On September 25, 2018, Inter Pipeline Ltd. (“Inter Pipeline”) completed its divestiture of the Heartland Petrochemical Complex’s Central Utility Block (“CUB”) to Fengate Capital Management (“Fengate”), a privately held infrastructure and real estate investment firm.
Under the terms of the sale, Inter Pipeline will recover all of its development capital and Fengate will assume responsibility for funding the CUB capital cost, currently estimated at $600 million. Fengate has also entered into long-term agreements to supply core utilities to Inter Pipeline’s Heartland Petrochemical Complex in exchange for structured capital and operating recovery fee payments from Inter Pipeline.
The CUB is a 102 MW natural gas-powered cogeneration facility capable of supplying Inter Pipeline with electricity, steam and other key utilities for its 100% owned Heartland Complex near Edmonton, Alberta. The $3.5 billion complex, which excludes the CUB capital cost, consists of integrated propane dehydrogenation and polypropylene plants. The complex will convert locally sourced, low-cost propane into 525,000 tonnes per year of polypropylene pellets. Construction of the Heartland Complex is in progress with completion scheduled for late 2021.
With the sale of the CUB to Fengate, Inter Pipeline recovered approximately $50 million of development capital incurred to date in a lump sum closing payment. Fengate is responsible for funding the remainder of the CUB capital cost on an ongoing basis.
Fengate has engaged Inter Pipeline to manage the construction of the CUB and the day-to-day operations of the facility once in service. This helps ensure that the CUB, which will be highly integrated with the Heartland Complex, will be managed safely and efficiently for the long-term benefit of both Fengate and Inter Pipeline. When in service, the capital fee paid to Fengate will be adjusted upward or downward based on final construction costs.
The CUB is expected to be in service by mid-2021, in order to provide utilities for the commissioning of the Heartland Complex.
The senior secured, non-recourse project financing for the acquisition and subsequent construction was provided by a syndicate of lenders consisting of MUFG Bank, Ltd., Canada Branch, Sumitomo Mitsui Banking Corporation, Canada Branch, Canadian Imperial Bank of Commerce, National Bank of Canada, Mizuho Bank, Ltd., Siemens Financial Ltd., Metropolitan Life Insurance Company and Sumitomo Mitsui Trust Bank, Limited, New York Branch.
Inter Pipeline was represented internally by Kent Chicilo, Associate General Counsel, with a team including Kristen Simpson, Senior Legal Counsel and Jennifer Asquin, Legal Counsel. Torys LLP acted as counsel to Inter Pipeline, with a team including Chris Christopher, Ian Gordon, Carla Hunt, Jessie Mann, Carleigh Kennedy and Tanis Makowsky (Energy and Infrastructure), Kevin Fougere (Finance), Andrew Bedford (Real Estate), Craig Maurice (Tax), David Wood (Litigation), Tyson Dyck (Environmental), and Lou Cusano and Evan Dickinson (Regulatory).
Fengate was represented internally by Vernita Tsang, Vice President, Legal. Davies Ward Phillips & Vineberg LLP acted as counsel to Fengate, with a team including Will Buchner, Anthony Spadaro and Angela Susac (Energy and Infrastructure), Sarah Powell (Environmental and Regulatory) and Pawel Mielcarek (Real Estate). McLennan Ross LLP acted as Alberta local counsel, with a team including Doug Evanchuk and Adrian Sherman (Real Estate) and JoAnn Jamieson (Regulatory).
The Lenders were represented by a team from McCarthy Tétrault LLP, comprised of Stephen Furlan (Team Lead), Seán O'Neill (Power), Kerri Lui, Lynn Parsons, and Taha Qureshi (Financial Services), Scott Chalmers (Construction), Kimberly Howard (Environmental and Regulatory), Candace Pallone (Derivatives), and Mark Christensen and Elizabeth Rafferty (Real Estate).