News Release

Capstone Infrastructure Corporation Acquires Majority Interest in UK Water Facility

Toronto, Ontario (October 5, 2011) – Capstone Infrastructure Corporation (TSX: CSE; CSE.PR.A; CSE.DB.A – “CSE” or the “Corporation”) today announced it has acquired a 70% interest in Bristol Water, which is a regulated water utility in the United Kingdom, from SUEZ ENVIRONNEMENT through its subsidiary, AGBAR (Sociedad General de Aguas de Barcelona), for approximately $215 million.   The purchase price was funded through a combination of existing credit facilities, cash on hand and a new $150-million senior debt facility.  All amounts are in Canadian dollars unless otherwise noted. 

“Bristol Water is an established, core infrastructure business with regulated and predictable inflation-linked cash flow and a strong growth profile in a stable OECD country, making it an ideal complement to our existing portfolio,” said Michael Bernstein, President and Chief Executive Officer of the Corporation. “This is a platform investment that builds on our international footprint, diversifies our portfolio by infrastructure category, and is expected to contribute to the long-term sustainability of our dividends to shareholders.  We are equally delighted to partner with AGBAR, which brings more than 140 years of experience in the water sector globally and shares our commitment to quality service, outstanding performance and efficient, environmentally responsible operations.” 

SUEZ ENVIRONNEMENT, through its subsidiary AGBAR, will continue to hold a 30% interest in Bristol Water.  AGBAR, which is headquartered in Spain with operations in nine countries, is approximately 75% owned by SUEZ ENVIRONNEMENT, which is a world leader in water and waste management services.  AGBAR will continue to provide strategic counsel on trends and operational innovations within the global water services industry under an operational and management agreement. 

Josep Bagué, Chief Financial Officer and General Secretary of AGBAR, stated, “We are delighted to have secured, in Capstone, a long-term partner for Bristol Water.  Bristol Water has a track record of excellent operational performance and is poised for rapid expansion in the years ahead.  The Capstone team brings significant infrastructure investment and management expertise, including in the water utility sector, and a strong commitment to building lasting stakeholder relationships.  Capstone is an ideal fit for Bristol Water and we look forward to a long and successful partnership.” 

Investment Merits

This acquisition will significantly increase the size, value and diversity of the Corporation’s portfolio and is expected to deliver stable cash flow to shareholders: 

Platform investment in a new core infrastructure category.  The acquisition of Bristol Water provides the Corporation with a platform investment in a new infrastructure category, positioning it to pursue additional growth opportunities in the water infrastructure sector globally. Numerous North American, European and Australian pension funds and other institutional investors have emerged in recent years as significant investors in the water infrastructure sector, seeking the stable, long-term cash flow and growth potential offered by water utilities.  The average annual  global investment needed to repair, maintain, improve and build new water and wastewater infrastructure is estimated to be US$772 billion per year by 2015.[1]

Diversifies the Corporation’s cash flow by asset type and geography.  With this acquisition, the Corporation extends its footprint in Europe and diversifies its portfolio by asset type. In 2012, approximately 18% of the Corporation’s Adjusted Funds from Operations (“AFFO”) is anticipated to be generated by Bristol Water.  Värmevärden, the Corporation’s district heating business in Sweden, is anticipated to contribute approximately 11%; the Cardinal gas cogeneration facility, 42%; Erie Shores Wind Farm, 10%; the hydro power facilities, 7%; the Whitecourt biomass facility, 5%; the Amherstburg Solar Park, 5%; and the Chapais biomass facility, 2%.

Regulated, perpetual business that offers long-term cash flow and value accretion.  As a perpetual business with a strong competitive position, Bristol Water significantly extends the average life of Capstone’s cash flows.  Additionally, the regulated nature of the business provides for recovery of operating costs and allowance for a fair return. 

Expected to deliver an attractive total return.  The Corporation’s investment in Bristol Water is expected to deliver a total return[2] at the lower end of the Corporation’s targeted 10 – 14% range, reflecting the quality, stability and longevity of Bristol Water’s business.  

Key Transaction Metrics

The terms of the Corporation’s acquisition of Bristol Water imply a value equal to approximately 1.2 times[3] the regulated capital value (“RCV”) of the business and an EV/EBITDA multiple of approximately 8.2 times[4], comparing favourably with recent transactions in the sector.  The RCV of the business as at the fiscal year ended March 31, 2011 was approximately $505 million.  The enterprise value of the business was approximately $617 million[5] as at June 30, 2011.

Key Business Drivers

Founded in 1846 and located in the Bristol region of the United Kingdom, Bristol Water is responsible for the abstraction, treatment, storage and distribution of water, supplying approximately 278 million litres of water every day to over 1.1 million people and businesses in an area of approximately 2,400 square kilometres.  Bristol Water’s system encompasses: 26 water sources, including reservoirs, rivers, springs and wells; 6,670 kilometres of water mains; 164 pumping stations; and 139 covered storage reservoirs. 

Bristol Water, which has approximately 440 employees, is one of 11 regulated Water-Only Companies (“WOC”) in England and Wales and is the sole water supplier in the Bristol area.  Bristol Water has a history of stable cash flow and is expected to achieve annual growth in EBITDA of approximately 8% from 2012 to the end of the current asset management plan period (“AMP5”), which runs until March 2015.  

Key drivers of Bristol Water’s business include: 

A stable regulatory regime.  Bristol Water is regulated by the UK Water Services Regulation Authority (“Ofwat”) through a price cap mechanism on five-year rate cycles.  The current five-year period is AMP5. The revenue target set by Ofwat provides for recovery of operating costs and allows for a reasonable return on invested capital. Bristol Water’s revenues have historically increased in line with the regulatory allowance and feature a real as well as an inflation component, thereby offering a natural inflation hedge.  For the AMP5 period, the company istargeted to realize a post-tax real return on equity of 6.60% (pre-inflation) based on the 40% deemed common equity component of Bristol Water’s capital structure.

Continuing capital improvements and rate base growth. 
Bristol Water expects to execute a significant capital expenditure program in the years ahead to maintain and improve its infrastructure and operations, to continue to meet water quality requirements, and to support growth arising from an increasing population and expanded business activity in the region.  As a result, the company’s RCV is anticipated to grow considerably.  Bristol Water had approximately $132 million of cash on hand that can be invested in its growth program.  Bristol Water’s RCV is anticipated to grow by approximately 26% over the AMP5 period compared with an industry average of approximately 8% over the same period.   

Financing Details

The Corporation’s approximately $215 million investment was funded through a combination of existing credit facilities, cash on hand and a new $150-million senior debt facility provided by a subsidiary of Macquarie Group Limited.  The senior debt facility carries a term of 12 months and initially bears monthly interest at an annual rate equal to the Canadian Dealer Offered Rate (“CDOR”) plus a specified margin.  The annual interest rate payable on the senior debt facility is approximately 4.75% initially and it will increase to a maximum rate of approximately 7.25% after nine months, assuming no change in CDOR during that period.   Future sources of capital to refinance the new senior debt facility include a potential offering of the Corporation’s securities, proceeds from a future recapitalization of Värmevärden, internally-generated cash flows and the addition of holding company debt at Bristol Water, or any combination thereof.


With the addition of Bristol Water to its portfolio, and excluding internalization costs, the Corporation expects its fiscal 2011 Adjusted EBITDA to be approximately $75 million compared with approximately $60 million as previously stated.  Based on the current financing structure, the Corporation expects its 2011 payout ratio, which is based on Adjusted Funds from Operations (“AFFO”) and excludes internalization costs, to remain consistent with the previously provided outlook of approximately 120%. 

For 2012, the Corporation now expects Adjusted EBITDA to be approximately $140 million compared with approximately $80 million previously.  The 2012 payout ratio, which is based on AFFO, is expected to be consistent with the previously provided outlook of approximately 85% to 90%.  Based on its existing portfolio, outlook and current dividend level, the Corporation anticipates that its payout ratio will remain less than 100% through 2014, subject to the continuing execution of the Corporation’s growth strategy, which could include development projects or businesses with a strong growth profile that may cause the payout ratio to fluctuate in any given year. 

With the assumption of Bristol Water’s approximately $440 million in long-term debt and reflecting the impact of the transaction financing, the Corporation’s debt to capitalization ratio is expected to increase from 39.3% as at June 30, 2011 to approximately 60%, an amount consistent with the low risk profile of the Corporation’s business.  

Bristol Water’s stable, regulated cash flow profile supports the Corporation’s ability to sustain its current dividend of $0.66 per share on an annualized basis through 2014, subject to any significant unexpected events or an unfavourable resolution on the terms of a new contract at the Cardinal gas cogeneration facility. 


The Corporation was advised on the transaction by Macquarie Capital (Europe) Limited, a subsidiary of Macquarie Group Limited.

Conference Call and Webcast

Management will hold a conference call (with accompanying slides) today at 9:30 a.m. ET.  The event will be accessible via webcast through the Corporation’s website with accompanying slides at and by telephone. To listen to the call from Canada or the United States, dial 1-800-319-4610. If calling from elsewhere, dial +1-604-638-5340.  A replay of the call will be available until October 19, 2011. For the replay, from Canada or the United States, dial 1-800-319-6413 and enter the code 1385#. From elsewhere, dial +1-604-638-9010 and enter the code 1385#.   

About Capstone Infrastructure Corporation

Capstone Infrastructure Corporation’s mission is to build and responsibly manage a high quality portfolio of infrastructure businesses in Canada and internationally in order to deliver a superior total return to shareholders through a combination of stable dividends and capital appreciation.  The Corporation’s portfolio currently includes investments in gas cogeneration, wind, hydro, biomass and solar power generating facilities, representing approximately 370 MW of installed capacity, a 33.3% interest in a district heating business in Sweden, and a 70% interest in Bristol Water, a regulated water utility in the United Kingdom.  Please visit for more information.

Notice to Readers

Certain of the statements contained in this news release are forward-looking and reflect management’s expectations regarding the Corporation’s future growth, results of operations, performance and business based on information currently available to the Corporation. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “estimate”, “believe” or other similar words. These statements are subject to significant known and unknown risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements in this news release are based on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions for each of the Corporation’s assets set out in its fiscal 2010 Annual Report under the heading “Asset Performance” as updated in subsequently filed Quarterly Financial Reports of the Corporation and other filings made by the Corporation with the Canadian securities regulatory authorities (such documents are available on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”) at Other material factors or assumptions that were applied in formulating the forward-looking statements contained herein include the assumption that the business and economic conditions affecting the Corporation’s operations will continue substantially in their current state, including, with respect to industry conditions, general levels of economic activity, regulations, weather, taxes and interest rates, and that there will be no unplanned material changes to the Corporation’s facilities, equipment or contractual arrangements. 

Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forward-looking statements, actual results may differ from those suggested by the forward-looking statements for various reasons, including risks related to: power infrastructure (operational performance; power purchase agreements; fuel costs and supply; contract performance; development risk; technology risk; default under credit agreements; land tenure and related rights; regulatory regime and permits; environmental, health and safety; climate change and the environment; and force majeure) and the Corporation (tax-related risks; variability and payment of dividends, which are not guaranteed; geographic concentration and non-diversification; insurance; environmental, health and safety regime; availability of financing; shareholder dilution; and the unpredictability and volatility of the common share price of the Corporation). There are also a number of risks related to the Corporation’s investment in Värmevärden, the district heating business in Sweden, including: fuel costs and availability; industrial and residential contracts; geographic concentration; regulatory environment; environmental, health and safety; reliance on key personnel; labour relations; assumption of liabilities; minority interest; and foreign exchange. There is also a risk that Värmevärden may not achieve expected results. There are also a number of risks related to Bristol Water’s business, including operational (contamination or interruption of water resources/supplies; failure of key assets to maintain expected outputs; climate/weather pattern change adversely affecting resource availability), regulatory (failure to meet existing regulatory requirements; increased costs of meeting regulatory requirements; impact of legislative changes; including those related to environmental or drinking water quality requirements; development of competition within the water sector; impact of future periodic and/or interim determinations of price limits by Ofwat) and financial (loss of major customers as a result of closure of their facilities; pension funding requirements and changes in pension regulations that could have a significant impact on future company contributions; worsening debt collection experience; increases in energy prices; changes in the taxation regime applicable to the company; failure to meet banking covenants).

For a more comprehensive description of these and other possible risks, please see the Corporation’s Annual Information Form dated March 24, 2011 for the year ended December 31, 2010 as updated in subsequently filed Quarterly Financial Reports and other filings made by the Corporation with the Canadian securities regulatory authorities. These filings are available on SEDAR. The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to differ materially from the results and events discussed in the forward-looking statements. These forward-looking statements reflect current expectations of the Corporation as at the date of this news release and speak only as at the date of this news release. Except as may be required by law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements.

[1] Infrastructure to 2030, Organization for Economic Cooperation and Development, 2007.

[2] Return range is on a levered and post-tax, post-foreign exchange hedging basis.

[3] Based on RCV as at fiscal year ended March 31, 2011.

[4] Based on EBITDA for the 12 months ended June 30, 2011.

[5] Enterprise value based on 100% of debt and cash of approximately $132 million as at June 30, 2011 and assumes a currency exchange rate of 1 GBP: 1.63 CAD.

[6] The outlook for 2011 excludes the impact of internalization costs.  The outlook for both 2011 and 2012 assumes the impact of the current financing structure for the acquisition of Bristol Water.  The Corporation’s outlook for 2012 also assumes a full year of contribution from the Amherstburg Solar Park and Värmevärden as well as a return to 2010 TransCanada Pipelines Limited gas transportation rates.