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Executives

Amanda Wagemaker

Barry E. Welch - Chief Executive Officer, President and Director

Edward Hall

Paul H. Rapisarda - Executive Vice President of Commercial Development

Terrence Ronan - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Corporate Secretary

Analysts

Benjamin Pham - BMO Capital Markets Canada

Robert Catellier - Macquarie Research

Rupert M. Merer - National Bank Financial, Inc., Research Division

Sean Steuart - TD Securities Equity Research

Nelson Ng - RBC Capital Markets, LLC, Research Division

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Stephen Byrd - Morgan Stanley, Research Division

Jason Mandel

Atlantic Power (AT) Q2 2013 Earnings Call August 9, 2013 8:30 AM ET

Operator

Good morning, and welcome to the Atlantic Power Corporation Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Amanda Wagemaker, Investor Relations Associate. Please go ahead, ma'am.

Amanda Wagemaker

Welcome, and thank you for joining us this morning. Please note that we have provided slides to accompany today's call and webcast, which can be found in the Investor Relations section of our website, www.atlanticpower.com. This call will be available for replay on our website for a period of 3 months. Our results for the 3 and 6 months period ended June 30, 2013, were issued by press release yesterday afternoon and are available on our website and on EDGAR and SEDAR. Financial figures that we'll be presenting are stated in US dollars unless otherwise noted.

The financial results in yesterday's press release and the matters we will be discussing today include both GAAP and non-GAAP measures. GAAP to non-GAAP reconciliation information for our historical results is appended to the press release and interim report on Form 10-Q, each of which can be found in the Investor Relations section of our website.

We have not provided a reconciliation of forward-looking non-GAAP measures to the directly comparable GAAP measures because primarily due to variability and difficulty in making accurate forecasts and projections. Not all of the information necessary for a quantitative reconciliation is available to the company without unreasonable effort. We also have not reconciled non-GAAP financial measures relating to the individual projects to the directly comparable GAAP measures due to the difficulty in making the relevant adjustments on an individual project basis.

Joining us on today's call are Barry Welch, President and CEO of Atlantic Power; Ned Hall, our Executive Vice President and Chief Operating Officer; Paul Rapisarda, our Executive Vice President in Commercial Development; and Terry Ronan, our Executive Vice President and Chief Financial Officer.

Before we begin, let me remind everyone that this conference call may contain forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our various securities filings. Actual results may differ materially from such forward-looking statements.

Now let me turn the call over to Barry Welch.

Barry E. Welch

Good morning. I'd like to extend my thanks as well to all of you for joining us today. First, I'd like to preview the second quarter highlights and recent developments and then provide an update on our strategic initiatives. Then we'll discuss how our projects performed this quarter, provide an update on our Piedmont project and talk a bit about some asset optimization initiatives that we've begun. Paul will address some recent contract developments at a couple of our projects, and Terry will address the amendments to our senior credit facility that we executed last week and then review our financial results and '13 guidance.

Moving to Slide 4, our results for operating cash flow, Project Adjusted EBITDA and Cash Available for Distributions in the first 6 months keep us on track to achieve our 2013 guidance. The most significant drivers were the addition of new projects, particularly Canadian Hills and Meadow Creek, which were added at the end of December last year. Our cash flow measures also benefited from these capacity additions, but the increases were more muted than for Project Adjusted EBITDA, because these measures include cash flows from the assets that we sold in April, including the Florida projects and Path 15. This quarter, we owned these businesses for less than a month versus a full quarter contribution last year. I'm also pleased to report that we finished the second quarter with approximately $150 million of excess available cash, consistent with our mid year objective.

Turning to Slide 5, we've also continued to make progress on some of our other near-term goals. Since the end of the first quarter, we've completed the disposition of several noncore assets, resulting in approximately $208 million of net cash proceeds. This includes the closing earlier this week of our interest in the Gregory project in Texas, which resulted in net cash proceeds of approximately $35 million. Under the terms of the sale agreement, approximately $5 million of the sale proceeds will be escrowed for up to 1 year following closing. We expect the close of previously announced sale of our Delta Person project in the fourth quarter of '13, subject to receipt of all required approvals for net proceeds of approximately $9 million.

In April, we brought our Piedmont biomass project online. Last month, the project received a federal cash grant of $49.5 million and used the proceeds together with a $1.5 million equity contribution from us to cover the federal budget sequester impact to pay down $51 million of short-term debt. This follows a similar reduction in debt at our Meadow Creek project related to its receipt of a federal grant proceed earlier in the second quarter. Since the end of the first quarter we've paid down a total of $172 million of short-term debt, consistent with our goal of reducing our leverage.

Last week, we executed an amendment to our senior credit facility, which gives us additional room on its interest coverage and leverage taxes. Terry will review these key changes, but I'd like to mention that we believe the revised terms are adequate for our business and that our liquidity will be sufficient. We appreciate the cooperation shown by our bank group.

Next, I'd like to address a few strategic initiatives. As you've probably seen in this press release, we recently took actions that are expected to result in an approximate $8 million reduction to our administrative expenses and early-stage project development budget. This represents a significant reduction in these expenses.

The 3 key components of the reduction are as follows: First, consistent with our plan to focus on late stage development and operating project acquisitions, we reduced our budget for personnel and third-party cost associated with earlier-stage renewable development projects. This represented about half of the total expected G&A savings.

Second, we're consolidating our accounting and finance functions in 2 offices, Boston and Seattle, down from 3. We expect this to result in a significant reduction in our Chicago office. We're taking appropriate steps to ensure that there's a smooth transition through the completion of our '13 audit.

Third, respect to realize modest additional cost reductions from the realignment of our operational organization, and Ned will touch on some recent management changes in that area, as well as from a number of other miscellaneous areas of cost reduction throughout the organization. As is typical, we expect to incur some one-time expenses in order to implement these reductions. We expect most of these expenses to be booked in the third and fourth quarters, although there could be some carryover into the early part of '14.

On a net basis, we expect the impact on cash flow to be approximately neutral for this year. We expect we will achieve the $8 million savings figure on a run-rate basis in 2014. However, we may have some increases in unrelated cost next year, such as those associated with our asset optimization initiatives and debt reduction plans. Thus, while we expect the cost reduction to have a net benefit to '14 cash flow, we still expect our Payout Ratio to be in the range, as previously given, of 75% to 85%.

Secondly, as I mentioned on our first quarter conference call, we're in the early stages of a portfolio optimization program that will identify ways to increase additional earnings and cash flow from our existing businesses. Ned will speak to this from a plant operation side, and Paul will discuss what we see in terms of commercial opportunities. We expect to have more to say on our performance improvement efforts over the balance of the year.

Next I want to update you with respect to our plans for excess cash. More recently, we've decided to prioritize the use of a substantial amount of this cash for debt reduction in order to benefit our cash flow through lower interest expense and strengthen our balance sheet. We believe this is the most prudent choice considering our current leverage and near-term maturities profile.

In addition, we expect the combination of lower interest expense and the cost reductions we've implemented to improve our interest coverage ratio on the bank covenants, as well as our fixed charge coverage ratio in the restricted payments covenant for a high yield out. It's our goal to stay in compliance with both. Furthermore, we believe that debt reduction should help to lower our cost of capital, which should support our growth strategy by making us more competitive for future acquisitions.

Now I'd like to turn the call over to Ned.

Edward Hall

Thank you, Barry, and good morning. As you can see from Slide 6, operational performance was in line with our expectations. For the quarter, availability was 93.1%, and for the year-to-date, 94.1%. In June, our hydro projects at Mamquam and Curtis Palmer had very high water flows, pumping to recover from very low flows in the first quarter. In the second quarter and year-to-date, high winds at Canadian Hills, Rockland and Idaho Wind more than offset low winds at our Meadow Creek and Goshen facilities. Our Ontario projects benefited from cooler temperatures in the quarter than expected, with additional waste heat producing additional megawatt hours.

As we mentioned on the first quarter call, we brought Piedmont online in mid-April. Since then, we have been continuing to optimize the project's performance and operations have improved in the second quarter. We took an outage in June to address a number of warranty issues. And under the plant PPA availability factor in June, it was 90% and in July, it was 93%. However, as the result of the delay and startup, combined with low availability in April and May, the Piedmont year-to-date results were below expectations. But this has been roughly offset by some of our other businesses doing a bit better, as mentioned.

We disclosed on the first quarter call that we are in a dispute with Piedmont contractor, EPC contractor, over their performance under the contract as well as the final amounts we owe them. The formal arbitration process is now underway. We're also in discussions with the project lenders and expect to achieve conversion of the project's $75 million construction loan to a term loan later this year.

As we indicated last quarter, Piedmont's Project Adjusted EBITDA will be below full year levels due to the delay in achieving commercial operation and optimizing performance. We do not expect any project distributions in 2013. But at present, we still believe that $6 million to $8 million of annual project distributions on a full year run-rate basis remains a reasonable estimate. We'll provide an updated outlook on that estimate, as well as our expectations for next year after we've had more operating history with the projects, resolved the dispute with the EPC contractor and achieved term conversion of the construction loan.

Turning to Slide 7, we have begun a formal effort to identify optimization initiatives across our operating business. Our overall objective is to increase cash flows from our existing platform, including investing to increase output, improve efficiency or reduce operating cost. In all cases, we'll complete a financial analysis to assure ourselves that these investments are the best alternative for utilizing our capital.

Since our last conference call, we have made progress on the required environmental permit from the Ministry of Energy for our proposed project upgrade, the heat recovery steam generator at our Nipigon project in Ontario. This is an example of our optimization initiatives. However, we're encouraged by the progress, we will, of course, review the project economics before making a decision to proceed with this discretionary investment. Accordingly, we have not included the associated CapEx in our 2014 Payout Ratio guidance. If a decision were made to proceed with the project, the cash outlay would be reflected in guidance in the 2014 Payout Ratio expected to exceed the guidance range of 75% to 85%. So we will keep you updated on the project.

Another example of this type of investment already in our budget is the repowering that we're doing at our 60-megawatt Curtis Palmer hydro project in upstate New York. The 1-megawatt units 4 and 5 were installed in the early 1900s. In May, we mobilized and we expect to complete construction on both units by the third quarter of next year. Each new terminal will have a capacity of 1.5 megawatts and improve efficiency from 70% today to 92% when completed. Total investment is $5.6 million over 3 years, and we expect an average increase in cash flow of $700,000 a year, following completion of construction, representing about an 8-year payback.

We also continue to invest in inlet fogging for our gas turbine projects that can sell additional power during hot weather. We installed units at our North Island, Kapuskasing and North Bay businesses in the second quarter. The work was completed for approximately $230,000 and will provide an increase of approximately 2.8 megawatts of capacity for each of the 3 units during hot weather, and the result will be an estimated increase in cash flow of about $300,000 a year.

Lastly, I'd like to mention a couple of management additions in the operations area. In July, we hired 2 new Vice Presidents of Asset Management and Operations, Dan Rorabaugh and Pete Convery. Dan brings more than 25 years of IPP experience in asset management and power plant operations. He worked for industry-leading companies, such as Sithe Calpine and InterGen. At InterGen, Dan managed an international portfolio of more than 8,000 megawatts of generating assets. Pete is an experienced leader with 34 years of increasing responsibility, dealing with all aspects of managing IPP businesses. Pete and I worked at AES together where Pete gained significant commercial and operating experience, most recently as Vice President of Operations for North America, managing a portfolio of more than 8,000 megawatts of generating assets. Dan and Pete are proven leaders who will help us identify and implement initiatives that will increase the value of our operating businesses and position us to leverage our prep form [ph] to support growth.

Now I'd like to turn the call over to Paul.

Paul H. Rapisarda

Thank you, Ned, and good morning. I'd like to provide a brief contracting update for several of our projects. As you may have seen in our press release, we recently executed a new 5-year power and steam sales agreement with Merck at our Kenilworth project in New Jersey. This contract will begin in November and run for 5 years through September of 2018. The previous contract expired in July of last year and both sides had agreed to month-to-month extensions since then.

We're very pleased to have resolved the commercial terms around our agreement with Merck and look forward to serving the steam and power needs at their Kenilworth facility for the next 5 years. The new agreement reflects a fair balance of risk and returns to both parties and should provide cash flow comparable to or slightly better than under certain market conditions, our prior energy services agreement. I would also note that this new contract resulted in an extension of our weighted average remaining PPA life for our portfolio from 11.4 to 11.8 years.

Turning to our Greeley project in Colorado. The PPA with Public Service Company of Colorado expires at the end of this month. As we previously indicated, PSCo's most recent RFP showed no need for additional capacity until 2018. We did offer them several alternatives that we believe would have provided them additional resource flexibility. But unfortunately, we were unable to reach an agreement. Thus, we plan to shut the plant down once the PPA expires at the end of the month. As we've said in the past, this project has not been a material contributor to our results.

We also have 2 PPAs expiring in 2014: Selkirk in New York where we have an 18.5% interest and our Tunis plant in Ontario. With respect to Selkirk, as I mentioned on the first quarter conference call, we're working with the other co-owners to determine the best path to realize value after the PPA expires in August of next year. We continue to explore a variety of options, both with the steam host and various potential power off-takers. For example, the project recently submitted a proposal in the New York Power Authority's RFP for a 10-year PPA beginning in 2016. We would expect to hear more on that some time this fall.

In terms of Tunis, there's nothing significant to report since our last conference call. We have not begun direct discussions with the OPA nor are we aware that any new contracts have yet been signed with other IPPs. We are pleased though that the Minister of Energy has been very active recently in trying to advance the slow pace of discussions between the OPA and the non-utility generator community.

Once the Selkirk and Tunis PPA expirations are addressed in 2014, the next of our PPA expirations do not occur until year end 2017 and are also in Ontario. Progress in recontracting process for our Tunis project, as well as the status of the OPA's nuclear refurbishment plans, should give us better idea of the possible outcomes for our Ontario PPAs expiring in 2017 and beyond.

Finally, as part of the overall portfolio optimization efforts that both Barry and Ned discussed, we continue to evaluate potential sales of noncore assets, which could include projects in which we have only a minority interest, which have more than a merchant component due to the expiration of a contract or which are highly levered and don't produce much cash flow. We have largely completed the successful divestiture of those assets we identified for sale last year. Although we don't have any other specific assets earmarked for sale at this time, we believe that continued rationalization of our portfolio will be helpful in achieving our strategic objectives.

Now I'd like to turn the call over to Terry.

Terrence Ronan

Thank you, Paul, and good morning. This morning, I'd like to review the amendment to our senior credit facility, our financial results for the second quarter and year-to-date, our guidance, our liquidity and our thoughts on our 2014 maturities. I'll close by addressing a few new disclosures on our second quarter 10-Q filed last night.

As Barry indicated earlier, we executed an amendment to our senior credit facility last week. Slide 10 contains a summary of the provisions. The amendment itself was included in the 8-K that we filed on August 5. You may recall that on our first conference call of the -- in the first quarter, we indicated that we could potentially have an issue meeting the interest coverage ratio covenant in the facility as early as the third quarter of this year and the leverage ratio covenant as soon as early 2014. In order to avoid this outcome, we began discussions with our bank group in May and we're pleased to have executed an amendment that provides us with relief on these covenant ratios.

As we indicated in the 10-Q filed last night, we expect that we'll be able to meet the revised ratios looking out over the next 12 months. This incorporates the beneficial impact of the cost reductions we discussed earlier, as well as other factors. Let me walk you through some of the key changes.

The amendment lowered the total capacity of the revolver from $300 million to $150 million. The entire $150 million may be used for letters of credit, but our ability to borrow under or draw on the facility is limited to $25 million. However, in the past, we've borrowed on the facility only for short periods under limited circumstances such as to finance acquisitions or most recently, to bridge our remaining tax equity until syndicated, but not related to any variability in our operating cash requirements. Because we expect to be in a limited growth period, we do not review -- we do not view the reduction of the capacity of the revolver to be a constraint.

We're also required to have a cash reserve of $75 million. This is an incremental $25 million relative to the $50 million cash reserve we generally kept on hand previously. The interest coverage ratio was amended to a minimum of 1.6x, down from 2.25x; and the leverage ratio to a maximum of 7.75x, up from a 3-level step down from a maximum of 7.5x to 7.0x over time. The amendment also advances the maturity date of the facility by 8 months to March 2015 from November 2015. Spreads widened partly because of the recent reduction on our unsecured credit rating and are now at 425 basis points, up from 300. The impact on this interest expense, however, is expected be approximately neutral because of the reduction beside [ph] the facility.

Under the amendment, we're required to obtain approval from the bank group before making any acquisitions or investments. Note that under the previous facility, we are required to obtain approval for any investment that will require us to issue more than $10 million of debt. On a practical level, we expect this to have little effect as we have never really done acquisitions smaller than that size. The bank group has also approved the use of proceeds from asset sales but again, this is not a change. One change in the amendment facility is that although we are not required to seek approval to issue equity, we must have approval on the use of proceeds from issuing equity in most cases. The amendment places limitations on our ability to prepay or repurchase debt. We're free to repay or refinance any debt within 60 days of its maturity date and we're also free to prepay the USD 150 million GDP notes due in 2015 at any time.

Turning to Slide 11, it provides an overview of our financial results for the 3 and 6 months ended June 30, 2013. Results for both periods keep us on track to deliver full year 2013 guidance. Project Adjusted EBITDA increased $11 million in the quarter and $25 million in the 6-month period. In both cases, the increases were driven primarily by the new projects that ran in late in 2012, including Canadian Hills and Meadow Creek. Slides 27 and 28 in the Appendix of today's presentation provide a breakout of the most significant changes by project for the 3- and 6-month comparisons with prior year periods. Our 10-Q also provides more color in some of the underlying drivers by project and by segment.

Our comparative cash flow results were affected by several factors. Cash flows from operating activities and Cash Available for Distribution declined in the second quarter, but both experienced increases for the 6-month period. Unlike Project Adjusted EBITDA, our cash flow measures include the cash flows from assets that have been sold. We closed the sales of our Florida projects and Path 15 in mid April, so we have less than one month of cash flows from these assets in the second quarter of 2013 versus the full quarter of 2012. The impact of this was more muted on a 6-month basis than for the quarter.

We also incurred about $3 million of cash costs associated with the disposition of these assets, which are included in our cash flow result this quarter. The factors that positively affected cash flow included the addition of new projects, as well as a $9.4 million realized gain on foreign currency forward contract settlements in the second quarter. Our Cash Available for Distribution was negative $6.7 million this quarter, but our expectations for the full year are unchanged.

There are a few items worth noting that affected the results of this quarter versus last quarter. We had an approximate $3 million increase in CapEx this quarter. Slightly more than half of that was for completion of punchless items at Meadow Creek. These were delayed into 2013 due to winter weather. Had they been completed prior to commercial operation in December 2012, they would not have been included in operating cash flow. These expenditures were actually funded out of construction funds, not our operating cash flow.

We also incurred CapEx for the Curtis Palmer hydro project that Ned discussed. In late June, we contributed $1.5 million to cover the impact of sequestration on the federal grant for Piedmont, so that the project could repay the full amount of the bridge loan in July.

One other note, the Cash Available for Distribution for the 6 months of $75 million was helped by a reclassification that we made in the first quarter. Originally, we had recorded $15.5 million of construction associated with Meadow Creek into operating cash flow in the first quarter. We have reclassified that to construction in progress, which increased cash flow from operations and Cash Available for Distribution by $15.5 million for the first quarter and the 6 months ended June 30. This classification had no impact on our second quarter results.

Our dividend Payout Ratio for the 6 months ended June 30, 2013 was 48% versus 89% a year ago, primarily driven by the lower dividend level beginning in March. For the second quarter alone, our Payout Ratio was negative. I mentioned on the previous conference call, our cash flows in the second and fourth quarters are typically lower than in the first and third quarters, because of the timing of semiannual interest expense payments on high-yield notes, converts and because of seasonality.

The dividend Payout Ratio in those quarters is therefore generally higher than the full year average and at times, was exceeded 100%, and this particular quarter was negative. For the full year, however, we continue to expect a Payout Ratio in the range of 65% to 75%, including the cash flow received from our discontinued operations.

Next, I'd like to turn to our 2013 guidance metrics on Slide 12. We are affirming all of these guidance metrics which we initially provided on our fourth quarter conference call. As you can see from the slide, our 6-month Project Adjusted EBITDA of $137 million is approximately half of our full year guidance midpoint, which is in line with our expectations. Cash Available for Distribution is about 80% of our full year guidance, although this reflects the fact that the cash flow from our sold assets was all recorded in the first half of the year. Adjusting for that, we'd be at approximately 2/3 of our full year guidance.

Slide 13 bridges our 2012 Project Adjusted EBITDA to our 2013 guidance. There have been only minor changes with key drivers since last quarter and the overall guidance of $250 million to $275 million has not changed. This figure includes approximately $3 million expected for the Delta Person and Gregory projects prior to the closing of those asset sales. You may have seen in our 10-Q that we expect to record a $31 million gain on the sale of our Gregory project on the third quarter. I want to clarify that, that gain will be included in other income on our income statement and is not included in Project Adjusted EBITDA. Cash proceeds of $35 million realized on the sale of the included investing cash flows in our cash flow statement.

Slide 14, we've bridged Project Adjusted EBITDA to Cash Available for Distribution for the first 6 months as well as for our full year 2013 guidance. As a reminder, this cash metric includes cash flow from discontinued operations, specifically the Florida assets and our interest in Path 15, which were sold in April.

A few items are worth noting. Number one, cash flow from discontinued operations expected for the full year were all received in the first 6 months, as expected. In the second quarter, we realized $9 million of cash from the unwind of foreign currency forward [ph] contracts. This is included the other row, along with approximately $17 million of cash deposits returned to us in early January associated with our Canadian Hills and Meadow Creek projects. We disclosed both of these factors on our first quarter conference call.

As both are changes to working capital, they are included in Cash Available for Distribution under our definition, but we would not expect them to recur. Our full year guidance of $85 million to $100 million of Cash Available for Distribution remains the same, but we are now expecting a slightly higher proportion to come from continuing operations businesses than previously.

Slide 15 provides some information on the company's 2013 and 2014 adjust -- Project Adjusted EBITDA and cash flows and is an update on the slide we initially provided last quarter. It includes significant changes that we anticipate resulting from asset sales, contract changes, PPA expirations and plant outages, although we have not listed every possible factor that may change. This is not intended as formal guidance, but rather is designed to help you in building models for 2014.

I'd like to point out a couple of items that have changed since last quarter. We have added to the slide the expected $8 million expense reductions that were recently implemented and that we expect to realize on a run rate basis in 2014. Most of these expenses are for either -- are either for early stage project development activities or associated with our finance and accounting functions in Downers Grove. Both of these are included in project expenses. Thus most of the expected benefit will show up in higher Project Adjusted EBITDA, not lower SG&A expense.

As Barry mentioned, we could incur additional cost next year associated with our plant optimization initiatives and debt reduction objectives. We've not quantified those costs in the slide. We added a row showing that we expect there to be a reversal of the one-time positive factors affecting working capital in 2013. This had always been anticipated by us, but based on questions we've received, we thought it would be helpful to clarify this on Slide 15.

Lastly, consistent with the approach that we took in this slide last quarter, we have not attempted to provide any sensitivity around the potential contribution from a return on our excess cash balance.

At June 30, we had liquidity of $364 million, which was approximately $110 million -- up $110 million from the March 31 level. This improvement largely reflected the proceeds from asset sales that closed in April and the syndication of our tax equity interest in Canadian Hills in May. The cash portion of this liquidity was $196 million -- or $146 million net of a planned $50 million cash reserve, in line with our mid-year objective of $150 million of excess available cash.

Pro forma for the reduction and size of our amended credit facility, which became effective on August 2, our June 30 of excess available cash will be approximately $121 million, which is $25 million lower because of the increase in the amount of reserve we must carry from a planned level of $50 million to a required level of $75 million.

Slide 16 provides a walk through of our projected year end excess cash of approximately $155 million. Starting with our June 30 unrestricted cash of $196 million, we had asset sale proceeds that have or will close in the third and fourth quarters, specifically Gregory and Delta Person, totaling approximately $38 million. We then add Cash Available for Distribution and dividend payments estimated for the second half of the year. This brings us to a projected year-end cash balance of approximately $230 million. After deducting the required cash reserve of $75 million, our year end excess available cash is projected to be at $155 million. In addition to the excess cash, we would have $25 million of borrowing capacity under the amended facility.

Turning to Slide 17 to our capitalization as of June 30, 2013, we had $1.9 billion of debt, including $408 million of convertible debentures. Approximately 97% of the debt is long term. We also had $221 million of preferred equity at the corporate level. We've also presented our June 30 capitalization on a pro forma basis to reflect the repayment in July of $51 million of constructions at Piedmont, primarily using the proceeds of the federal cash grant that Barry mentioned. And as Ned mentioned, we expect the remaining $75 million construction loan at Piedmont will convert to a term loan later this year.

Turning to Slide 18, as we have indicated previously, we're committed to reducing our leverage. More recently, we have decided to prioritize reducing our debt more opportunistically, potentially using a substantial amount of our excess cash. This is likely to be the most meaningful way to receive debt reduction in the near term. We have not yet made any decisions with respect to timing, amount or type of debt.

In addition, we've also mentioned other ways to achieve modest additional debt reduction over time, including the following: Scheduled amortization of project-level debt, which averages about $22 million annually; potential repayment of our Canadian $45 million convertible debenture, maturing in October 2014 using cash, continued divestitures of non-core businesses consistent with our strategy; and acquisitions or development of projects that are helpful to our credit metrics. As can be seen on Slide 19. We have 2 debt instruments maturing in 2014, $190 million of senior unsecured notes at Curtis Palmer and the $45 million of convertible debentures I just mentioned.

Although we have previously discussed targeting a 50-50 debt-to-equity refinancing at Curtis Palmer, our present thinking is that we'll refinance this as a project-based financing. Curtis Palmer is a 60-megawatt hydro project in upstate New York with a strong PPA that runs through 2027, and we believe it would attract strong interest in the bank or private placement market. The refinancing would not reduce our leverage, but the debt would amortize over time. Regarding the convertible debenture, we to redeem it either by using cash or, depending on market conditions, by accessing the capital markets.

I'd like to conclude my remarks by briefly discussing 2 new disclosures in our June 10-Q. The first concerns our 9% senior unsecured notes. Based on our latest forecast, we believe it is likely that during the third quarter of 2014, we will not be in compliance with the provision on the restricted payments covenant of the indenture that requires us to maintain a fixed charge coverage ratio of at least 1.75x. I would note that noncompliance with this covenant does not trigger a default with respect to these notes, nor does it cause any cross defaults on any of our other debt. However, if we are not in compliance, dividend payments in the aggregate must not exceed the greater of $50 million or 2% of consolidated net assets currently $68 million.

Based on the current dividend rate, this basket would allow the payment of dividends for at least 12 months beyond the date at which we became noncompliant. It is our goal to remain in compliance with this covenant, as well the others under our amended credit facility. To that date, we're in the process of evaluating initiatives, including debt reduction, expense reduction and asset optimization in order to improve EBITDA and/or reduce interest expense. We've discussed some of those initiatives with you today.

The other 10-Q disclosure concerns the goodwill carried on our balance sheet. During the second quarter, we recorded a $3.5 million impairment of goodwill at Rollcast and we wrote off $1.4 million of capitalized development costs at Rollcast related to the Greenway biomass project.

We also determined that it was appropriate to initiate a test of our remaining goodwill, which totaled $331 million at June 30, all of which relates to the acquisition of CPILP in late 2011. We expect to complete this analysis in the third quarter. As impairments to goodwill are noncash adjustments that are not included in Project Adjusted EBITDA and do not affect cash flow, we do not expect any potential write-down will affect our EBITDA or cash flow guidance for 2013.

Now I'd like to turn the call back to Barry.

Barry E. Welch

That concludes our prepared remarks. I'd like to thank all of you for your time and attention this morning, and we're now pleased to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Ben Pham from BMO Capital Markets.

Benjamin Pham - BMO Capital Markets Canada

Just a question on the project financing environment right now in North America. Just give -- provide a general sense of where you see project finance spreads right now, particularly for contracted power [ph] assets. And how does that compare to where -- what you see on a corporate side with non-investment-grade issuers?

Barry E. Welch

Ben, it's Barry. I mean, we can address this a couple of ways. We're involved in the market over the last period of 1 year, 2 years in some of the projects that we did, and you can look at some of the swap-in rates there. You had, in general, at a high level, withdrawal of European participants that have been aggressive, and then on the other side of it, increase in lenders from Asia. But it's a relatively robust market right now in terms of spreads that we see for good projects with contracted cash flows. And Paul, I don't know, if you or Terry have further any -- some more specific comments.

Paul H. Rapisarda

I think it's -- Ben, it continued, the amount of activity, both at the project level and a number of term loan B financing at a hold co level, aggregating project cash flows. So as Terry mentioned, I think we're pretty confident we can get Curtis Palmer refinanced. It's a great asset with a great contract.

Benjamin Pham - BMO Capital Markets Canada

Okay. And then just on the Curtis Palmer. Just to clarify, the amortizing term, I'm assuming that's going to match the maturity on the PPA. And then I'm also curious, are you planning to look for possibly a structure where you're not paying principal repayments upfront like some of the deals that we've seen recently?

Barry E. Welch

Ben, I'll tell you first and I'll let -- Terry could add some comments, if he would like. It's not necessarily a given that the amortization would have to follow and complete by the end of the current PPA. With the hydro asset in particular, we see lots of deals and especially, in the private placement markets that extend out beyond the PPA, again, depending on market cost, et cetera. And so -- and some of those facilities, in terms of sort of bespoke amortizations that are customized for particular flows, there are -- there can be periods with lighter amortization at the beginning.

Terrence Ronan

Yes, I would add to that, Ben, say we have a lot of optionality with respect to Curtis Palmer just given the type of asset it is. And it would cover the whole range of private placement with a bullet to various levels of amortization throughout the PPA or beyond the PPA.

Benjamin Pham - BMO Capital Markets Canada

Okay, that's good to hear. And then lastly, when you guys look at your upcoming maturities and you make whole payments here, if you were to refinance or pay that early, and looking at the current interest rate environment, which is relatively low, it's since moved up a bit but it is relatively low, I mean, is there an economic case to refinance some of that debt ahead of time? And I know you've got the 60-day rule, right, but I mean, what about beyond, like the '15s, for example?

Terrence Ronan

Yes, I think we've got 3 options. We have 3 near-term maturities, that's Curtis Palmer, which, we know, we've talked a bit about, we think would be a pretty straightforward refinancing. We've got the October 2014 maturity of the $45 million of converts. And then we have the August 2015 maturity of the $150 million U.S. GDP notes. We're looking at all the options available and certainly any make hole [ph] that any of those would require would be considered in our analysis. Just as you mentioned, we'll do the economical analysis, we'll be looking at the market, what makes sense. But we haven't got gotten there yet on that, but we'll do all that.

Operator

Our next question is from Robert Catellier from Macquarie.

Robert Catellier - Macquarie Research

You answered my Curtis Palmer questions. But I was wondering, on the Piedmont, what a reasonable Project Adjusted EBITDA would be if the asset continues to perform in its current rate and that there isn't uplift from some of the initial struggles you've had?

Barry E. Welch

It's Barry. I think the first comment, I think, is that we do believe, and have stated in the disclosures for the quarter, that we'll get the project at the run rate of $6 million to $8 million of cash and we can look and see what that is from an EBITDA point of view, and I think we'll get you that -- the answer. And so as Ned indicated, we were at 90% and 93% availabilities in June and July. So the project is really running pretty well. It's really just upfront issues that we're starting with the contractor and so on that we got to get ourselves through. But we do see that run rate ahead, the $6 million to $8 million that I mentioned in cash would be correspondent to about a $15 million EBITDA run rate.

Robert Catellier - Macquarie Research

Okay. And as part of that arbitration process, how much capital is that risk [ph] there?

Barry E. Welch

Well, it's an arbitration, it's a private negotiation. So we wouldn't -- in a situation like that, we never have sort of put out there kind of bid [ph] asset we're involved with in a current dispute like that. It probably wouldn't be awfully helpful for us.

Robert Catellier - Macquarie Research

Okay. Just finally, in your long-term planning for asset optimizations, what really are reasonable timelines where you might be able to execute some transactions? In particular, is anything likely to occur in 2013 or 2014 before you think it might be possible that you'd trip that fixed charge coverage ratio?

Barry E. Welch

Well, I'll make a first comment and there might be other additions. Depending on the asset and how long it takes, your question -- is your question about asset sales and how long it would take to execute?

Robert Catellier - Macquarie Research

Yes.

Barry E. Welch

Yes, so I mean, I would say, on the order of 4 to 6 months is what we would estimate. And again, it depends on the asset, et cetera. And but again, sort of look at where we are now and I think '13 is a push. If we really wanted to pull the trigger very quickly, that's possible. But more likely, it will be '14. And again, plenty of time in terms of any of the issues we've talked about under the test within the restricted payments covenant and high yield indenture. And in the meantime, we'll be working on these other initiatives in terms of optimizing the asset performance and getting more out of the existing assets. And we'll give you -- we hope to give you something more quantitative down the road on that.

Operator

Our next question is Rupert Merer from National Bank.

Rupert M. Merer - National Bank Financial, Inc., Research Division

So we haven't discussed growth very much. There does seem to be a change in tone on the potential for growth investments. Just wondering if you see any opportunities for investment in growth at this point. Should we anticipate any investments in 2013? I think last quarter, we talked a little about some potential for solar power development?

Barry E. Welch

It's Barry, I'll start with -- the beginning of an answer, we definitely did talk about it on the first quarter. We have obviously shifted our emphasis in terms of the higher priority on using excess cash to reduce debt. Having said that, we've been saying basically since the dividend reduction at the end of February this year, that this is going to be a period of limited growth. And sort of consistent with that, expectations shouldn't be that there's necessarily much in the way of near term. We are tracking a number of interesting things, including the ones that are in the organic pipeline that we've got available. And obviously things that would be of more interest and sort of expecting more receptivity on the part of the revolving lender crowd will be things that are accretive on a near-term basis and friendly or accretive to credit metrics as well.

Rupert M. Merer - National Bank Financial, Inc., Research Division

Okay, great. So then our expectation over the next few quarters, it sounds like it should be that you will preserve your cash, of course, pending any potential debt repayment?

Barry E. Welch

That's right. There -- that is where the priority is and as Terry said, we're sorting the options and we'll get more clarity on that in terms of what's the best strategy for debt reduction. And in the meantime, tapping the brakes on the growth side.

Operator

Your next question is Sean Steuart from TD Securities.

Sean Steuart - TD Securities Equity Research

Few questions. First on Selkirk, can you just go into a little bit more detail on this RFP process and I guess, when you might expect to hear anything? And if you are successful, we're right to assume this is a sort of 2-year gap selling into merchant markets, is that the right way to think about it?

Barry E. Welch

Yes. So there's no specific timeline, Sean. But our expectation is we may hear something before the end of the third quarter, but it may be as simple as shortlisting a group of parties to go into more detailed discussions. They got quite a big response to it. The RFP itself was initiated in part to hedge [indiscernible] supply needs, if the state decides to shut down Indian Point. So there's a fair amount of uncertainty there that is -- I think it's probably not good to speculate on it until we get a little bit farther into the year.

Sean Steuart - TD Securities Equity Research

Okay. One question on the segmented disclosure. The Southwest fuel expenses this quarter were about $24 million, that's almost double from a year ago. Can you just give us some details what went into that number?

Terrence Ronan

Yes. I think that's one -- we're to have it [ph] a look and we'll be happy to get back with you on that one, Sean, if it's okay to follow-up with you.

Sean Steuart - TD Securities Equity Research

Okay. And then just lastly, your -- with respect to the credit facility amendments, the wording that you used today and the wording in the 10-Q is you expect to be fine on the amendment covenants for the next 12 months. I'm maybe reading between the lines here, but is that just your willingness not to give an outlook beyond the next 12 months? Or is the inference that you would expect it could be in trouble beyond the next year? How should we think about that?

Terrence Ronan

No, what we're implying is that we're looking out 12 months and you should not infer that in months 13 or 15 that there's going to be a problem. We've just looked out for 12 months, and we feel that our cushion is adequate.

Operator

Our next question is from Nelson Ng from RBC Capital Markets.

Nelson Ng - RBC Capital Markets, LLC, Research Division

I just want to touch on the priority to reduce debt. I just want to ask what your thoughts are in terms of just reducing the dividend like temporarily to accelerate the debt reduction?

Terrence Ronan

Yes. Nelson, I'll take a first cut at that. We really don't feel there's any need to do so. We got comfort in terms of guidance for '13, '14. We've got a significant buildup of cash that we've been doing through these noncore dispositions that I think puts us in a position where we can get substantial debt reduction from that. And so there's no real need to entertain something further with respect to reduction on dividend. We understand how important the investor focus is on that, and so the model is built around it.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Okay. And then just onto divestments. So a number of the assets have been divested, either had a PPA expiration or you held a minority interest. I was just wondering whether you would look to sell any assets where you have a majority interest or where the PPA contract does still have like a long-term expiration date?

Barry E. Welch

Well, it would be in the less likely category. But certainly, in terms of just, overall, looking at the business objectives and continuing to balance the debt reduction needs, et cetera, we have said that no asset is sacred. We'd look at everything. And it isn't necessarily a switch where you have to -- if you wanted to look at an asset like that, Nelson, we wouldn't necessarily have to look at going [ph] 100%. If we wanted to, we could remain as an operator, fill a minority position, et cetera. So the first ones on the list has always been to prioritize ones that are noncore or we still have a few in that category that were minority interest, we don't operate and so we'd look at those. But in terms of other ones, they're not off the table. But we'd look at different types of options as opposed to necessarily selling the whole thing, if that's something we wanted to pursue.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Okay, got it. And then just finally on the G&A cost reductions, is there like further room to reduce the G&A? I was just wondering whether the $8 million reflects kind of the low-hanging fruit or whether you've kind of cut cost to the bone.

Terrence Ronan

Yes. So in terms of how to characterize that, it's a pretty substantial reduction and we've sort of taken a look at one. In terms of low-hanging fruit, I mean, it's a significant change to consolidate the accounting finance functions that we've talked about it into 2 versus 3, so it's not a without effort type of thing. And in terms of the large chunk we refer to, the aid from the development side of the shop, it has -- that has been evolving since effectively we closed on Ridgeline and immediately began prioritizing in their pipeline the nearer-term late-stage development projects. So there may well be things we can do in addition, but I wouldn't expect to -- don't sort of imagine that there's another equivalent kind of an amount for -- or something like that available. I don't think that would be the right assumption.

Operator

Our next question is from Jeremy Rosenfield.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

First question, just on maintenance outages. I'm looking at the back half of this year and then also more importantly, in 2014. Can you just sort of detail any major outages that you have planned?

Barry E. Welch

Well, at the high level -- Jeremy, it's Barry. At the high level, we're continuing to believe that's sort of generally 30-, 35-ish major maintenance number that includes all those major -- I think what you're referring to is sort of the high [indiscernible] inspections on the gas turbines, some on the boiler overhauls, et cetera. We would be roughly within that range. In terms of individual facilities, we could go over that with you as a follow-up in detail. We did have, on Slide 15, some of the larger puts and takes in terms of '14 relative to '13. And so there, you'd see, basically in '13, they'd begun in Tunis, and so that was $9 million that would be better in '14 versus '13. Williams Lake was a significant outage in '14, making '14 $5 million worse than '13. So those are a couple of the bigger ones that we've pulled out.

Stephen Byrd - Morgan Stanley, Research Division

Okay. And everything presumably else would be below sort of the $5 million level on an individual basis?

Barry E. Welch

Yes, I think that's right because we were trying to pull out the big ones.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay. And in aggregate, I guess, if you add them up, they wouldn't sort of be more than those items combined?

Barry E. Welch

If we -- we don't see significant bumps relative to the 35, other than things like -- obviously, Nipigon, a discrete growth project where we're going to make an investment decision if we get through further in the process, et cetera. But that's a unique one. When we look at project optimization in terms of Ned areas, it's one where we're a little less clear of what we'll uncover there. If we have good projects that have good returns to the portfolio, we'll look at funding those and sort of put that into the mix. But we do still think, overall, for the existing fleet, generally, major maintenance would still be in this 30 or 35 range, roughly.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay, great. Two other questions -- just on potential acquisitions that could be credit positive, are you thinking here of stuff like what you did with the Canadian Hills project, with tax equity involved so that there doesn't have to be a lot of debt? Is that sort of the type of acquisitions that you were thinking of?

Barry E. Welch

Well, that is one example, Jeremy, because obviously, the tax equity allows the cap structure to be lightly levered and that was the case in Canadian Hills. But generally speaking, we do see opportunities where it's not necessary to take on a somewhat more typical project finance leverage level. And as you know, those can run anywhere from 50% to 75%, in some cases higher than that. So what we're looking at when we're seeing opportunities is to stack them to where the ones that are clearly going to be credit unfriendly, they're just at the bottom of the pile. And an example of that would be something that already comes as an acquisition, for example. It already comes with a significant amount of gearing on it and/or something over [ph] that, where in order to make the returns work, you got to put enough gearing in it. And again, it would be not good for us in terms of the impact to our metrics.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay, great. Maybe just one final question on sort of credit ratings and how sort of you see the path of getting the overall credit structure back in a more positive direction, let's say, going forward? What are the items you think that you sort of need to hit most, is it sort of cash flow interest coverage that needs to be stronger to get yourself in a better financial position, or is it maybe total debt to total capitalization? What are the things that you're looking at here?

Barry E. Welch

I'll make one comment and I'll let Terry comment as well. I mean, there are quite a few factors that the agencies look at and different agencies are looking at different ones. Clearly, the overall lever of -- level of leverage reflected in a variety of those metrics that you're referencing are all of interest, and it's all part of the thinking behind prioritizing the debt reduction. I think just historically and presumably, everyone on the call understands that the agency process, from a trajectory point of view, addressing timing, is such that it takes a significant amount of time to move yourself back on the other side of the kind of downgrades that we've got. And so we don't want to build an expectation that just because we're addressing leverage in the near term, it's a quick process of doing that. And then, Terry, I don't know if you have any other comments.

Terrence Ronan

Yes, I think we've talked quite a bit today about prioritizing debt reduction. That's something that we've given a lot of thought to ourselves. And clearly, the rating agencies and the banks are signaling much of the same. So our view is we're going to prioritize debt reduction and any additional cost reductions we can. That's important for us to reduce our cost of capital and become more competitive to fulfill our own business objectives of growth beyond that.

Operator

We have a question from Robert Catellier from Macquarie.

Robert Catellier - Macquarie Research

My follow-up question is, I'm curious to know whether the 2014 payout guidance -- Payout Ratio guidance includes any expected debt amortization from Curtis Palmer, or debt reduction perhaps refinancing or just repaying the convertible debentures that are due?

Barry E. Welch

Go ahead.

Terrence Ronan

Yes, I mean, Curtis Palmer, isn't going to be refinanced until next July. The amortization will start right away, but if we did it in the bank or private placement market, we would expect that it would amortize over time, and that would be a method of debt reduction there. And our current view is that we'll refinance that convert with cash if the market were available. It's possible we do it in the debt market, but right now, I think we're looking at cash.

Robert Catellier - Macquarie Research

And so that's included the Payout Ratio guidance for 2014?

Edward Hall

Right. And it doesn't mature until October of 2014, so it's really not going to have a material impact for 2014 guidance.

Operator

Our next question is from Jason Mandel from RBC Capital Markets.

Jason Mandel

I just want to clarify for a moment, on the Curtis Palmer repowering of the 2 units and the additional capacity. That additional capacity, is that going -- is that portion going to be sold under the contract to [indiscernible] at the high prices? Or is that portion gets sold into the merchant market?

Barry E. Welch

Sold as part of the PPA.

Jason Mandel

Okay. So you basically pull forward the PPA contracts and maybe expire sooner, but you bring those contracts into the nearer periods?

Barry E. Welch

Yes. It's a small amount [ph]. [indiscernible] megawatt units. It's small though, right, it means that the 1-megawatt turbine is going to 1.5 megawatts.

Terrence Ronan

And the whole facility is actually [ph].

Jason Mandel

Got you. Okay, fine. And then lastly, just to add onto that, for the refinancing that we've talked about a lot already in the Q&A for Curtis Palmer, any thought to including the U.S. operations of that Capital Power side of the capital structure and refinancing that whole U.S. GDP and Curtis Palmer's all into one more security, even if not project standout [ph]?

Barry E. Welch

Well, I don't think it would be very simple process to go about doing something that you've suggested and putting that much burden down on the project. There are a fair amount of interrelationships in terms of those pieces of debt. It's not something that we absolutely wouldn't look at, but it's a pretty tough puzzle to do.

Operator

This will conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Barry E. Welch

Thank you very much again for your time and attention today and your continued interest in Atlantic Power. Goodbye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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