turnover or may have different views on the management-rollover structure.

This firm has not had contact with the selling shareholders' counsel — Ridgeway, Ashford & Malone PC (Nina R. Castellano), counsel to Timberline, and Garvey Lennox LLP (Steven F. Yun), counsel to the Weir Family Trust — since the execution of the Standstill Agreement in February 2024. We therefore have no current intelligence on seller sentiment.

C&H Recommendation: Ironside should request that Meridian confirm seller commitment and willingness to transact before Ironside or the Vehicle incurs material reactivation costs. Confirmation should ideally be in writing and should address not only the sellers' continued interest in the transaction but also whether the sellers have any concerns about the original terms, the revised concession economics, or the extended timeline.

D. Revised Valuation Considerations

1. Impact of Revised Concession Terms

The Bull Run Filtration Project concession is one of the most significant components of Cascadia's revenue base and was the central issue that precipitated the dormancy. The original concession, awarded to Cascadia in approximately 2018, provided for a forty-year term with annual revenue of approximately $64,000,000. The renegotiation demand issued by the Portland Metropolitan Water District on October 28, 2022, cited Oregon SB 1567 (2022), which enhanced the ability of municipalities to renegotiate long-term utility concession agreements.

The tentative framework reached on June 30, 2024, represents a potential resolution, but the terms of the framework have not been disclosed in full to Ironside or to this firm. The Reactivation Memo characterizes the revised terms as "less favorable" than the original concession but "sufficient to support the economics of the acquisition on revised assumptions." Without access to the specific terms, we are unable to assess the accuracy of this characterization.

The financial significance of the Bull Run concession to Cascadia cannot be overstated. At approximately $64,000,000 in annual revenue, the concession represents approximately 13.1% of Cascadia's fiscal year 2021 total revenue of $487,000,000. Any reduction in annual concession revenue — or shortening of the remaining concession term — will have a direct and proportional impact on Cascadia's overall enterprise value and on the returns available to equity investors.

C&H Recommendation: Ironside should insist on full and immediate disclosure of the terms of the tentative concession framework, including the revised annual revenue, the revised term (remaining years), any changes to operating requirements or capital expenditure obligations, any contingencies or conditions, and any provisions that could result in further renegotiation or early termination. Without this information, Ironside cannot responsibly evaluate whether to support reactivation.

2. Updated Enterprise Value Analysis

The original enterprise value of $1,950,000,000, implying an EV/EBITDA multiple of approximately 14.1x based on fiscal year 2021 EBITDA of $138,000,000, was established in September 2022. Two years have elapsed since that valuation, during which period several factors may have affected the supportable enterprise value:

Concession Revenue. If the revised concession terms result in a reduction in Bull Run Filtration Project revenue, Cascadia's EBITDA will decline correspondingly (assuming cost structure remains similar), resulting in a lower supportable enterprise value at the same multiple.

Cascadia's Operating Performance. The Company has continued to operate during the dormancy period. Its financial performance during fiscal years 2022 and 2023, and into 2024, may have diverged from the projections underlying the original valuation. Revenue growth or decline, changes in operating costs, capital expenditure requirements, and working-capital dynamics could all affect the appropriate valuation.

Contract Portfolio Changes. Any changes to Cascadia's PPA portfolio or municipal service contracts during the dormancy period — including new contracts, amendments, terminations, or expirations — would affect the Company's contracted revenue base and, consequently, its valuation.

Sector Multiples. Transaction multiples for comparable renewable-energy and water-infrastructure platforms may have shifted during the dormancy period. The valuation of regulated and contracted infrastructure assets is influenced by interest rates, regulatory environment, growth expectations, and broader market conditions, all of which have evolved since 2022.

If the enterprise value is adjusted downward from the original $1,950,000,000, the equity check required for the acquisition would decrease correspondingly (assuming the capital structure is maintained at similar ratios). In such a scenario, Ironside's total commitment and the co-invest allocation percentage should be proportionally revised, which would require amendments to the LP Agreement and the Co-Investment Allocation Agreement.

C&H Recommendation: Ironside should request an updated valuation analysis from Blackthorn Advisory Group LLC, Meridian's financial advisor, or should consider engaging its own independent financial advisor to prepare a parallel assessment. The updated analysis should reflect the revised concession terms, current financial performance, and current market conditions. Ironside should not agree to reactivation on the basis of the original $1,950,000,000 enterprise value without first determining whether that valuation remains supportable.

3. Weighted-Average Contract Life

The original due-diligence analysis indicated that Cascadia's portfolio of PPAs and municipal service contracts had a weighted-average remaining life of approximately twenty-two years. This metric was an important component of the investment thesis, as it provided visibility into Cascadia's long-term revenue stream and reduced exposure to commodity price risk.

Two years of dormancy have reduced this metric to approximately twenty years, a modest decline. However, if the revised concession framework for the Bull Run Filtration Project includes a shortening of the remaining concession term (for example, from forty years to a shorter period), the weighted-average remaining contract life could decline more significantly. Because the Bull Run concession is one of the largest and longest-dated contracts in Cascadia's portfolio, any shortening of its term would have a disproportionate impact on the weighted-average calculation.

Ironside should request an updated analysis of the weighted-average remaining contract life, reflecting both the passage of time and the revised concession terms, as part of the updated due-diligence package.

E. Co-Investment Vehicle Economics and Reset

1. Carried Interest and Preferred Return

Under the current terms of the LP Agreement and the Co-Investment Allocation Agreement, Meridian GP IV LLC is entitled to a carried interest of 10% of the Vehicle's profits above an 8% preferred return to Ironside (compounded quarterly). This carry rate is materially lower than the 20% carried interest applicable to Fund IV limited partners, reflecting the co-invest nature of the Vehicle and Ironside's status as a large, sophisticated direct investor.

No management fee is payable by the Vehicle to Meridian, as provided in the Side Letter between Ironside and the GP.

If the transaction is reactivated on different economics — whether due to a lower enterprise value, higher debt costs, revised concession terms, or some combination thereof — the projected returns to Ironside will change, and the effective impact of the carried interest will change correspondingly. In a lower-return environment, the 8% preferred-return hurdle becomes more protective for Ironside, as a greater proportion of total returns must accrue to the limited partner before the GP participates in carry. However, if returns decline below the preferred-return threshold entirely, Ironside's absolute economic outcome deteriorates regardless of the carry structure.

C&H Recommendation: Ironside should model the impact of revised economics on projected returns across a range of scenarios, including scenarios in which the enterprise value is reduced, debt costs are higher, and the concession revenue is lower. These models should inform Ironside's assessment of whether the co-invest terms remain appropriate or whether adjustments should be negotiated.

2. Called Capital Treatment

As noted above, $22,500,000 of Ironside's $300,000,000 commitment has been called and funded, deployed as follows:

The recoverability of these amounts varies by category. Organizational expenses ($285,000) and the placement-agent fee ($1,050,000) are sunk costs that are not recoverable in any scenario. The R&W insurance premium deposit ($4,875,000) may be partially recoverable depending on the terms of the Northgate policy — if the policy is reactivated for a closing, the deposit would be credited toward the full premium; if the transaction is abandoned, recovery would depend on the cancellation provisions of the policy. The due-diligence costs and deposits ($12,790,000) may be partially recoverable — certain deposits (e.g., escrow deposits, regulatory filing fee deposits) may be refundable, while professional fees for legal, accounting, and consulting work are not recoverable. The working-capital reserve ($3,500,000) should be largely intact, subject to the deduction of dormancy operating expenses.

Ironside should request a detailed accounting from the GP of the current cash position of the Vehicle, including the balance of the working-capital reserve, the status of each category of deployed capital, and an estimate of recoverable amounts in both reactivation and wind-down scenarios.

We estimate that cumulative dormancy operating expenses through the date of this memorandum total approximately $308,000, based on an annualized rate of approximately $185,000 over approximately twenty months. This amount has been funded from the working-capital reserve, reducing the available reserve balance to approximately $3,192,000.

3. Unfunded Commitment Status

Ironside's unfunded commitment of $277,500,000 remains subject to capital call under Section 4.01 of the LP Agreement. If the Vehicle is reactivated and the transaction proceeds, the GP would be entitled to resume capital calls in accordance with the LP Agreement to fund Ironside's share of the equity investment and any additional transaction costs.

An important question for Ironside is whether the unfunded commitment amount should be adjusted if the total equity check for the transaction changes. If the enterprise value is revised downward and the equity required for the acquisition decreases correspondingly, Ironside's pro rata share of the revised equity (at 28.57%) would be lower than the original $300,000,000 commitment. Similarly, if the financing terms result in a different debt-to-equity ratio, the equity check could change. Any such adjustment would require an amendment to both the LP Agreement (to reflect the revised commitment amount) and the Co-Investment Allocation Agreement (to reflect the revised allocation percentage).

Conversely, if the total equity check increases — for example, because lenders require a lower loan-to-value ratio — Ironside would face a potential request for a commitment increase, which it may or may not wish to provide. The LP Agreement should be reviewed to determine the GP's authority to request additional capital beyond the original commitment amount and Ironside's right to decline such a request.

4. Wind-Down Election Right

Ironside's wind-down election right under Section 7.04(c) of the LP Agreement is of paramount importance in the current situation. This right, which ripened on July 9, 2024 (the eighteen-month anniversary of the dormancy commencement), provides Ironside with the option to require the GP to commence an orderly wind-down of the Vehicle and return of Ironside's capital.

Ironside has deferred exercise of this right pending developments, in accordance with our recommendation of July 25, 2024. However, the deferral does not constitute a waiver, and the right remains exercisable. If Ironside agrees to support reactivation, the practical effect would be to defer — and potentially forfeit — the exercise of this right, at least during the period in which reactivation is being pursued.

C&H Recommendation: We strongly recommend that any agreement by Ironside to support reactivation include an express contractual provision preserving Ironside's wind-down election right in the event that reactivation milestones are not achieved within a defined timeline. Specifically, we recommend negotiating a "reactivation outside date" — a date certain by which the transaction must have closed (or, at a minimum, by which specified reactivation milestones must have been achieved). If closing does not occur by the reactivation outside date, or if the milestones are not achieved, Ironside's wind-down election right would re-ripen automatically, without the need for additional negotiation or consent. This mechanism would protect Ironside from the risk of an indefinite reactivation process that consumes time and resources without ultimately resulting in a closed transaction.

F. R&W Insurance Reactivation

1. Current Status

The representations and warranties insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) was bound on September 1, 2022, in connection with the Cascadia acquisition. The policy provides a coverage limit of $195,000,000, representing 10% of the $1,950,000,000 enterprise value, at a premium rate of 2.5% of the coverage limit ($4,875,000, which has been deposited from Vehicle capital). The policy is governed by Connecticut law.

The coverage period under the policy was tolled pursuant to the tolling side letter executed on January 20, 2023, between the relevant transaction parties and Northgate. The tolling letter provides that the coverage period will be suspended during the dormancy and will resume upon closing of the acquisition. If the transaction is ultimately not consummated, the cancellation provisions of the policy will govern.

2. Reactivation Considerations

Several issues must be addressed in connection with the R&W insurance policy if the transaction is reactivated:

Underwriting Update. Northgate will likely require an updated underwriting review before reactivating coverage. This review would encompass changes to Cascadia's business, financial condition, and risk profile during the dormancy period, as well as the revised concession terms. The underwriting update could result in changes to the policy terms, including premium adjustments, additional exclusions, or modifications to the coverage limit.

Premium Adjustments. Northgate may require an additional premium for reactivation, reflecting the increased risk associated with the passage of time and the changed circumstances. Alternatively, if the enterprise value is adjusted downward, the coverage limit should be recalibrated proportionally (i.e., 10% of the revised enterprise value), which would affect the premium calculation.

Exclusions. The original policy may have included exclusions for known issues identified during the initial underwriting process. The concession renegotiation — which was the triggering event for the dormancy — may need to be addressed specifically in the reactivated policy. If Northgate excludes coverage for losses arising from the concession renegotiation, the practical utility of the policy could be diminished, as this is the area of greatest risk.

Replacement Coverage. If Northgate is unwilling to reactivate the existing policy on acceptable terms, a replacement policy from another carrier will need to be procured. Given the transaction's history — including the extended dormancy, the concession renegotiation, and the lapse of regulatory approvals — replacement coverage may be more expensive than the original policy and may include broader exclusions. The R&W insurance market has also evolved since 2022, and pricing and coverage terms may differ from those available at the time of the original placement.

C&H Recommendation: Ironside should require that any additional R&W insurance costs — whether in the form of additional premium, replacement-policy costs, or broker fees — be addressed in the overall cost-allocation framework for the reactivation. These costs should be allocated to Fund IV or to the acquisition entity, consistent with the allocation of other reactivation costs, and should not be borne disproportionately by the Vehicle.

G. Updated Due Diligence Requirements

Approximately two years have elapsed since the original due-diligence exercise was conducted in August and September 2022. During this period, Cascadia has continued to operate, and material developments may have occurred across multiple dimensions of the business. A comprehensive refresh of the due-diligence exercise is ess

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
From: Pamela Cross, Nicholas Stern, and Theresa Kim Calderwood & Harkness LLP 125 Broad Street, 44th Floor New York, NY 10004
To: Marcus J. Calloway, Founder & Chief Investment Officer Renata Obasi, Senior Managing Director, Infrastructure Ironside Capital Management LP 590 Madison Avenue, 38th Floor New York, NY 10022
Date: September 15, 2024
Re: Analysis of Meridian Reactivation Feasibility Memo — Key Issues for ICM Cascadia Co-Invest, LP
Matter No.: 1023-00001
Right-click to update Table of Contents
I. Executive Summary
On September 1, 2024, Meridian Infrastructure Partners LP, acting through its general partner, Meridian Infrastructure GP IV LLC (collectively, "Meridian" or the "GP"), circulated a reactivation feasibility memorandum (the "Reactivation Memo") to co-investors in the proposed acquisition of Cascadia Renewables Holdings, Inc. ("Cascadia" or the "Company"). The Reactivation Memo was addressed to Ironside Capital Management LP ("Ironside" or "ICM") in its capacity as the sole limited partner of ICM Cascadia Co-Invest, LP (the "Vehicle"), as well as to Meridian Infrastructure Fund IV, LP ("Fund IV"), the primary equity sponsor in the acquisition. The Reactivation Memo sets forth Meridian's assessment that reactivation of the dormant transaction is feasible in light of recent developments and proposes a target timeline for resuming acquisition activities, with a revised closing target of the third quarter of 2025.
The purpose of this memorandum is to provide Ironside with a comprehensive analysis of the Reactivation Memo, to identify key legal, regulatory, financial, and commercial issues and risks that the Reactivation Memo presents for Ironside and the Vehicle, and to outline the areas requiring further negotiation, diligence, and information-gathering before Ironside can responsibly evaluate whether to support reactivation of the transaction. This memorandum is intended to serve as a framework for Ironside's discussions with Meridian in the coming weeks and to inform the strategic decisions that Ironside will need to make regarding its continued participation in the Cascadia investment.
As background, the Vehicle has been dormant since January 9, 2023 — a period of approximately twenty months — following the GP's issuance of a capital-call suspension notice and its declaration of a Material Impediment Event under Section 7.04 of the Amended and Restated Agreement of Limited Partnership of ICM Cascadia Co-Invest, LP, dated as of July 29, 2022 (the "LP Agreement"). The Material Impediment Event was triggered by the Portland Metropolitan Water District's (the "Water District") notification to Cascadia of its intent to renegotiate the forty-year Bull Run Filtration Project concession, a development that materially affected the Company's revenue profile and the overall economics of the proposed acquisition.
Ironside's wind-down election right under Section 7.04(c) of the LP Agreement ripened on July 9, 2024, which marked the eighteen-month anniversary of the dormancy period. As we advised in our memorandum of July 25, 2024, Ironside elected to defer exercise of its wind-down right pending further developments, including the then-anticipated outcome of the concession renegotiation between the Water District and Cascadia. That deferral remains in effect and does not constitute a waiver of Ironside's election right. We continue to recommend that Ironside preserve this right as a critical component of its negotiating leverage in any reactivation discussions.
The catalyst for the Reactivation Memo is the tentative framework reached on June 30, 2024, between the Water District and Cascadia regarding the terms of a revised Bull Run Filtration Project concession. While the details of this framework have not yet been disclosed in full to Ironside or to this firm, Meridian has indicated that the revised terms, though less favorable than the original 2018 concession, are sufficient to support the economics of the acquisition on revised assumptions.
Notwithstanding the positive signal from the tentative concession framework, reactivation of the Cascadia acquisition faces substantial hurdles across multiple dimensions. These include, without limitation: (1) the lapse of FERC Section 203 approval on June 15, 2024, necessitating a complete re-filing; (2) the need to reactivate stayed OPUC proceedings in Docket No. UM-2287; (3) the expiration of the debt commitment letter from Atlas National Bank, N.A. and Pinnacle Credit Partners LLC on October 31, 2023, requiring the negotiation of entirely new financing arrangements; (4) the expiration of the third extended outside date under the Equity Purchase Agreement on December 31, 2023, with the parties currently operating under a Mutual Standstill and Preservation Agreement; (5) the potential need for an updated valuation of Cascadia to reflect changed circumstances, revised concession terms, and the passage of approximately two years; and (6) significant open questions regarding the economic terms of the co-investment and the allocation of reactivation costs between Fund IV and the Vehicle.
From a financial perspective, Ironside currently has $22,500,000 of called capital at risk in the Vehicle, representing 7.5% of its total $300,000,000 commitment. The remaining $277,500,000 in unfunded commitments remains outstanding and would be subject to additional capital calls if the transaction is reactivated. The Vehicle's total commitment of $300,000,000 represents 28.57% of the aggregate $1,050,000,000 equity contemplated for the acquisition, with Fund IV providing the remaining $750,000,000 (71.43%).
For the reasons set forth in detail below, we recommend that Ironside not commit to reactivation at this stage but instead engage constructively with Meridian while conditioning any commitment on the resolution of the key issues identified in this memorandum. A measured, information-driven approach will best protect Ironside's interests and preserve its optionality, including the continued availability of the wind-down election right.
II. Background and Procedural History
A. Transaction Overview
The proposed transaction involves the acquisition of 100% of the outstanding equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation headquartered in Portland, Oregon. Cascadia is led by its Chief Executive Officer, Jonathan M. Weir, and its Chief Financial Officer, Sandra K. Llewellyn. The acquisition would be effected through Cascadia Acquisition Corp., a newly formed Delaware acquisition subsidiary that was organized as the buyer entity for purposes of the Equity Purchase Agreement (the "EPA").
The transaction was structured at an enterprise value of $1,950,000,000, reflecting an equity value of $1,050,000,000 and approximately $900,000,000 of Cascadia net debt. The implied valuation multiple was approximately 14.1x Cascadia's fiscal year 2021 EBITDA of $138,000,000, a premium to the then-prevailing market for comparable renewable-energy and water-infrastructure platforms, but one that Meridian justified on the basis of Cascadia's long-dated contract portfolio, regulated revenue streams, and embedded growth opportunities.
Cascadia's business encompasses a diversified portfolio of renewable-energy and water-infrastructure assets across the Pacific Northwest, including fourteen hydroelectric facilities, six wind farms, and three water-treatment concessions, with operations spanning Oregon, Washington, and Idaho. For fiscal year 2021, Cascadia reported revenue of $487,000,000 and EBITDA of $138,000,000. The Company's revenue is substantially contracted, with the original diligence indicating a weighted-average remaining contract life of approximately twenty-two years across its portfolio of power purchase agreements ("PPAs") and municipal service contracts.
The selling shareholders in the transaction consist of three groups: Timberline Growth Equity Fund III, LP, which holds approximately 62% of Cascadia's equity and serves as the controlling shareholder; the Weir Family Trust, which holds approximately 18% of Cascadia's equity and is associated with CEO Jonathan M. Weir; and the Management Rollover Pool, which holds approximately 20% of Cascadia's equity, with an expectation that approximately 50% of the management pool would be rolled over into the acquisition entity, thereby preserving management alignment and continuity of operations post-closing.
The sources and uses for the transaction were structured as follows:
Sources of Funds:
Uses of Funds:
The senior secured credit facilities were to be arranged by Atlas National Bank, N.A. as lead arranger and administrative agent, with Pinnacle Credit Partners LLC serving as co-lender. The revolving credit facility of $150,000,000 was to remain undrawn at closing and was intended to provide liquidity for Cascadia's ongoing working-capital needs and capital expenditure program post-acquisition.
B. Dormancy Timeline
The following chronology summarizes the principal events from the onset of the material adverse development through the circulation of the Reactivation Memo. This timeline is also presented in tabular form in Enclosure B to this memorandum.
October 28, 2022. The Portland Metropolitan Water District delivered formal notice to Cascadia of its intent to renegotiate the forty-year Bull Run Filtration Project concession, which had been awarded to Cascadia in approximately 2018. The Water District's notification cited Oregon Senate Bill 1567, enacted in 2022, which provided municipalities with enhanced authority to renegotiate long-term utility concession agreements under certain circumstances. The Bull Run Filtration Project represented approximately $64,000,000 in annual revenue to Cascadia, constituting approximately 13.1% of the Company's fiscal year 2021 total revenue of $487,000,000. The potential renegotiation or loss of this concession represented a material change to the assumptions underlying the transaction.
November 10, 2022. Meridian issued a formal notification to Ironside of the material adverse development, in accordance with the reporting obligations set forth in the LP Agreement and the Side Letter. The notification described the Water District's renegotiation demand and indicated that Meridian was evaluating the potential impact on the transaction.
November 22, 2022 through June 28, 2023. The parties to the EPA executed three successive amendments extending the outside date for the transaction. The first amendment (November 22, 2022) extended the outside date to March 31, 2023. The second amendment (March 28, 2023) further extended the outside date to September 30, 2023. The third amendment (June 28, 2023) extended the outside date to December 31, 2023. Each extension was agreed to by all EPA parties — the buyer, the selling shareholders, and the Company — in order to preserve the transaction framework while the concession renegotiation was pending.
January 9, 2023. Meridian, acting through the GP, issued a capital-call suspension notice and declared a Material Impediment Event under Section 7.04 of the LP Agreement. The suspension notice indicated that no further capital calls would be issued until the GP determined that the Material Impediment Event had been resolved or was no longer continuing. The Vehicle entered dormancy as of this date.
January 20, 2023. A tolling side letter was executed between the relevant transaction parties and Northgate Specialty Insurance Co. with respect to the representations and warranties insurance policy (Policy No. NSW-RI-2022-09814). The tolling letter provided that the coverage period under the R&W policy would be suspended during the dormancy period and would resume upon closing of the acquisition or, if the transaction was terminated, the coverage would be addressed in accordance with the policy's cancellation provisions.
October 31, 2023. The debt commitment letter issued by Atlas National Bank, N.A. and Pinnacle Credit Partners LLC expired. The commitment letter had been extended once from its original expiration date, and Meridian had paid an extension fee of $2,437,500 (representing 0.25% of the $975,000,000 term loan commitment) from Fund IV capital. Neither Atlas nor Pinnacle agreed to a further extension, given the uncertain timeline for the transaction.
December 31, 2023. The third extended outside date under the EPA expired. No party exercised its termination rights under the EPA, leaving the agreement in a state of limbo. The parties entered into negotiations regarding a framework for preserving the transaction structure.
February 15, 2024. The Mutual Standstill and Preservation Agreement (the "Standstill Agreement") was executed among the buyer, the selling shareholders, the Company, and certain other parties. The Standstill Agreement preserved the EPA and ancillary transaction documents in their current form, established a mutual standstill on certain competitive activities, and provided a framework for either reactivation of the transaction or an orderly wind-down, depending on future developments. We provided a detailed analysis of the Standstill Agreement in our memorandum of February 10, 2024.
June 15, 2024. The FERC Section 203 approval (issued December 15, 2022, in Docket No. EC22-143-000) lapsed. The approval had been granted an extended eighteen-month validity period, which expired on this date without the underlying transaction having been consummated. As a result, a new Section 203 application will be required in order to proceed with the acquisition.
June 30, 2024. A tentative framework was reached between the Portland Metropolitan Water District and Cascadia regarding the terms of a revised Bull Run Filtration Project concession. The details of this framework have not been disclosed in full to Ironside or to this firm, but Meridian has indicated that the framework provides a path to resolution of the concession dispute that was the proximate cause of the dormancy.
July 9, 2024. The eighteen-month dormancy mark was reached, triggering the ripening of Ironside's wind-down election right under Section 7.04(c) of the LP Agreement. As noted above, Ironside has deferred exercise of this right pending developments, in accordance with our recommendation of July 25, 2024.
September 1, 2024. Meridian circulated the Reactivation Memo to co-investors, proposing reactivation of the Cascadia acquisition.
C. Current Posture of the Vehicle
As of the date of this memorandum, the Vehicle remains in dormancy, with no investment activity or capital calls having occurred since the January 9, 2023 suspension notice. The following summarizes the current financial and operational posture of the Vehicle:
Capital Called to Date. A single capital call of $22,500,000 was issued and funded on August 15, 2022, representing 7.5% of Ironside's total $300,000,000 commitment. These funds were deployed as set forth in Section IV.E.2 below.
Unfunded Commitment. $277,500,000 remains subject to capital call under the LP Agreement. The unfunded commitment is subject to the capital-call suspension currently in effect and cannot be drawn unless and until the GP lifts the suspension.
Annualized Dormancy Operating Expenses. The Vehicle incurs approximately $185,000 per year in operating expenses during the dormancy period, consisting principally of fund administration fees payable to Kendrick Thorne & Associates LLP, Delaware franchise taxes, registered-agent fees, annual audit fees, and K-1 preparation costs. These expenses are funded from the Vehicle's working-capital reserve.
GP Reporting. The GP has continued to deliver quarterly reports to Ironside throughout the dormancy period, in compliance with its obligations under the LP Agreement and the Side Letter. A total of six quarterly reports have been delivered through the second quarter of 2024, each of which has been reviewed by this firm. The quarterly reports have confirmed the dormancy status, provided updates on the concession renegotiation (to the extent known to Meridian), and reported on Vehicle operating expenses.
Distributions and Investment Activity. No distributions have been made by the Vehicle, and no investment activity has occurred since the dormancy commenced. The Vehicle's sole asset remains the called capital, as deployed in the categories described below.
R&W Insurance. The representations and warranties insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) remains bound but tolled pursuant to the January 20, 2023 tolling side letter. The policy provides coverage of $195,000,000, and a premium deposit of $4,875,000 has been paid from Vehicle capital.
D&O Insurance. A directors' and officers' liability insurance tail policy has been maintained with Sentinel Directors & Officers Underwriters Inc. for the benefit of Cascadia's management team, in anticipation of the proposed change of control. This policy remains in effect.
III. Summary of the Reactivation Memo
A. Meridian's Principal Conclusions
The Reactivation Memo, a copy of which is attached as Enclosure A, sets forth Meridian's assessment that the Cascadia acquisition should be reactivated and brought to closing. The Reactivation Memo was prepared by Meridian's deal team, led by David R. Hargreaves (Managing Partner), Lillian Fong (Partner, Infrastructure), and Graham Whitfield (Vice President, Infrastructure), and reflects input from Meridian's outside counsel, Breckenridge Sloane & Pratt LLP, and its financial advisor, Blackthorn Advisory Group LLC.
Meridian's principal conclusions, as articulated in the Reactivation Memo, are as follows:
First, Meridian concludes that the tentative concession framework reached between the Portland Metropolitan Water District and Cascadia on June 30, 2024, provides a credible path to resolving the material impediment that precipitated the dormancy. While Meridian acknowledges that the revised concession terms are less favorable than the original 2018 concession — both in terms of annual revenue and, potentially, the remaining term of the concession — Meridian asserts that the revised terms preserve sufficient economics to justify proceeding with the acquisition on adjusted assumptions.
Second, Meridian proposes a target reactivation timeline of approximately nine to twelve months from a formal decision to proceed, with a revised closing target of the third quarter of 2025. This timeline contemplates the re-filing of the FERC Section 203 application, the reactivation of the stayed OPUC proceedings, the negotiation of new debt financing, the amendment or replacement of the EPA, and the completion of updated due diligence.
Third, Meridian indicates that Fund IV remains committed to deploying its $750,000,000 equity commitment to the Cascadia acquisition and that Meridian's limited partners in Fund IV have been consulted and are supportive of reactivation. Meridian represents that Fund IV has sufficient available capital to fund its commitment and that no material changes to the Fund IV capital base have occurred during the dormancy period.
Fourth, the Reactivation Memo expresses Meridian's view that the combination of Cascadia's contracted revenue profile, the resolution of the concession dispute, and the long-term fundamentals of the Pacific Northwest renewable-energy and water-infrastructure markets continue to support the investment thesis, notwithstanding the passage of time and the changes in market conditions since the original underwriting in 2022.
B. Key Assumptions in the Reactivation Memo
The Reactivation Memo is predicated on a series of assumptions that Meridian has identified as necessary preconditions for successful reactivation. It is important that Ironside evaluate each of these assumptions critically, as the failure of any one could materially affect the feasibility, timeline, or economics of reactivation. The key assumptions are:
Concession Finalization. The Reactivation Memo assumes that the tentative concession framework reached on June 30, 2024, will be converted into a definitive, binding agreement between the Water District and Cascadia by the fourth quarter of 2024. The Reactivation Memo does not address in detail the risk that negotiations could stall, that the tentative terms could be revised unfavorably, or that the Water District's governing body might fail to approve the definitive agreement.
Financing Availability. The Reactivation Memo assumes that new debt financing can be obtained on commercially reasonable terms. It references Meridian's intention to re-engage Atlas National Bank, N.A. and Pinnacle Credit Partners LLC, with the assistance of Blackthorn Advisory Group LLC, but does not provide evidence that either lender has expressed a willingness to re-engage. The assumption of "commercially reasonable terms" is also undefined and does not address the significant changes in interest rate levels since the original commitment was executed in August 2022.
Regulatory Re-Approval Timeline. The Reactivation Memo assumes that FERC Section 203 approval and OPUC approval can be re-obtained within six to nine months of filing. As discussed in Section IV.A below, this assumption may be optimistic given the need for updated submissions, the potential for changed regulatory policies, and the possibility of new public comment periods or hearing requirements.
Seller Willingness. The Reactivation Memo assumes that the selling shareholders — Timberline Growth Equity Fund III, LP; the Weir Family Trust; and the Management Rollover Pool — remain willing to consummate the transaction at or near the original terms. The Reactivation Memo does not address the possibility that sellers may have pursued or received alternative exit opportunities during the dormancy period, or that seller economics may have changed such that the original terms are no longer acceptable.
R&W Insurance. The Reactivation Memo assumes that the existing R&W insurance policy with Northgate Specialty Insurance Co. can be reactivated on acceptable terms or, in the alternative, that replacement coverage can be procured. The Reactivation Memo does not address the potential for increased premiums, expanded exclusions, or underwriting challenges associated with the transaction's dormancy history.
Operational Continuity. The Reactivation Memo assumes that Cascadia's operations and financial performance have not materially deteriorated during the approximately two-year dormancy period. The Reactivation Memo references Meridian's monitoring of Cascadia's quarterly financial reports (received pursuant to the information rights provisions of the EPA) but does not provide updated financial statements or a detailed analysis of operational developments during the dormancy period.
Each of these assumptions represents a material area of uncertainty that Ironside should address before committing to reactivation. We discuss the specific risks and issues associated with each assumption in the sections that follow.
IV. Key Issues for Ironside
A. Regulatory Re-Approvals
1. FERC Section 203 Re-Filing
The prior FERC Section 203 approval for the Cascadia acquisition was issued on December 15, 2022, in Docket No. EC22-143-000. The approval authorized the proposed disposition of jurisdictional facilities associated with Cascadia's hydroelectric assets, subject to certain standard conditions relating to license-transfer filings, informational requirements, and compliance reporting. The approval was originally granted with a twelve-month validity period, which was subsequently extended to eighteen months at the request of the applicants. That extended validity period expired on June 15, 2024, without the transaction having been consummated.
As a consequence of the lapse, a new Section 203 application will be required in order to proceed with the acquisition. Meridian's outside counsel, Breckenridge Sloane & Pratt LLP (Charles A. Delacroix), is expected to handle the re-filing. The Reactivation Memo assumes that the new application can be filed promptly and that approval can be obtained within the six-to-nine-month timeline contemplated for regulatory re-approvals generally.
We note, however, that several factors may affect the timeline and outcome of a new Section 203 filing:
First, the historical timeline for the original filing — filed October 19, 2022, and approved December 15, 2022, a period of approximately two months — may not be indicative of the timeline for a re-filing. FERC staff may require updated submissions reflecting developments during the dormancy period, including the revised concession terms, changes to Cascadia's financial position, and any developments in the competitive landscape for hydroelectric generation in the Pacific Northwest. FERC may also require new environmental or competitive analyses, or may open a public comment period that was not required in connection with the original filing.
Second, the composition and policy orientation of FERC may have changed since the original approval was issued in December 2022. Changes in Commission membership, staff leadership, or policy priorities could result in different substantive requirements, additional conditions, or a more extended review process. We are not aware of any specific FERC policy changes that would adversely affect this application, but the risk of changed circumstances should be acknowledged.
Third, the re-filing will entail costs, including filing fees, legal fees for the preparation and prosecution of the application, and potentially consultant fees for updated analyses. These costs should be allocated between Fund IV and the Vehicle in accordance with the applicable provisions of the LP Agreement and the Co-Investment Allocation Agreement.
C&H Recommendation: Ironside should require Meridian to confirm that all FERC re-filing costs are borne by Fund IV (or the acquisition entity, Cascadia Acquisition Corp.) and not charged against the Vehicle's capital. Ironside should also request that Meridian commit to filing the new Section 203 application within a defined timeframe (e.g., within thirty days of a formal decision to reactivate) and provide Ironside with copies of all filing materials and correspondence with FERC.
2. Oregon Public Utility Commission Proceedings (OPUC Docket No. UM-2287)
The OPUC application for approval of the Cascadia acquisition was originally filed on October 14, 2022, in Docket No. UM-2287. The proceedings were stayed at the joint request of the parties in February 2023, following the commencement of the dormancy period. The stay has remained in effect since that time, and no substantive action has been taken in the docket.
Reactivation of the transaction will require that the OPUC proceedings be un-stayed and brought to a conclusion. This process presents several challenges:
The passage of approximately twenty months since the stay was imposed means that the record before the OPUC is substantially stale. The Commission is likely to require updated information in several categories, including but not limited to: current audited financial statements for Cascadia and the acquiring entities; a description of the revised concession terms for the Bull Run Filtration Project; an updated ownership structure for the acquisition entity (reflecting any changes in Fund IV's limited-partner base or in the co-investment structure); and an updated assessment of the transaction's impact on Oregon ratepayers and the public interest.
It is possible that the OPUC will determine that the passage of time and the changed circumstances warrant a substantially new proceeding, rather than a simple reactivation of the existing docket. This could involve the scheduling of new evidentiary hearings, the submission of new pre-filed testimony, and potentially a new public comment period. The involvement of intervenors — including consumer advocacy organizations, competing utilities, and environmental groups — may extend the timeline further.
The Oregon regulatory environment may have evolved during the dormancy period. New commissioners may have been appointed, and the Commission's priorities or policy positions may have shifted. In particular, the enactment of Oregon SB 1567 in 2022 (which provided the basis for the Water District's concession renegotiation demand) may signal a broader trend toward enhanced regulatory scrutiny of long-term utility concession agreements, which could affect the OPUC's approach to the Cascadia transaction.
The Reactivation Memo's assumption of six to nine months for OPUC approval may be optimistic, particularly if the Commission determines that a new or substantially revised proceeding is required. Based on our experience with comparable Oregon regulatory proceedings, a timeline of nine to fifteen months may be more realistic if significant supplementation of the record is needed.
C&H Recommendation: Ironside should request that Meridian engage Oregon regulatory counsel early in the reactivation process to assess the likely scope and timeline of the OPUC proceedings and to develop a strategy for expediting the process. Ironside should also consider whether it wishes to engage its own Oregon regulatory counsel to monitor the proceedings independently, particularly given the potential for conditions or requirements that could affect the economics of the co-investment.
3. CFIUS.  The transaction received clearance through the voluntary notice process administered by the Committee on Foreign Investment in the United States ("CFIUS"). The CFIUS review was acknowledged on September 20, 2022, and no further action was required. Because there have been no changes in the foreign-ownership profile of the acquiring entities — Meridian Fund IV and the Vehicle are both domestic entities with no foreign limited partners triggering CFIUS jurisdiction — the CFIUS clearance remains in effect and no additional filing is required. We do not consider this a material issue for reactivation purposes.
B. Financing Refresh
1. Debt Commitment Letter Status
The debt commitment letter that was originally executed in August 2022 by Atlas National Bank, N.A. (as lead arranger and administrative agent, committing $650,000,000 of the senior secured term loan) and Pinnacle Credit Partners LLC (as co-lender, committing $325,000,000 of the senior secured term loan) expired on October 31, 2023. The commitment letter had been extended once from its original expiration date, and an extension fee of $2,437,500 (calculated as 0.25% of the $975,000,000 aggregate term-loan commitment) was paid by Meridian from Fund IV capital. Neither lender agreed to a further extension.
The total debt package for the transaction comprised a $975,000,000 senior secured term loan and a $150,000,000 revolving credit facility. Without a committed financing source, the transaction cannot be consummated, and obtaining a new debt commitment is therefore one of the most critical prerequisites for reactivation.
The Reactivation Memo indicates that Meridian intends to approach Atlas and Pinnacle about providing a new commitment, with Blackthorn Advisory Group LLC serving as financial advisor in connection with the financing process. However, the Reactivation Memo does not provide evidence that either Atlas or Pinnacle has expressed a willingness to re-engage with the transaction, nor does it address the terms on which a new commitment might be available.
We identify several key concerns for Ironside with respect to the financing refresh:
Interest Rate Environment. The interest rate environment has changed materially since the original commitment letter was executed in August 2022. The Federal Funds Rate has increased significantly, and credit spreads in the leveraged lending market have fluctuated. Higher base rates and potentially wider spreads will increase the all-in cost of borrowing for the acquisition, which will directly reduce the returns available to equity investors, including Ironside. The impact of higher borrowing costs on the Vehicle's projected internal rate of return ("IRR") and multiple on invested capital ("MOIC") could be substantial.
Market Flex Provisions. Any new commitment letter will likely include market-flex provisions that grant the lenders the right to adjust pricing, structure, and other terms in connection with the syndication of the credit facilities. Given the transaction's history — including the approximately two-year dormancy period, the concession renegotiation, and the lapse of the prior commitment — lenders may insist on broader flex provisions than those contained in the original commitment letter. Broader flex provisions introduce additional uncertainty regarding the final terms of the financing and could further erode equity returns.
Lender Conditions Precedent. Lender conditions precedent in a new commitment letter may be more stringent than those in the original commitment, reflecting the increased risk profile of the transaction. Conditions may include, for example, requirements for updated financial due diligence, confirmation of the revised concession terms, evidence of regulatory re-approvals, and potentially a lower loan-to-value ratio, which would increase the required equity contribution.
Due Diligence. A new commitment will almost certainly require updated financial due diligence on Cascadia, including audited financial statements for fiscal years 2022 and 2023 (prepared by Halstead & Greer LLP, Cascadia's independent auditor) and interim financial statements for 2024. The lenders will need to underwrite the revised revenue and cash-flow profile of the Company, taking into account the impact of the revised concession terms and any other changes during the dormancy period.
Alternative Lenders. There is no assurance that Atlas National Bank, N.A. and Pinnacle Credit Partners LLC will be willing to re-engage with the transaction. If one or both lenders decline to participate, Meridian will need to approach alternative lenders, which could result in different and potentially less favorable terms, a longer timeline for obtaining a committed financing, and additional transaction costs. The need to bring in new lenders would also require additional due diligence and may introduce new relationship dynamics that could complicate the closing process.
2. Impact on Transaction Economics and Returns
The interplay between higher debt costs and the potential adjustment to Cascadia's enterprise value has significant implications for the returns available to equity investors. Higher interest expense reduces free cash flow available for distributions and debt repayment, which in turn reduces equity returns on both an IRR and MOIC basis. The impact is amplified by leverage — in a transaction with $975,000,000 in term-loan debt against $1,050,000,000 in equity, even modest increases in the cost of debt have a meaningful effect on equity returns.
Ironside should undertake a comprehensive modeling exercise to assess the impact of current financing rates on projected returns under various scenarios. This exercise should include base-case, upside, and downside scenarios, with sensitivity analyses around key assumptions including the interest rate on the term loan, the revised annual revenue from the Bull Run concession, the overall enterprise value of Cascadia, and the exit timeline and valuation multiple.
In addition, the original EV/EBITDA multiple of approximately 14.1x (based on fiscal year 2021 EBITDA of $138,000,000) should be reassessed in light of current market conditions. Comparable transaction multiples for renewable-energy and water-infrastructure platforms may have shifted during the dormancy period, and it is important to determine whether the original valuation multiple remains supportable in the current market environment.
Ironside should request that Meridian provide updated financial projections for Cascadia, including the impact of the revised concession terms on Bull Run Filtration Project revenue, and should consider engaging an independent financial advisor to prepare a parallel analysis.
3. Allocation of Extension and Refiling Costs
As noted above, the extension fee of $2,437,500 paid in connection with the first extension of the original debt commitment letter was borne by Meridian Fund IV. This established a precedent for the allocation of financing-related costs to Fund IV rather than the Vehicle.
Ironside should confirm that any new commitment fees, ticking fees, break fees, or other costs associated with obtaining new debt financing are similarly allocated to Fund IV and are not charged against the Vehicle's capital or its unfunded commitment. The LP Agreement and the Co-Investment Allocation Agreement (dated July 29, 2022) contain provisions governing the allocation of expenses between Fund IV and the Vehicle, and these provisions should be reviewed carefully to ensure that they adequately protect Ironside's position in the context of a reactivation.
We note that the Reactivation Memo does not address the allocation of financing-related costs between Fund IV and the Vehicle. This is an important gap that should be addressed in Ironside's discussions with Meridian. Given that the decision to extend the EPA and to enter into the Standstill Agreement — both of which preserved the transaction through the dormancy period — was driven primarily by Meridian as GP, the costs of restoring the financing arrangements should appropriately be allocated to Fund IV.
C. EPA Reinstatement or Replacement
1. Current Status
The Equity Purchase Agreement for the acquisition of Cascadia was originally executed on September 15, 2022, among Cascadia Acquisition Corp. (as buyer), Cascadia Renewables Holdings, Inc. (as the Company), and the selling shareholders. The EPA was subsequently amended three times to extend the outside date for closing, with the third amendment (dated June 28, 2023) establishing a final extended outside date of December 31, 2023.
The third extended outside date expired on December 31, 2023, without closing having occurred. No party exercised its termination rights under the EPA, leaving the agreement in a state that is technically neither terminated nor in effect. In order to provide clarity and preserve the transaction framework, the parties executed the Mutual Standstill and Preservation Agreement on February 15, 2024. The Standstill Agreement, which we analyzed in our memorandum of February 10, 2024, preserves the EPA and ancillary transaction documents in their current form, imposes mutual standstill obligations on certain competitive activities, and establishes a framework for either reactivation of the transaction or orderly wind-down.
2. Options for EPA
There are two principal options for restoring the EPA to an operative state:
Option A — Fourth Amendment to EPA. Under this approach, the parties would execute a fourth amendment to the existing EPA, which would reinstate the agreement with a new outside date and incorporate any necessary updates. These updates would include, at a minimum: revised representations and warranties to reflect current facts; updated disclosure schedules; a new financing condition reflecting the terms of the new debt commitment; revised closing conditions to reflect the revised concession terms and the need for new regulatory approvals; and any necessary adjustments to the purchase price or price-adjustment mechanisms. The advantage of this approach is that it preserves the existing contractual framework and avoids the need to negotiate an entirely new agreement. The disadvantage is that it may be difficult to incorporate the magnitude of changes required through an amendment, and there is a risk that the accumulated amendments may create ambiguity or interpretive challenges.
Option B — New EPA. Under this approach, the parties would negotiate and execute a replacement purchase agreement that reflects current circumstances, including the revised concession terms, the new financing arrangements, and updated representations, warranties, and schedules. The advantage of this approach is that it provides an opportunity for a clean and comprehensive agreement that reflects the current state of affairs. The disadvantage is that negotiation of a new agreement will be more time-consuming and costly than an amendment, and there is a risk of introducing new negotiating points that could delay or derail the transaction.
The Reactivation Memo appears to favor Option A — a fourth amendment to the existing EPA — as the more expeditious approach. We note, however, that regardless of which option is pursued, certain elements will be required:
(a) Updated Cascadia disclosure schedules reflecting developments during the dormancy period;
(b) Bring-down of representations and warranties, with appropriate qualifications for the passage of time;
(c) Refreshed financial statements, including audited statements for fiscal years 2022 and 2023 and interim 2024 financials;
(d) Updated environmental assessments, including refreshed Phase I and Phase II reports from Clearwater Environmental Consulting Inc.;
(e) A revised financing condition reflecting the terms of any new debt commitment letter;
(f) Revised conditions to closing addressing the need for new FERC and OPUC approvals; and
(g) Potentially revised purchase-price or price-adjustment mechanisms reflecting the revised concession terms and any other changes in Cascadia's financial profile.
3. Selling Shareholder Willingness
A threshold question for reactivation is whether the selling shareholders remain willing to consummate the transaction. The Reactivation Memo assumes that the sellers — Timberline Growth Equity Fund III, LP (represented by Hugh Callister); the Weir Family Trust (represented by Jonathan M. Weir); and the Management Rollover Pool — will continue to support the transaction at or near the original terms. However, this assumption is untested.
Two years of dormancy may have materially changed the circumstances of the selling shareholders. Timberline Growth Equity Fund III, LP, as the controlling shareholder with a 62% stake, may be subject to its own fund-life constraints or may have received — or be entertaining — alternative exit opportunities. The fund's limited partners may have different views on the desirability of the Cascadia exit than they held in 2022. The Weir Family Trust may have revisited its estate-planning and wealth-management objectives. Management may have experienced turnover or may have different views on the management-rollover structure.
This firm has not had contact with the selling shareholders' counsel — Ridgeway, Ashford & Malone PC (Nina R. Castellano), counsel to Timberline, and Garvey Lennox LLP (Steven F. Yun), counsel to the Weir Family Trust — since the execution of the Standstill Agreement in February 2024. We therefore have no current intelligence on seller sentiment.
C&H Recommendation: Ironside should request that Meridian confirm seller commitment and willingness to transact before Ironside or the Vehicle incurs material reactivation costs. Confirmation should ideally be in writing and should address not only the sellers' continued interest in the transaction but also whether the sellers have any concerns about the original terms, the revised concession economics, or the extended timeline.
D. Revised Valuation Considerations
1. Impact of Revised Concession Terms
The Bull Run Filtration Project concession is one of the most significant components of Cascadia's revenue base and was the central issue that precipitated the dormancy. The original concession, awarded to Cascadia in approximately 2018, provided for a forty-year term with annual revenue of approximately $64,000,000. The renegotiation demand issued by the Portland Metropolitan Water District on October 28, 2022, cited Oregon SB 1567 (2022), which enhanced the ability of municipalities to renegotiate long-term utility concession agreements.
The tentative framework reached on June 30, 2024, represents a potential resolution, but the terms of the framework have not been disclosed in full to Ironside or to this firm. The Reactivation Memo characterizes the revised terms as "less favorable" than the original concession but "sufficient to support the economics of the acquisition on revised assumptions." Without access to the specific terms, we are unable to assess the accuracy of this characterization.
The financial significance of the Bull Run concession to Cascadia cannot be overstated. At approximately $64,000,000 in annual revenue, the concession represents approximately 13.1% of Cascadia's fiscal year 2021 total revenue of $487,000,000. Any reduction in annual concession revenue — or shortening of the remaining concession term — will have a direct and proportional impact on Cascadia's overall enterprise value and on the returns available to equity investors.
C&H Recommendation: Ironside should insist on full and immediate disclosure of the terms of the tentative concession framework, including the revised annual revenue, the revised term (remaining years), any changes to operating requirements or capital expenditure obligations, any contingencies or conditions, and any provisions that could result in further renegotiation or early termination. Without this information, Ironside cannot responsibly evaluate whether to support reactivation.
2. Updated Enterprise Value Analysis
The original enterprise value of $1,950,000,000, implying an EV/EBITDA multiple of approximately 14.1x based on fiscal year 2021 EBITDA of $138,000,000, was established in September 2022. Two years have elapsed since that valuation, during which period several factors may have affected the supportable enterprise value:
Concession Revenue. If the revised concession terms result in a reduction in Bull Run Filtration Project revenue, Cascadia's EBITDA will decline correspondingly (assuming cost structure remains similar), resulting in a lower supportable enterprise value at the same multiple.
Cascadia's Operating Performance. The Company has continued to operate during the dormancy period. Its financial performance during fiscal years 2022 and 2023, and into 2024, may have diverged from the projections underlying the original valuation. Revenue growth or decline, changes in operating costs, capital expenditure requirements, and working-capital dynamics could all affect the appropriate valuation.
Contract Portfolio Changes. Any changes to Cascadia's PPA portfolio or municipal service contracts during the dormancy period — including new contracts, amendments, terminations, or expirations — would affect the Company's contracted revenue base and, consequently, its valuation.
Sector Multiples. Transaction multiples for comparable renewable-energy and water-infrastructure platforms may have shifted during the dormancy period. The valuation of regulated and contracted infrastructure assets is influenced by interest rates, regulatory environment, growth expectations, and broader market conditions, all of which have evolved since 2022.
If the enterprise value is adjusted downward from the original $1,950,000,000, the equity check required for the acquisition would decrease correspondingly (assuming the capital structure is maintained at similar ratios). In such a scenario, Ironside's total commitment and the co-invest allocation percentage should be proportionally revised, which would require amendments to the LP Agreement and the Co-Investment Allocation Agreement.
C&H Recommendation: Ironside should request an updated valuation analysis from Blackthorn Advisory Group LLC, Meridian's financial advisor, or should consider engaging its own independent financial advisor to prepare a parallel assessment. The updated analysis should reflect the revised concession terms, current financial performance, and current market conditions. Ironside should not agree to reactivation on the basis of the original $1,950,000,000 enterprise value without first determining whether that valuation remains supportable.
3. Weighted-Average Contract Life
The original due-diligence analysis indicated that Cascadia's portfolio of PPAs and municipal service contracts had a weighted-average remaining life of approximately twenty-two years. This metric was an important component of the investment thesis, as it provided visibility into Cascadia's long-term revenue stream and reduced exposure to commodity price risk.
Two years of dormancy have reduced this metric to approximately twenty years, a modest decline. However, if the revised concession framework for the Bull Run Filtration Project includes a shortening of the remaining concession term (for example, from forty years to a shorter period), the weighted-average remaining contract life could decline more significantly. Because the Bull Run concession is one of the largest and longest-dated contracts in Cascadia's portfolio, any shortening of its term would have a disproportionate impact on the weighted-average calculation.
Ironside should request an updated analysis of the weighted-average remaining contract life, reflecting both the passage of time and the revised concession terms, as part of the updated due-diligence package.
E. Co-Investment Vehicle Economics and Reset
1. Carried Interest and Preferred Return
Under the current terms of the LP Agreement and the Co-Investment Allocation Agreement, Meridian GP IV LLC is entitled to a carried interest of 10% of the Vehicle's profits above an 8% preferred return to Ironside (compounded quarterly). This carry rate is materially lower than the 20% carried interest applicable to Fund IV limited partners, reflecting the co-invest nature of the Vehicle and Ironside's status as a large, sophisticated direct investor.
No management fee is payable by the Vehicle to Meridian, as provided in the Side Letter between Ironside and the GP.
If the transaction is reactivated on different economics — whether due to a lower enterprise value, higher debt costs, revised concession terms, or some combination thereof — the projected returns to Ironside will change, and the effective impact of the carried interest will change correspondingly. In a lower-return environment, the 8% preferred-return hurdle becomes more protective for Ironside, as a greater proportion of total returns must accrue to the limited partner before the GP participates in carry. However, if returns decline below the preferred-return threshold entirely, Ironside's absolute economic outcome deteriorates regardless of the carry structure.
C&H Recommendation: Ironside should model the impact of revised economics on projected returns across a range of scenarios, including scenarios in which the enterprise value is reduced, debt costs are higher, and the concession revenue is lower. These models should inform Ironside's assessment of whether the co-invest terms remain appropriate or whether adjustments should be negotiated.
2. Called Capital Treatment
As noted above, $22,500,000 of Ironside's $300,000,000 commitment has been called and funded, deployed as follows:
The recoverability of these amounts varies by category. Organizational expenses ($285,000) and the placement-agent fee ($1,050,000) are sunk costs that are not recoverable in any scenario. The R&W insurance premium deposit ($4,875,000) may be partially recoverable depending on the terms of the Northgate policy — if the policy is reactivated for a closing, the deposit would be credited toward the full premium; if the transaction is abandoned, recovery would depend on the cancellation provisions of the policy. The due-diligence costs and deposits ($12,790,000) may be partially recoverable — certain deposits (e.g., escrow deposits, regulatory filing fee deposits) may be refundable, while professional fees for legal, accounting, and consulting work are not recoverable. The working-capital reserve ($3,500,000) should be largely intact, subject to the deduction of dormancy operating expenses.
Ironside should request a detailed accounting from the GP of the current cash position of the Vehicle, including the balance of the working-capital reserve, the status of each category of deployed capital, and an estimate of recoverable amounts in both reactivation and wind-down scenarios.
We estimate that cumulative dormancy operating expenses through the date of this memorandum total approximately $308,000, based on an annualized rate of approximately $185,000 over approximately twenty months. This amount has been funded from the working-capital reserve, reducing the available reserve balance to approximately $3,192,000.
3. Unfunded Commitment Status
Ironside's unfunded commitment of $277,500,000 remains subject to capital call under Section 4.01 of the LP Agreement. If the Vehicle is reactivated and the transaction proceeds, the GP would be entitled to resume capital calls in accordance with the LP Agreement to fund Ironside's share of the equity investment and any additional transaction costs.
An important question for Ironside is whether the unfunded commitment amount should be adjusted if the total equity check for the transaction changes. If the enterprise value is revised downward and the equity required for the acquisition decreases correspondingly, Ironside's pro rata share of the revised equity (at 28.57%) would be lower than the original $300,000,000 commitment. Similarly, if the financing terms result in a different debt-to-equity ratio, the equity check could change. Any such adjustment would require an amendment to both the LP Agreement (to reflect the revised commitment amount) and the Co-Investment Allocation Agreement (to reflect the revised allocation percentage).
Conversely, if the total equity check increases — for example, because lenders require a lower loan-to-value ratio — Ironside would face a potential request for a commitment increase, which it may or may not wish to provide. The LP Agreement should be reviewed to determine the GP's authority to request additional capital beyond the original commitment amount and Ironside's right to decline such a request.
4. Wind-Down Election Right
Ironside's wind-down election right under Section 7.04(c) of the LP Agreement is of paramount importance in the current situation. This right, which ripened on July 9, 2024 (the eighteen-month anniversary of the dormancy commencement), provides Ironside with the option to require the GP to commence an orderly wind-down of the Vehicle and return of Ironside's capital.
Ironside has deferred exercise of this right pending developments, in accordance with our recommendation of July 25, 2024. However, the deferral does not constitute a waiver, and the right remains exercisable. If Ironside agrees to support reactivation, the practical effect would be to defer — and potentially forfeit — the exercise of this right, at least during the period in which reactivation is being pursued.
C&H Recommendation: We strongly recommend that any agreement by Ironside to support reactivation include an express contractual provision preserving Ironside's wind-down election right in the event that reactivation milestones are not achieved within a defined timeline. Specifically, we recommend negotiating a "reactivation outside date" — a date certain by which the transaction must have closed (or, at a minimum, by which specified reactivation milestones must have been achieved). If closing does not occur by the reactivation outside date, or if the milestones are not achieved, Ironside's wind-down election right would re-ripen automatically, without the need for additional negotiation or consent. This mechanism would protect Ironside from the risk of an indefinite reactivation process that consumes time and resources without ultimately resulting in a closed transaction.
F. R&W Insurance Reactivation
1. Current Status
The representations and warranties insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) was bound on September 1, 2022, in connection with the Cascadia acquisition. The policy provides a coverage limit of $195,000,000, representing 10% of the $1,950,000,000 enterprise value, at a premium rate of 2.5% of the coverage limit ($4,875,000, which has been deposited from Vehicle capital). The policy is governed by Connecticut law.
The coverage period under the policy was tolled pursuant to the tolling side letter executed on January 20, 2023, between the relevant transaction parties and Northgate. The tolling letter provides that the coverage period will be suspended during the dormancy and will resume upon closing of the acquisition. If the transaction is ultimately not consummated, the cancellation provisions of the policy will govern.
2. Reactivation Considerations
Several issues must be addressed in connection with the R&W insurance policy if the transaction is reactivated:
Underwriting Update. Northgate will likely require an updated underwriting review before reactivating coverage. This review would encompass changes to Cascadia's business, financial condition, and risk profile during the dormancy period, as well as the revised concession terms. The underwriting update could result in changes to the policy terms, including premium adjustments, additional exclusions, or modifications to the coverage limit.
Premium Adjustments. Northgate may require an additional premium for reactivation, reflecting the increased risk associated with the passage of time and the changed circumstances. Alternatively, if the enterprise value is adjusted downward, the coverage limit should be recalibrated proportionally (i.e., 10% of the revised enterprise value), which would affect the premium calculation.
Exclusions. The original policy may have included exclusions for known issues identified during the initial underwriting process. The concession renegotiation — which was the triggering event for the dormancy — may need to be addressed specifically in the reactivated policy. If Northgate excludes coverage for losses arising from the concession renegotiation, the practical utility of the policy could be diminished, as this is the area of greatest risk.
Replacement Coverage. If Northgate is unwilling to reactivate the existing policy on acceptable terms, a replacement policy from another carrier will need to be procured. Given the transaction's history — including the extended dormancy, the concession renegotiation, and the lapse of regulatory approvals — replacement coverage may be more expensive than the original policy and may include broader exclusions. The R&W insurance market has also evolved since 2022, and pricing and coverage terms may differ from those available at the time of the original placement.
C&H Recommendation: Ironside should require that any additional R&W insurance costs — whether in the form of additional premium, replacement-policy costs, or broker fees — be addressed in the overall cost-allocation framework for the reactivation. These costs should be allocated to Fund IV or to the acquisition entity, consistent with the allocation of other reactivation costs, and should not be borne disproportionately by the Vehicle.
G. Updated Due Diligence Requirements
Approximately two years have elapsed since the original due-diligence exercise was conducted in August and September 2022. During this period, Cascadia has continued to operate, and material developments may have occurred across multiple dimensions of the business. A comprehensive refresh of the due-diligence exercise is ess

MEMORANDUM

Record

Parties

Dates

Amounts