With memories of 2008 fresh and worries of European credit contagion surging, it's no wonder investors discount companies with perceived transaction risk.
That's certainly true of Atlantic Power Corp (TSX: ATP, NYSE: AT), which is raising debt and equity capital to fund a 300-megawatt wind plant in Oklahoma.
The plant is on track for startup in November, selling all output under a 20-year contract to utility OGE Energy Corp (NYSE: OGE). Atlantic has temporarily funded the deal--and related construction expenses under a CAD290 million construction loan and a CAD20 million credit line.
Permanent financing will include the CAD130 million sale of convertible debentures (upsized from CAD125 million) and the sale of 6 million shares of stock.
Until the plant is running and paid for, this utility stock will face no shortage of skeptics. That's evident from the neutral-to-bearish analyst sentiment, which is no doubt also influenced by the drop in wholesale power market prices in North America.
There's also the matter of running the Capital Power assets for a full year, and Florida power sales contracts up for renewal in a couple years.
On the plus side, CEO Barry Welch has affirmed that selling prices for 85 percent of the company's output are locked in. And though management is sticking to conservative full-year payout ratio guidance of 92 percent to 97 percent, the 55 percent posted for the first quarter is a good start toward beating that.
The upshot is this undervalued stock looks cheap again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.