Energy Capital Partners raises $1.2 bln fund to extend Terra-Gen ownership

ECP Emerging Growth

01/04/2021 17:30

By David French and Chibuike Oguh
    April 1 (Reuters) - Energy Capital Partners (ECP) raised a
$1.2 billion fund that it used to buy a 50% stake in U.S.
renewable power and storage developer Terra-Gen from another of
its funds, the private equity firm told Reuters on Thursday.
    The deal pays out investors in the fund Energy Capital
Partners III, after the buyout firm invested in Terra-Gen in
2015. It also allows ECP to continue earning fees for managing
the stake in the new fund.
    For Terra-Gen, the fund provides capital to support
developing new projects, something that ECP III would not have
been able to do as its cash was already fully deployed.
    "Fund 3 didn't have the capital to keep up with all their
growth, so this brings in new capital and also makes money for
the original investors," ECP Founder Doug Kimmelman said in an
interview.
    Dubbed "continuation funds," these capital pools have become
increasingly popular in the last few months as private equity
firms use them to keep investing in companies they believe will
grow further while also allowing investors to cash out from
their fund investments.
    Kimmelman said about 20% of ECP III investors joined the
continuation fund. He added that units of Blackstone Group Inc
 BX.N  and Goldman Sachs Group  GS.N , as well as Partners Group
Holding  PGHN.S  and Hamilton Lane Inc  HLNE.O  were among the
new investors that joined.
    Having originally acquired all of Terra-Gen in 2015 for an
undisclosed amount, ECP sold half its holding last year to
Sydney-based First Sentier Investors. 
    The continuation fund bought its 50% stake at the same $1.2
billion valuation as the Australian asset manager last year,
Kimmelman said. ECP III investors will make a "good profit," but
Kimmelman declined to say how much. The continuation fund is
targeting a high-teens return, he added.
    While ECP III had until 2024 to offload its remaining
position, the continuation fund gives Terra-Gen extra time and
money to complete a slew of projects coming online in the next
couple of years, making it a more valuable exit for ECP,
Kimmelman said.
    The projects include the Edwards & Sanborn solar and storage
scheme in California, billed as the world's largest project
combining the two elements.
    ECP is unlikely to hold the Terra-Gen stake for the full
life of the continuation fund, which has an initial five-year
horizon, Kimmelman said.
    Founded in 2007, Terra-Gen is one of the largest renewable
energy developers in the United States, operating more than
1,600 megawatts of wind, solar, and geothermal facilities in
states including California, Colorado, and Texas.

 (Reporting by David French and Chibuike Oguh in New York
Editing by Marguerita Choy)
 ((davidj.french@thomsonreuters.com;))