PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 125 Broad Street, 44th Floor New York, NY 10004
Telephone: (212) 558-4000 Facsimile: (212) 558-3588
November 15, 2024
Matter No. 1023-00001
Marcus J. Calloway Founder & Chief Investment Officer Ironside Capital Management LP 590 Madison Avenue, 38th Floor New York, NY 10022
Renata Obasi Senior Managing Director, Infrastructure Ironside Capital Management LP 590 Madison Avenue, 38th Floor New York, NY 10022
Re: Comprehensive Status Report and Recommendation — ICM Cascadia Co-Invest, LP (EIN: 88-3921457; DE SOS File No. 7439218) / Proposed Acquisition of Cascadia Renewables Holdings, Inc.
Dear Marcus and Renata:
From: Pamela Cross, Responsible Partner, Funds & Asset Management, and Nicholas Stern, Billing Partner, Funds & Asset Management, Calderwood & Harkness LLP.
We are writing to provide you with a comprehensive status report and recommendation letter regarding ICM Cascadia Co-Invest, LP (EIN: 88-3921457; DE SOS File No. 7439218) (the "Co-Invest Vehicle" or "ICM Co-Invest") and the proposed acquisition of Cascadia Renewables Holdings, Inc. (the "Target" or "Cascadia") (the "Transaction").
As you know, Calderwood & Harkness LLP ("C&H" or the "Firm") opened this engagement on July 14, 2022. Since that date, C&H has represented Ironside Capital Management LP ("Ironside" or "ICM") in all matters relating to the Co-Invest Vehicle's formation, governance, dormancy management, capital-call suspension, investor relations, and potential wind-down or reactivation. This letter consolidates matter developments from engagement inception through the date hereof and presents C&H's recommendation on the path forward.
This letter should be read in conjunction with C&H's prior memoranda and analyses, including: the Wind-Down Strategic Options Memo (July 22, 2024), the Reactivation Feasibility Analysis (September 15, 2024), the Reactivation Checklist (October 1, 2024), and the Updated Tax Analysis (October 20, 2024, prepared by Sylvia Hartwell, Partner, Tax). A complete list of referenced memoranda and documents is set forth as enclosures at the end of this letter.
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I. Executive Summary
ICM Cascadia Co-Invest, LP was formed on July 22, 2022 as a Delaware limited partnership for the purpose of co-investing alongside Meridian Infrastructure Partners Fund IV, LP ("Fund IV") in the acquisition of 100% of the equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation that owns and operates a Pacific Northwest renewable-energy and water-infrastructure platform. The Transaction was structured as a 100% equity acquisition at an aggregate enterprise value of $1,950,000,000, with total equity of $1,050,000,000 allocated as follows: Fund IV contributing $750,000,000 (representing a 71.43% equity interest) and ICM Co-Invest contributing $300,000,000 (representing a 28.57% equity interest). The balance of the enterprise value was to be funded through $975,000,000 of senior secured term debt.
Ironside committed $300,000,000 to the Co-Invest Vehicle, representing a 99.99% limited partner interest ($299,970,000), with Meridian Infrastructure GP IV LLC ("Meridian GP" or the "GP") holding a 0.01% general partner interest ($30,000 commitment). To date, a single capital call has been made: $22,500,000, drawn on August 15, 2022, representing 7.5% of Ironside's total commitment. The unfunded commitment stands at $277,500,000.
The Transaction stalled in late 2022 when the Portland Metropolitan Water District (the "Water District") notified Cascadia of its intent to renegotiate the Bull Run Filtration Project concession, a 40-year water-treatment concession that generates approximately $64 million in annual revenue and is a cornerstone of Cascadia's contracted cash-flow profile. Following this material adverse development, the GP declared a Material Impediment Event and issued a Capital Call Suspension Notice on January 9, 2023 pursuant to Section 7.04 of the LP Agreement. The Co-Invest Vehicle has been dormant since that date — a period now exceeding 22 months.
During the dormancy period, the original Equity Purchase Agreement (as amended three times) expired on December 31, 2023, and the debt commitment letter from Atlas National Bank and Pinnacle Credit Partners LLC expired on October 31, 2023. The parties are currently operating under a Mutual Standstill and Preservation Agreement executed on February 15, 2024, which C&H drafted on behalf of the co-invest interests. The FERC Section 203 approval received on December 15, 2022 lapsed on June 15, 2024. The Oregon Public Utility Commission proceedings remain stayed.
Ironside's 18-month wind-down election right under LP Agreement Section 7.04(c) ripened on July 9, 2024. At C&H's recommendation, Ironside has not yet exercised this right, in light of a tentative concession framework reached between Cascadia and the Water District on June 30, 2024, and Meridian's subsequent circulation of a reactivation feasibility memorandum on September 1, 2024.
C&H recommends a structured approach: Ironside should engage with Meridian on reactivation terms within a defined 90-day decision window with clearly articulated milestones, while preserving the wind-down election right as a backstop. This approach balances the potential upside of reactivation against the significant execution risks, minimizes incremental cost during the evaluation period, and ensures that Ironside retains the ability to exit in an orderly manner if reactivation does not prove viable on acceptable terms within a reasonable timeframe.
The sections that follow provide the detailed factual background, financial exposure analysis, regulatory status, contractual assessment, strategic options analysis, and specific recommendations that support this conclusion.
II. Transaction Overview and Background
A. The Co-Investment Vehicle
ICM Cascadia Co-Invest, LP is a Delaware limited partnership formed for the sole purpose of participating in the acquisition of Cascadia alongside Fund IV. The Certificate of Limited Partnership was filed with the Delaware Secretary of State on July 22, 2022 (DE SOS File No. 7439218).
The general partner of the Co-Invest Vehicle is Meridian Infrastructure GP IV LLC, a Delaware limited liability company. The managers of Meridian GP are David R. Hargreaves (Managing Partner), Lillian Fong (Partner, Portfolio), and Graham Whitfield (Partner, Operations). Ironside Capital Management LP serves as the sole limited partner.
The following governing and ancillary documents were executed at the first close on July 29, 2022:
• Limited Partnership Agreement of ICM Cascadia Co-Invest, LP (the "LP Agreement"), dated as of July 29, 2022, by and between Meridian Infrastructure GP IV LLC, as general partner, and Ironside Capital Management LP, as limited partner, governed by the laws of the State of Delaware.
• Side Letter, dated as of July 29, 2022, between Meridian Infrastructure GP IV LLC and Ironside Capital Management LP, setting forth certain supplemental terms applicable to Ironside's participation in the Co-Invest Vehicle, including: (i) no management fee (Section 2), (ii) most-favored-nation provisions (Section 3), (iii) enhanced quarterly reporting obligations (Section 4), and (iv) wind-down rights upon the occurrence and continuation of a Material Impediment Event beyond specified periods (Section 5, cross-referencing LP Agreement Section 7.04(c)).
• Co-Investment Allocation Agreement, dated as of July 29, 2022, between Meridian Infrastructure Partners Fund IV, LP and ICM Cascadia Co-Invest, LP, governing the allocation of co-investment interests (71.43% to Fund IV and 28.57% to ICM Co-Invest) and related obligations.
• Subscription Agreement, dated as of July 29, 2022, pursuant to which Ironside subscribed for its limited partnership interest in the Co-Invest Vehicle.
Rivermark Capital Markets Inc. served as placement agent in connection with the formation of the Co-Invest Vehicle. The placement-agent fee was 0.35% of Ironside's $300,000,000 commitment, totaling $1,050,000, and was paid at the first close on July 29, 2022.
B. The Target — Cascadia Renewables Holdings, Inc.
Cascadia Renewables Holdings, Inc. is an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204. The Target's Chief Executive Officer is Jonathan M. Weir, and its Chief Financial Officer is Sandra K. Llewellyn.
Cascadia owns and operates a diversified portfolio of renewable-energy and water-infrastructure assets across the Pacific Northwest, including:
• Hydroelectric facilities: 14 facilities located across Oregon, Washington, and Idaho, generating contracted revenue through long-term power purchase agreements ("PPAs") with regional utilities and municipal off-takers.
• Wind farms: 6 wind-energy generation facilities, also supported by long-term PPAs.
• Water-treatment concessions: 3 municipal water-service concessions, including the Bull Run Filtration Project concession with the Portland Metropolitan Water District, which is the subject of the renegotiation discussed in detail in Section VII below.
The Target's portfolio is characterized by long-duration contracted cash flows. The weighted-average remaining contract life across all PPAs and municipal water-service contracts is approximately 22 years as of the date of the original Transaction analysis, providing substantial visibility into future revenue streams.
For the fiscal year ended December 31, 2021, Cascadia reported revenue of $487 million and EBITDA of $138 million, as audited by Halstead & Greer LLP. At the agreed enterprise value of $1,950,000,000, the Transaction implied an EV/EBITDA multiple of approximately 14.1x ($1,950M ÷ $138M). With net debt of $900 million, the implied equity value was $1,050 million, consistent with the total equity contributions contemplated by Fund IV and ICM Co-Invest.
C. Selling Shareholders
The equity interests in Cascadia are held by the following selling shareholders (collectively, the "Selling Shareholders"):
• Timberline Growth Equity Fund III, LP — holding a 62% equity interest. The general partner of Timberline Fund III is Timberline Growth Partners LLC, whose Managing Partner is Hugh Callister. Timberline Fund III is represented by Garvey Lennox LLP (Steven F. Yun, lead partner).
• Weir Family Trust — holding an 18% equity interest. The trustee of the Weir Family Trust is Jonathan M. Weir, who also serves as CEO of Cascadia.
• Management Rollover Pool — holding a 20% equity interest, comprised of approximately 25 members of Cascadia's management team. The management shareholders were expected to roll over approximately 50% of their equity (i.e., 10% of total Cascadia equity) into the acquisition structure, aligning management's interests with those of the acquiring investors post-closing.
D. Acquisition Structure and Sources & Uses
The Transaction was structured as a 100% equity acquisition to be effected through Cascadia Acquisition Corp. (the "Acquisition Vehicle"), a Delaware corporation formed as a wholly owned subsidiary of Fund IV and ICM Co-Invest for the purpose of acquiring all outstanding equity interests in Cascadia.
The sources and uses of funds for the Transaction were as follows:
Sources:
Uses:
In addition to the senior secured term loan, the acquisition financing included a $150,000,000 revolving credit facility provided by Atlas National Bank (the "Revolver"), which was to remain undrawn at closing and available for post-closing working-capital and operational purposes.
The senior secured term loan was to be provided by Atlas National Bank, as lead arranger and administrative agent (with a $650,000,000 share), and Pinnacle Credit Partners LLC (with a $325,000,000 share). The debt commitment letter was executed on August 30, 2022 and was governed by New York law.
E. Co-Investment Vehicle Economics
The economic terms of the Co-Invest Vehicle, as set forth in the LP Agreement and Side Letter, differ from the terms applicable to investors in Fund IV's main partnership:
• Management fee: 0% (per Side Letter Section 2), as compared to the standard management fee applicable to Fund IV limited partners.
• Carried interest: 10% to Meridian GP IV LLC above an 8% preferred return (compounded quarterly), as compared to a 20% carried interest applicable to Fund IV limited partners. This reduced carry reflects the nature of the co-investment relationship and Ironside's negotiated terms.
• GP commitment: $30,000 (0.01% of total Co-Invest Vehicle commitments).
• LP commitment: $299,970,000 (99.99% of total Co-Invest Vehicle commitments).
The favorable economics of the co-invest structure — zero management fee and 10% carry versus 20% — represent meaningful value to Ironside and should be taken into account when evaluating the reactivation option, as these terms may not be replicable in an alternative infrastructure investment of comparable scale and quality.
III. Transaction Timeline and Key Events
The following chronological summary sets forth the material events in the Transaction from engagement inception through the date of this letter. This timeline is intended to provide Ironside's leadership with a consolidated record of all significant milestones, regulatory actions, contractual developments, and strategic decisions across the life of the matter.
A. Formation and First Close (July 2022)
July 14, 2022: C&H engagement opened. Ironside retained the Firm to serve as outside counsel in connection with the formation and governance of the Co-Invest Vehicle and all matters relating to the proposed acquisition of Cascadia. Pamela Cross was designated as the Responsible Partner and Nicholas Stern as the Billing Partner.
July 22, 2022: Certificate of Limited Partnership of ICM Cascadia Co-Invest, LP filed with the Delaware Secretary of State (DE SOS File No. 7439218). The filing established the Co-Invest Vehicle as a Delaware limited partnership for all purposes under the Delaware Revised Uniform Limited Partnership Act.
July 29, 2022: First close of the Co-Invest Vehicle. The LP Agreement, Side Letter, Co-Investment Allocation Agreement, and Subscription Agreement were all executed as of this date. The placement-agent fee of $1,050,000 was paid to Rivermark Capital Markets Inc. upon the first close. The Co-Invest Vehicle was fully constituted and authorized to participate in the acquisition of Cascadia alongside Fund IV.
B. Capital Call and Due Diligence (August 2022)
August 15, 2022: Capital Call #1 — $22,500,000 (7.5% of Ironside's $300,000,000 commitment). This was the sole capital call issued by the GP and remains the only capital drawn from Ironside's commitment. The proceeds were applied as follows:
The due-diligence costs and deposits included fees for third-party advisors, environmental consultants, independent engineers, and regulatory counsel, as well as deposits required under certain transaction agreements.
C&H conducted comprehensive due diligence across all material workstreams, including corporate structure, material contracts, regulatory permits and licenses, real property and title, environmental compliance, employment and benefits, pending and threatened litigation, and intellectual property. The Summary Due Diligence Report and Risk Matrix was delivered to Ironside on September 1, 2022. The report identified the Bull Run Filtration Project concession as a material contract warranting particular attention, a judgment that proved prescient in light of subsequent developments.
C. EPA Execution and Insurance/Financing (August–September 2022)
August 30, 2022: Debt commitment letter executed by Atlas National Bank (as lead arranger and administrative agent, $650,000,000 share) and Pinnacle Credit Partners LLC ($325,000,000 share) for a senior secured term loan in the aggregate principal amount of $975,000,000. The commitment letter was governed by New York law and was subject to customary conditions precedent, including the execution and delivery of definitive credit documentation, satisfaction of the conditions to closing under the EPA, and the absence of any material adverse change at Cascadia.
September 1, 2022: Representations and warranties insurance policy bound by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814). The policy provided coverage of $195,000,000, equal to 10% of the enterprise value of $1,950,000,000. The premium deposit of $4,875,000 was calculated at a rate of 2.5% applied to the coverage limit. The policy was governed by Connecticut law.
September 2, 2022: R&W insurance premium deposit of $4,875,000 paid to Northgate Specialty from the proceeds of Capital Call #1.
September 15, 2022: Equity Purchase Agreement (the "EPA") executed among the Selling Shareholders (Timberline Growth Equity Fund III, LP, the Weir Family Trust, and the members of the Management Rollover Pool), Cascadia Renewables Holdings, Inc., and Cascadia Acquisition Corp. The EPA was governed by Delaware law and contained customary representations, warranties, covenants, and conditions to closing, including conditions relating to the receipt of all required regulatory approvals, the absence of any material adverse effect, and the concurrent funding of the debt financing.
Cascadia's outside counsel was Ridgeway, Ashford & Malone PC, with Nina R. Castellano serving as lead partner. Meridian's primary outside counsel was Breckenridge Sloane & Pratt LLP ("BSP"), with Charles A. Delacroix serving as lead partner.
D. Regulatory Filings (September–December 2022)
September 5, 2022: Voluntary notice filed with the Committee on Foreign Investment in the United States ("CFIUS") pursuant to Section 721 of the Defense Production Act of 1950, as amended, and the implementing regulations at 31 C.F.R. Part 800. Although the Transaction did not involve a foreign acquiror, a voluntary notice was filed out of an abundance of caution given the critical infrastructure nature of certain of Cascadia's assets, including water-treatment facilities.
September 20, 2022: CFIUS acknowledged receipt of the voluntary notice and confirmed that no further action was required. No foreign ownership, control, or influence issues were identified. Clearance was effectively received as of this date.
October 14, 2022: Application filed with the Oregon Public Utility Commission ("OPUC") seeking approval of the indirect change of control of Cascadia's regulated utility operations (Docket No. UM-2287). The application was filed jointly by the parties and included supporting testimony regarding the expected benefits of the Transaction for Oregon ratepayers and the public interest.
October 19, 2022: Application filed with the Federal Energy Regulatory Commission ("FERC") pursuant to Section 203 of the Federal Power Act seeking authorization for the indirect acquisition of certain FERC-jurisdictional assets held by Cascadia (Docket No. EC22-143-000).
December 15, 2022: FERC Section 203 approval received (Docket No. EC22-143-000). The approval was conditioned on the timely filing of license-transfer applications for Cascadia's FERC-licensed hydroelectric facilities. The approval order contained an 18-month lapse provision, pursuant to which the authorization would expire if the Transaction did not close within 18 months of the date of the order.
E. Concession Renegotiation and Material Adverse Development (October–November 2022)
October 28, 2022: The Portland Metropolitan Water District formally notified Cascadia of its intent to renegotiate the 40-year Bull Run Filtration Project concession. The concession had been originally executed in approximately 2018 and generated annual revenue of approximately $64 million for Cascadia. The Water District cited Oregon Senate Bill 1567 (2022) ("SB 1567"), which imposed new regulatory requirements on certain public-private water-infrastructure partnerships, as the basis for the renegotiation demand. C&H promptly analyzed the implications of SB 1567 for the Transaction and the Co-Invest Vehicle.
November 10, 2022: Meridian formally notified Ironside of the concession renegotiation as a material adverse development. C&H advised Ironside on the tolling of the outside date under the EPA and the potential implications of the development for the conditions to closing.
November 22, 2022: First Amendment to the Equity Purchase Agreement executed. The amendment extended the outside date from December 31, 2022 to March 31, 2023, to provide additional time for assessment of the concession renegotiation and its impact on the Transaction.
F. Dormancy Initiation (January 2023)
January 9, 2023: Meridian Infrastructure GP IV LLC, in its capacity as general partner of the Co-Invest Vehicle, issued a Capital Call Suspension Notice to Ironside pursuant to Section 7.04 of the LP Agreement, formally declaring a Material Impediment Event arising from the Bull Run concession renegotiation. Capital calls were suspended and the Co-Invest Vehicle entered a period of dormancy. No further capital calls could be issued during the dormancy period absent a formal reactivation or wind-down determination.
January 15, 2023: C&H delivered a letter to BSP (Attention: Charles A. Delacroix) on behalf of Ironside formally reserving all of Ironside's rights under the LP Agreement, the Side Letter, the Co-Investment Allocation Agreement, and all other Transaction documents during the dormancy period, including without limitation the wind-down election right under Section 7.04(c) of the LP Agreement.
January 20, 2023: R&W Insurance Tolling Side Letter executed by and between Northgate Specialty Insurance Co. and ICM Cascadia Co-Invest, LP. The tolling side letter provided that the coverage period under the R&W insurance policy (Policy No. NSW-RI-2022-09814) would be tolled during the period of dormancy, such that the policy would not expire by its terms during the pendency of the Material Impediment Event.
G. EPA Amendments and Debt Extensions (March 2023–October 2023)
March 15, 2023: Second Amendment to the Equity Purchase Agreement executed. The outside date was extended from March 31, 2023 to June 30, 2023. The amendment was executed in substantially the form negotiated by C&H in coordination with BSP and Ridgeway, Ashford & Malone PC.
April 30, 2023: The debt commitment letter was extended to October 31, 2023. An extension fee of $2,437,500 (calculated as 0.25% of the $975,000,000 commitment amount) was paid by Meridian Fund IV. The extension fee was not borne by ICM Co-Invest directly, though it is relevant to the overall Transaction economics and the total cost of the dormancy period to the acquisition consortium.
June 28, 2023: Third Amendment to the Equity Purchase Agreement executed. The outside date was extended from June 30, 2023 to December 31, 2023. This represented the final extension agreed to by the parties.
October 31, 2023: The debt commitment letter expired without further extension. As of this date, there was no committed financing in place for the Transaction. Atlas National Bank and Pinnacle Credit Partners LLC were under no further obligation to fund the senior secured term loan.
H. EPA Expiration and Standstill (December 2023–February 2024)
December 31, 2023: The third extended outside date under the EPA expired. No party exercised its termination right under the EPA. The parties entered into an informal mutual standstill pending negotiation of a formal standstill arrangement.
February 15, 2024: The Mutual Standstill and Preservation Agreement (the "Standstill Agreement") was executed among all parties to the EPA — the Selling Shareholders, Cascadia, and Cascadia Acquisition Corp. — as well as the Co-Invest Vehicle and Fund IV. The Standstill Agreement was drafted by C&H on behalf of the co-invest interests and provides for: (i) a mutual standstill on the exercise of termination rights under the EPA and related transaction documents; (ii) the preservation of all transaction documents, regulatory approvals (to the extent still valid), and due-diligence materials; and (iii) a framework for orderly reactivation of the Transaction or, alternatively, orderly wind-down. The Standstill Agreement does not constitute a binding obligation to close and may be terminated by any party on 30 days' prior written notice.
I. Recent Developments (June–November 2024)
June 15, 2024: The FERC Section 203 approval (Docket No. EC22-143-000) lapsed. The original 18-month lapse period from the December 15, 2022 approval was extended by a FERC staff letter, but the extended deadline of June 15, 2024 passed without the Transaction having closed. A new FERC Section 203 application would be required in any reactivation scenario.
June 30, 2024: The Portland Metropolitan Water District and Cascadia reached a tentative framework on revised terms for the Bull Run Filtration Project concession. This development was communicated to Meridian and, through Meridian's GP quarterly reporting, to Ironside. The tentative framework represents the first substantive progress toward resolving the concession renegotiation that precipitated the dormancy. C&H prepared a preliminary analysis of the framework's potential impact on the Transaction (memo dated August 15, 2024).
July 9, 2024: The 18-month dormancy mark was reached. Ironside's wind-down election right under LP Agreement Section 7.04(c) ripened as of this date. Ironside now has the contractual right to elect wind-down of the Co-Invest Vehicle by delivering written notice to the GP.
July 25, 2024: Following consultation with C&H, Ironside deferred exercise of the wind-down election right pending further developments relating to the concession renegotiation and assessment of the reactivation path. C&H recommended this deferral in our memorandum of that date, noting the significance of the tentative concession framework and the desirability of preserving optionality while additional information became available.
September 1, 2024: Meridian circulated a reactivation feasibility memorandum to all co-investors, including Ironside, setting forth Meridian's preliminary assessment of the conditions and steps required to reactivate the Transaction. The memorandum addressed revised transaction economics, regulatory refiling requirements, and financing considerations. C&H prepared a detailed analysis of the Meridian memo (September 15, 2024) and a companion Reactivation Checklist (October 1, 2024).
November 15, 2024: Date of this status report.
IV. Current Financial Exposure Summary
This section provides a consolidated overview of Ironside's financial exposure in connection with the Co-Invest Vehicle as of the date of this letter.
A. Capital Deployed
Ironside's total capital called to date is $22,500,000, drawn in a single capital call on August 15, 2022. The proceeds were applied as follows:
The current status of the called capital is mixed. The organizational expenses and placement-agent fee are fully expended and non-recoverable in any scenario. The R&W insurance premium deposit of $4,875,000 is currently held by Northgate Specialty under the tolling arrangement and may be partially recoverable if the policy is unwound in connection with a wind-down, though the amount and terms of any refund would be subject to negotiation with Northgate. The due-diligence costs and deposits of $12,790,000 have been substantially expended; a portion of these costs represents deposits paid to third parties that may or may not be recoverable depending on the terms of the underlying agreements and whether the Transaction proceeds. The working-capital reserve of $3,500,000 has been partially drawn down to fund ongoing dormancy operating expenses over the past 22 months, with the remaining balance continuing to decline.
B. Unfunded Commitment
Ironside's remaining unfunded commitment to the Co-Invest Vehicle is $277,500,000, calculated as the total commitment of $300,000,000 less the $22,500,000 already called. Capital calls have been suspended since January 9, 2023 in connection with the Material Impediment Event declaration, and no further calls may be made during the dormancy period absent a formal reactivation of the Transaction or a wind-down determination. In a wind-down scenario, the unfunded commitment would be released, and Ironside's $277,500,000 obligation would terminate. In a reactivation scenario, additional capital calls would be necessary to fund Ironside's share of the remaining equity requirement for the acquisition, as well as any incremental reactivation costs.
C. Ongoing Dormancy Costs
The annualized operating expenses of the Co-Invest Vehicle during dormancy are estimated at approximately $185,000 per year. The components of these costs are as follows:
• Fund administration services (Kendrick Thorne & Associates LLP)
• Delaware franchise tax
• Annual report filing fees
• Registered agent fees (Cascade Systems)
• Annual audit
• K-1 preparation and tax compliance
The dormancy period extends from January 9, 2023 (the date of the Capital Call Suspension Notice) through November 15, 2024 (the date of this letter), a period of approximately 22 months. Based on the annualized cost estimate, total dormancy costs incurred to date are approximately $339,000 ($185,000 × 22/12). These costs are being funded from the working-capital reserve established at the time of the initial capital call. At the current burn rate, the remaining working-capital reserve should be sufficient to fund dormancy costs through the recommended 90-day evaluation period and beyond, though this should be confirmed with Kendrick Thorne & Associates LLP.
D. Third-Party Financial Commitments
In addition to the capital deployed by Ironside, the following third-party financial commitments and expenditures are relevant to the overall Transaction economics and Ironside's exposure:
R&W Insurance Premium Deposit: $4,875,000, held by Northgate Specialty Insurance Co. under the tolling arrangement executed on January 20, 2023. In a reactivation scenario, this deposit would be credited toward the premium for the reinstated policy (potentially subject to adjustment). In a wind-down scenario, Ironside would seek to recover all or a portion of the deposit through negotiation with Northgate. The recoverability is uncertain and depends on the terms of the policy and Northgate's willingness to agree to a refund.
Debt Commitment Extension Fee: $2,437,500, paid by Meridian Fund IV on April 30, 2023 in connection with the extension of the debt commitment letter. This fee was not borne directly by ICM Co-Invest, but it is relevant to the total cost of the dormancy period to the acquisition consortium and may factor into any renegotiation of terms with Meridian.
D&O Tail Policy: A directors' and officers' liability tail policy was placed with Sentinel Directors & Officers Underwriters Inc. The current status of this policy should be confirmed in connection with any reactivation scenario, and its applicability in a wind-down scenario should be reviewed.
E. Ironside's Total At-Risk Exposure
The following table summarizes Ironside's total financial exposure as of the date of this letter:
The most significant component of Ironside's exposure is the $277,500,000 unfunded commitment, which remains a binding obligation of Ironside under the LP Agreement and Subscription Agreement. In a wind-down, this obligation would be released in full. In a reactivation, it would be called upon in accordance with the capital-call provisions of the LP Agreement as reinstated. The $22,500,000 of called capital is largely sunk, with the exception of the R&W insurance deposit and the remaining working-capital reserve.
Estimated legal fees incurred by Ironside through the date of this letter for C&H's services in connection with this matter will be detailed in a separate billing summary to be provided under separate cover.
V. Regulatory Status
This section summarizes the current status of the regulatory approvals required for the Transaction and the implications for any reactivation.
A. FERC Section 203
The FERC Section 203 application was filed on October 19, 2022 (Docket No. EC22-143-000), seeking authorization for the indirect acquisition of certain FERC-jurisdictional hydroelectric assets held by Cascadia. Approval was received on December 15, 2022, conditioned on the timely filing of license-transfer applications for Cascadia's FERC-licensed hydroelectric facilities.
The approval order contained an 18-month lapse provision, pursuant to which the authorization would expire if the Transaction did not close within 18 months of the date of the order. The original lapse date was extended by a FERC staff letter to June 15, 2024. The approval lapsed as of June 15, 2024, as the Transaction did not close by that date.
In any reactivation scenario, a new FERC Section 203 application would need to be filed. Based on C&H's prior experience with FERC Section 203 proceedings, including the original filing in this matter, we estimate that the timeline for a new approval would be approximately 6 to 12 months from the date of filing, depending on the complexity of any intervening changes in Cascadia's asset portfolio, the scope of any conditions imposed by the Commission, and whether intervenors participate in the proceeding. The need to refile at FERC represents one of the more significant timeline risks associated with reactivation.
B. Oregon Public Utility Commission
The OPUC application was filed on October 14, 2022 (Docket No. UM-2287), seeking approval of the indirect change of control of Cascadia's regulated utility operations in Oregon. Following the onset of the dormancy period, the proceedings were stayed at the joint request of the parties in February 2023. The application remains on file with the OPUC and has not been withdrawn.
To reactivate the OPUC proceedings, a joint motion to un-stay the docket would need to be filed. Based on our assessment, the incremental review time upon un-staying would be approximately 3 to 6 months, assuming no material changes in the factual or regulatory circumstances underlying the original application. If the revised concession terms for the Bull Run Filtration Project are finalized prior to the un-staying, the OPUC may require supplemental filings addressing the impact of those revised terms on the public interest analysis.
C. CFIUS
The voluntary CFIUS notice filed on September 5, 2022 was acknowledged on September 20, 2022, and CFIUS confirmed that no further action was required. No foreign ownership, control, or influence issues were identified, and clearance was effectively received.
If the Transaction is reactivated without material restructuring, we do not anticipate that a new or supplemental CFIUS filing would be required. However, if the reactivation involves material changes to the acquisition structure — such as the introduction of new equity investors with foreign ownership or control attributes, or changes to the governance arrangements that could implicate CFIUS jurisdiction — then C&H would recommend reassessing whether a new or supplemental notice is advisable. We will monitor this issue closely in connection with any reactivation discussions.
VI. Status of Key Contractual Arrangements
This section provides a detailed assessment of the current status of each of the principal contractual arrangements relevant to the Transaction and the Co-Invest Vehicle.
A. Equity Purchase Agreement
The EPA was executed on September 15, 2022 and was subsequently amended three times: the First Amendment (November 22, 2022), the Second Amendment (March 15, 2023), and the Third Amendment (June 28, 2023). The outside date, as last extended by the Third Amendment, was December 31, 2023.
The outside date expired on December 31, 2023. No party exercised its termination right under the EPA following the expiration of the outside date. The parties' rights and obligations under the EPA are currently governed by the Mutual Standstill and Preservation Agreement, which preserves the transaction documents in their current form while suspending the exercise of termination rights.
In any reactivation scenario, the EPA would need to be reinstated, further amended, or replaced. C&H anticipates that the following elements of the EPA would need to be refreshed or renegotiated as part of any reactivation:
• Valuation and purchase price: The original enterprise value of $1,950,000,000 was based on FY 2021 financial performance. Over two years of operational history have elapsed since that valuation was established. Updated financial statements (FY 2022, FY 2023, and interim 2024) would need to be reviewed, and the purchase price may need to be adjusted to reflect changes in Cascadia's financial performance, the impact of the revised concession terms, and current market conditions and comparable transaction multiples.
• Representations and warranties: The representations and warranties in the EPA were made as of the September 15, 2022 execution date and the anticipated closing date. These would need to be brought down and refreshed to reflect the current state of Cascadia's business, assets, liabilities, and legal and regulatory posture.
• Disclosure schedules: The disclosure schedules would need to be comprehensively updated to capture all material developments at Cascadia since September 2022, including the concession renegotiation, any changes to material contracts, litigation developments, regulatory changes, and other items.
• Conditions to closing: The conditions to closing would need to be revised to address the lapsed FERC approval, the stayed OPUC proceedings, the need for new debt financing, and any other conditions that have changed since the original execution.
• Outside date: A new outside date would need to be established, reflecting a realistic timeline for completion of all reactivation steps.
Whether these changes are effectuated through a Fourth Amendment to the existing EPA or through the negotiation and execution of an entirely new purchase agreement is a tactical question that will depend in part on the scope of the required changes and the preferences of the Selling Shareholders and their counsel.
B. Mutual Standstill and Preservation Agreement
The Standstill Agreement was executed on February 15, 2024 among all parties to the EPA, as well as the Co-Invest Vehicle and Fund IV. C&H drafted the Standstill Agreement on behalf of the co-invest interests. The key provisions of the Standstill Agreement are as follows:
• Mutual standstill: All parties agree to refrain from exercising termination rights under the EPA and related transaction documents for the duration of the standstill period.
• Preservation: The parties agree to preserve all transaction documents, regulatory approvals (to the extent still valid), and due-diligence materials in their current form, and not to take any action that would impair the ability to reactivate the Transaction or pursue an orderly wind-down.
• Expense allocation: During the standstill period, each party bears its own costs and expenses. No party is required to bear the costs of any counterparty.
• Reactivation/wind-down framework: The Standstill Agreement establishes a procedural framework for the parties to pursue either orderly reactivation of the Transaction or orderly wind-down, as applicable.
• Duration and termination: The Standstill Agreement continues in effect until terminated by mutual agreement of all parties or by any party on 30 days' prior written notice. This termination provision was analyzed in detail in C&H's memorandum dated February 10, 2024.
It is critical to emphasize that the Standstill Agreement does not constitute a binding obligation on any party to close the Transaction. Any party may terminate the standstill on 30 days' notice and thereafter exercise its rights under the EPA (to the extent any such rights survive the expiration of the outside date) or simply walk away. This underscores the importance of Ironside's maintaining its own strategic optionality, including the wind-down election right under the LP Agreement.
C. LP Agreement and Side Letter
The LP Agreement of ICM Cascadia Co-Invest, LP remains in full force and effect. The material provisions relevant to the current status of the Co-Invest Vehicle include the following:
• Section 7.04 — Material Impediment Events: This section governs the GP's authority to declare a Material Impediment Event, suspend capital calls, and place the Co-Invest Vehicle in dormancy. The GP exercised this authority on January 9, 2023.
• Section 7.04(c) — Wind-Down Election Right: If a Material Impediment Event continues for a period of 18 consecutive months, the LP has the right to elect wind-down of the Co-Invest Vehicle by delivering written notice to the GP. The 18-month period commenced on January 9, 2023 and the right ripened on July 9, 2024. As of the date of this letter, Ironside has not exercised this right. The right remains available and may be exercised at any time unless waived or otherwise modified by agreement of the parties.
The Side Letter remains operative in all respects. The reporting provisions (requiring quarterly reports from the GP), the no-management-fee provision, and the MFN protections continue to apply during the dormancy period.
D. Debt Commitment Letter
The debt commitment letter from Atlas National Bank and Pinnacle Credit Partners LLC expired on October 31, 2023 without further extension. There is currently no committed financing in place for the Transaction.
In any reactivation scenario, new debt financing would need to be obtained. This could involve: (i) re-engagement with Atlas National Bank and Pinnacle Credit Partners LLC on updated terms, or (ii) a broader lender outreach process to identify alternative financing sources. Current credit market conditions differ materially from those prevailing in August 2022 when the original commitment was obtained, including changes in base interest rates, credit spreads for infrastructure assets, and lender appetite for leveraged infrastructure acquisitions. A fresh credit analysis of Cascadia's financial profile would be required, taking into account the impact of the revised concession terms, operational performance during the interim period, and any changes to the Target's capital structure or debt profile.
E. R&W Insurance Policy
The R&W insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) provides coverage of $195,000,000 (10% of enterprise value). The premium deposit of $4,875,000 was paid on September 2, 2022. The coverage period was tolled during the dormancy period pursuant to the tolling side letter executed on January 20, 2023.
In a reactivation scenario, negotiations with Northgate would be required to reinstate the coverage period, update the underlying representations and warranties, and potentially adjust the premium to reflect changes in Cascadia's risk profile and the terms of any amended or replacement EPA. Northgate may require updated underwriting, including review of updated financial statements, disclosure schedules, and due-diligence materials.
In a wind-down scenario, Ironside would seek to recover all or a portion of the $4,875,000 premium deposit. The terms and amount of any refund would be subject to negotiation with Northgate and the provisions of the insurance policy and tolling side letter. Recovery is not guaranteed and may be less than the full deposit amount.
F. Co-Investment Allocation Agreement
The Co-Investment Allocation Agreement between Fund IV and ICM Co-Invest remains in effect and governs the 71.43% / 28.57% allocation of co-investment interests between the two vehicles. Any reactivation would need to address whether the allocation percentages or the underlying economic terms would change, particularly if the revised transaction economics result in a different equity requirement or if Meridian proposes to bring in additional co-investors to replace or supplement Ironside's commitment.
VII. Concession Renegotiation and Tentative Framework
A. Background
The Bull Run Filtration Project concession is a 40-year water-treatment concession originally executed in approximately 2018 between Cascadia Renewables Holdings, Inc. and the Portland Metropolitan Water District. The concession is one of the three water-treatment concessions operated by Cascadia and is the single largest, generating annual revenue of approximately $64 million. The Bull Run Filtration Project involves the design, construction, financing, operation, and maintenance of filtration infrastructure for the Bull Run watershed, which serves as the primary source of drinking water for the Portland metropolitan area.
On October 28, 2022, the Portland Metropolitan Water District formally notified Cascadia of its intent to renegotiate the concession, citing changed regulatory requirements under Oregon Senate Bill 1567 (2022). SB 1567 imposed new regulatory requirements on certain public-private partnerships in the water-infrastructure sector, including enhanced oversight, reporting, and performance standards. The Water District asserted that SB 1567 required modification of the existing concession terms to bring the arrangement into compliance with the new statutory framework.
The concession renegotiation was the proximate cause of the Material Impediment Event declaration by the GP on January 9, 2023 and the resulting dormancy of the Co-Invest Vehicle. The renegotiation introduced material uncertainty into the revenue profile, contract duration, and overall economics of the Bull Run concession — a key component of Cascadia's value proposition to investors.
B. Tentative Framework (June 30, 2024)
On June 30, 2024, Cascadia and the Portland Metropolitan Water District reached a tentative framework on revised concession terms. This development was reported to Ironside through Meridian's GP quarterly reporting.
C&H prepared a preliminary analysis of the tentative framework's potential impact on the Transaction and the Bull Run concession revenue in a memorandum dated August 15, 2024. Our preliminary analysis examined the following key considerations:
• Revenue impact: Whether the revised terms preserve sufficient annual revenue from the Bull Run concession to support the original enterprise value of $1,950,000,000 and the implied EV/EBITDA multiple of approximately 14.1x. Any material reduction in concession revenue would directly affect Cascadia's EBITDA and, by extension, the supportable valuation and the amount of debt that can be raised against the asset.
• Contract duration: Whether the remaining term of the concession under the revised framework is consistent with the long-duration contracted cash-flow profile that underpins the infrastructure investment thesis. A reduction in the concession term could affect both the discounted cash-flow valuation and the lender's willingness to extend long-dated project finance.
• Regulatory compliance: Whether the revised terms satisfy the requirements of SB 1567 and eliminate the regulatory uncertainty that precipitated the dormancy.
• Precedent for other concessions: Whether the revised framework could serve as a template for renegotiation of Cascadia's other two water-treatment concessions, and if so, the potential cumulative impact on Cascadia's overall revenue and EBITDA.
The conclusions of the August 15 memo are preliminary and subject to revision upon receipt of additional detail regarding the final terms of the revised concession.
C. Outstanding Issues
Several significant issues remain unresolved with respect to the concession renegotiation:
First, the tentative framework has not yet been formalized into a binding amended concession agreement. Until a binding agreement is executed between Cascadia and the Water District, there is a risk that the tentative framework could unravel, that terms could change during the process of documentation, or that one or both parties could walk away from the framework.
Second, regulatory approvals for any revised concession terms may be required from Oregon regulatory authorities, including potentially the OPUC and other state agencies with jurisdiction over public-private water-infrastructure partnerships. The timeline and outcome of such regulatory approvals are uncertain.
Third, Cascadia's management — Jonathan M. Weir and Sandra K. Llewellyn — has been leading the concession negotiations with the Water District. Ironside's visibility into the final terms of the revised concession is limited to the information provided through Meridian's quarterly reports and such additional information as Meridian may make available. We recommend that Ironside request direct access to the binding terms of the revised concession framework as part of the structured engagement process described in Section IX below.
VIII. Analysis of Strategic Options
C&H has identified four strategic options available to Ironside at this juncture. Each option is analyzed below in terms of its description, requirements, advantages, disadvantages, and key considerations. This analysis draws on and consolidates the more detailed analyses set forth in C&H's prior memoranda, including the Wind-Down Strategic Options Memo (July 22, 2024), the Reactivation Feasibility Analysis (September 15, 2024), the Reactivation Checklist (October 1, 2024), and the Updated Tax Analysis (October 20, 2024).
A. Option 1: Reactivation
Description: Ironside would engage with Meridian on the reactivation of the Cascadia acquisition on refreshed terms, with the objective of completing the Transaction on an updated timeline.
Reactivation Requirements. Based on C&H's Reactivation Checklist (October 1, 2024), the following steps would be required to reactivate the Transaction:
1. Regulatory refilings. A new FERC Section 203 application would need to be filed, as the prior approval lapsed on June 15, 2024. Based on prior experience with the original filing (October 2022 to December 2022), we estimate a timeline of 6 to 12 months for a new approval, depending on the scope of any intervening changes and whether the filing attracts intervenor participation. The OPUC proceedings (Docket No. UM-2287) would need to be un-stayed through a joint motion; we estimate an incremental review period of 3 to 6 months upon un-staying. With respect to CFIUS, no new filing is likely required unless the acquisition structure is materially changed — for example, through the introduction of new co-investors with foreign ownership attributes.
2. New debt financing. A new debt commitment would need to be obtained from Atlas National Bank and Pinnacle Credit Partners LLC, or from alternative lenders. The terms, pricing, and structure of any new commitment would reflect current credit market conditions, which differ materially from those prevailing in August 2022. Interest rate levels have increased significantly since the original commitment, and credit spreads for infrastructure assets may have shifted. A comprehensive assessment of current market conditions and Cascadia's credit profile would be required before approaching lenders.