REG - US Solar Fund PLC US Solar Fund - USFP - Market Update

Us Solar FundAnnouncement

07/08/2023 07:00

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RNS Number : 4273I  US Solar Fund PLC  07 August 2023

 

7 August 2023

US SOLAR FUND PLC ("USF", or the "Company")

MARKET UPDATE

 

Ahead of the announcement of the Company's interim results for the period to
30 June 2023 expected to be released in September, the Board is pleased to
provide the following market and operational update.

 

Portfolio update and macroeconomic outlook

 

During the first half of 2023, the Company's underlying portfolio performance
has continued to improve over 2022 however weather conditions have been
challenging.

 

The portfolio's resilience in challenging macroeconomic conditions can be
attributed to:

 

·      High-quality generation assets. The portfolio's performance
demonstrates the lower operational volatility of solar generation assets
however weather conditions in the first half of 2023 have been poor compared
with 2022. Pleasingly, non-weather losses such as outages and asset
unavailability improved by approximately 20% in the first half of 2023
compared with 2022. USF's portfolio is geographically diverse and has not been
affected by changes in certain energy markets (such as Texas) where major
weather-related events have led to volatility in asset values.

 

·      Highly predictable revenues earned from long-term Power Purchase
Agreements (PPAs). Cashflows generated by the portfolio are highly
predictable. The electricity generated by USF's assets is contracted under
fixed-price PPAs for a weighted average term remaining of 12.4 years from 30
June 2023. Over 95% of the revenues forecast to be received over the next nine
years are contracted payments earned under fixed price PPAs.

 

·      Stabilising US risk free rates. US Treasuries have stabilised
during the period compared to prior periods and compared with UK and European
equivalent instruments. The net asset value (NAV) of the portfolio is
determined through an independent valuation which uses, as a risk-free proxy,
the equivalent term (20 year) US Treasury rate which was 4.1% at 31 December
2022 and remained unchanged at 30 June 2023.

 

·      Fully hedged debt facilities. The Company's amortising debt
facilities benefit from protections in relation to changes in base rates. This
is due to the underlying base interest rates having been hedged for the full
expected amortisation period. These hedging arrangements are currently
significantly in-the-money due to the increased interest rate environment.

 

The Board is satisfied with the improving performance of the portfolio and the
continued stability of cashflows over this first six months of 2023.

 

Outlook for NAV and dividend cover based on macroeconomic forecasts and the
outcome of the Strategic Review

 

The Company will publish its interim results in September which will include a
30 June 2023 NAV. The following commentary on NAV is therefore subject to
conclusion of the customary half-year review by USF's auditors which is
currently underway.

 

Consistent with previous periods, the revised NAV will reflect changes to the
macroeconomic environment since 31 December 2022.

 

Importantly, the revised NAV will also reflect the outcome of the recently
concluded strategic review where USF's independent valuer will take into
account that the sales process initiated by the Board in October 2022 did not
result in receipt of any offers considered to be in the best interests of
shareholders. The independent valuer will also compare the value of USF's
projects to the valuations implied by recent transactions in the US renewables
sector. Although risk-free rates have steadied, these considerations are
expected to result in higher asset risk premiums for USF's portfolio assets,
and place downward pressure on NAV. The Board considers that the independent
valuer's approach will appropriately reflect the inherent value of the assets
adjusted for current market conditions.

 

Inflation, which generally has a positive impact on the Company's NAV by
increasing expectations for future energy prices, is expected to negatively
impact the Company's short to medium term portfolio cashflows. This is a
result of forecast increases in insurance, wage and equipment costs which may
materialise on expiry of those related contracts versus the more stable
revenue from USF's long-term PPAs. Sustained high inflation should be expected
to increase NAV but reduce near term operational cashflows and result in in
reduced levels of dividend coverage.

 

The Company has delivered average annual dividend growth of 1.5% in each
consecutive year since the portfolio became fully operational. Given the
potential for operating cash shortfalls as described above in the medium term,
the Board will issue revised guidance around any lower dividend targets, if
necessary, in future periods.

 

The Company continues to expect the 2023 dividend to be covered with net
operating cashflows (including the gain on the sale of USF's 50% interest in
MS2).

 

Strategy for managing the current share price discount to NAV

 

The Board remains committed to the creation and delivery of long-term
shareholder value. It continues to believe the discount to NAV at which the
Company's shares are trading does not reflect the value of the Company, even
taking into account the above factors. The key steps currently being taken by
the Board to proactively address this are consistent with the Company's
established approach and include:

·      Continuing to focus on efficient balance sheet management. The
Board confirms that it is currently not seeking new investment opportunities
given the substantial discount to NAV. The Company's $40m revolving credit
facility (RCF) is currently undrawn. Taken together with unrestricted cash
balances of approximately $45m, the Company remains in a comfortable position
in relation to its short-term cash requirements; and

 

·      Realising value from existing investments where it is prudent and
possible to do so and utilising available proceeds to return excess capital to
Shareholders, improve the overall attractiveness of the remaining portfolio to
potential buyers and/or reduce overall debt levels.

 

Investment management update

USF announced on 10 July 2023 it had mutually agreed with its current
investment manager, New Energy Solar Manager Pty Limited (NESM), that USF's
existing investment management agreement will not extend beyond the expiry of
the initial five-year term in April 2024.

USF is pleased to announce that it has granted a potential new investment
manager a period of exclusivity during which the parties will seek to
negotiate a new investment management agreement and obtain the necessary
regulatory and shareholder approvals required for the potential new manager to
replace NESM as USF's investment manager.

Further details will be announced within the next two weeks.

 

 

For further information, please contact:

 US Solar Fund                    +1 718 230 4329

 Whitney Voute

 Cenkos Securities plc            +44 20 7397 8900

 James King

 Tunga Chigovanyika

 Will Talkington

 Jefferies International Limited  +44 20 7029 8000

 Stuart Klein

 Gaudi Le Roux

 KL Communications                +44 20 3995 6699
 Charles Gorman

 Charlotte Francis

 Amy Levingston Smith

 

About US Solar Fund plc

US Solar Fund plc, established in 2019, listed on the premium segment of
the London Stock Exchange in April 2019. The Company's investment objective
is to provide investors with attractive and sustainable dividends with an
element of capital growth by owning and operating solar power assets in North
America and other OECD countries in the Americas.

The solar power assets that the Company acquires or constructs are expected to
have an asset life of at least 30 years and generate stable and uncorrelated
cash flows by selling electricity to creditworthy off-takers under long-term
PPAs. Following the sale of the Company's 50% interest in Mount Signal 2, the
Company's portfolio currently consists of 41 operational solar projects with a
total capacity of 443MW(DC), all located in the United States.

Further information on the Company can be found on its website
at http://www.ussolarfund.co.uk (http://www.ussolarfund.co.uk/) .

 

About the Investment Manager

 

USF is managed by New Energy Solar Manager (NESM). NESM also manages New
Energy Solar Limited, a fund previously listed on the Australian Securities
Exchange (ASX). Combined, US Solar Fund and New Energy Solar have
committed approximately US$1.3 billion to 57 projects totaling 1.2GW(DC).

 

NESM is owned by E&P Funds, the funds management division of E&P
Financial Group Limited, an ASX listed company (ASX: EP1) with over A$20
billion of funds under advice.

 

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