10:57 AM EDT, 05/28/2024 (MT Newswires) -- Algonquin Power & Utilities ( AQNB ) said on Tuesday that it backs Energy Capital Partners' proposed US$2.56 billion acquisition of Atlantica Sustainable Infrastructure.

Algonquin subsidiary Liberty (AY Holdings) B.V. holds a 42% stake in Atlantica, which the deal values at US$1.08 billion. Energy Capital Partners will pay US$22.00 per share in cash for Atlantica.

Algonquin expects to use the proceeds to help reduce debt and recapitalize its balance sheet.

"The exit of our financial investment in Atlantica is another step forward in our strategic transition as we simplify our structure and focus on becoming a pure-play regulated utility," Algonquin CEO Chris Huskilson said.

Atlantica expects the transaction to close in the fourth quarter or early next year.

Meanwhile, Algonquin maintained its Sector Perform rating and US$7.25 price target from National Bank of Canada following the news. National's US$7.25/sh target is based on an 8.25% discount rate based on a long-term DCF.

"AQN continues to make the right moves to transition to a pure-play regulated utility, and we are getting more constructive on the company, though the outcome of selling the renewable portfolio is sensitive to a number of assumptions," the bank said.

Under a sub heading "Job's not finished", National noted AQN remains committed to the reduction of debt, supported by the sale of its renewable assets. The company is targeting an announcement on the sale of its assets by the middle of the year and a close of a transaction by the end of 2024E. National believes AQN's renewable assets could fetch a purchase price between $3.0-$3.5 bln (with consolidation of development assets). According to the bank, the initial use of proceeds would largely be used to repay debt, to ensure its FFO/debt at about 13%, with excess capital used to buy back shares. AQN could sell its hydro assets separately from the rest of its assets, though a sale process for the hydro assets has not started yet (National estimates it could be near 10% of the total value).

Algonquin's share price was down 1.1% at last look to $8.79 in Canada.

Price: 8.79, Change: -0.10, Percent Change: -1.12