Business Context and Reporting Period
New Fortress Energy Inc. filed a Form 8-K dated May 31, 2022, reporting a material definitive agreement and expected impairment related to its Brazilian Sergipe power assets. The filing is not a periodic financial report and does not provide a full-quarter income statement or balance sheet.
NFE subsidiaries agreed to sell, through Eneva S.A., 100% of the shares of CELSEPAR and CEBARRA. CELSEPAR owns the 1,593 MW Sergipe power plant through CELSE, while CEBARRA owns 1.7 GW of adjacent expansion rights.
Key Financial Metrics and Transaction Terms
| Item | Reported amount or detail |
|---|---|
| Cash purchase price to sellers | R$6.1 billion, approximately $1.29 billion |
| Implied enterprise value | Approximately R$10.2 billion, or $2.16 billion |
| Debt assumption | Eneva will assume CELSE’s current debt |
| Expected NFE proceeds | Approximately $550 million after specified debt and liability repayments and transaction expenses, reflecting NFE’s 50% ownership of CELSEPAR |
| CELSEPAR impairment | Approximately $250 million reduction to net income for the three months ended June 30, 2022, inclusive of a tax benefit and excluding a $76 million tax benefit recognized in the first quarter |
| CEBARRA disposal loss | Expected pre-tax loss of approximately $45 million for the three months ended June 30, 2022 |
| Cash flow and liquidity effect of impairment | The impairment and disposal loss are not expected to affect Adjusted EBITDA, cash flows, cash balances, or result in material future cash expenditures |
| Golar Nanook | NFE will continue operating the floating storage and regasification unit, which remains chartered to CELSE for 20 years |
The purchase price accrues interest at CDI plus 1% from December 31, 2021 until closing and is subject to customary adjustments, including leakage, specified company actions, and transaction-related expenses.
Material Changes Versus the Prior Comparable Period
- NFE expects to recognize an other-than-temporary impairment of its CELSEPAR investment and a loss on disposal of CEBARRA in the second quarter of 2022.
- The transaction is expected to move CEBARRA assets and liabilities to held-for-sale classification before closing.
- The filing indicates an expected cash inflow of approximately $550 million to NFE, while also removing NFE’s ownership exposure to the Sergipe power plant and expansion rights.
- No comparable-period revenue, profit, margin, debt, or operating cash flow figures are provided in the filing.
Outlook, Conditions, and Risks
Closing is expected on the later of October 3, 2022, and the 10th business day after all closing conditions are satisfied or waived. Conditions include regulatory approvals, specified third-party consents, approval by Eneva shareholders, absence of a material adverse effect, accuracy of representations and warranties, and compliance with covenants.
Eneva shareholders holding approximately 43.8% of Eneva’s voting and share capital have entered voting agreements supporting approval. Eneva’s acquisition financing is not a condition to its obligation to close, although Eneva has covenants concerning financing efforts.
The agreement may terminate if closing has not occurred within 270 days, subject to potential extensions of up to 60 days, or under other specified circumstances. Reverse termination fees of R$300 million may be payable by Eneva, while sellers may owe a R$250 million termination fee in specified circumstances.
Key risks include failure to obtain shareholder, regulatory, lender, or other third-party approvals; covenant breaches; delays or failure to close; foreign-exchange movements affecting U.S.-dollar proceeds; financing availability; legal proceedings; business disruption; and uncertainty regarding continued operation of the Golar Nanook and the relationship with the new plant owner. The estimated impairment, disposal loss, tax benefits, and transaction proceeds may change materially.
Investor Verification Items
- Verify whether Eneva shareholder and regulatory approvals were obtained and whether the transaction closed on the expected timetable.
- Reconcile the final purchase price, accrued interest, closing adjustments, foreign-exchange effects, transaction expenses, and NFE’s net cash proceeds.
- Confirm the final impairment, disposal loss, tax benefit, and any subsequent changes to the estimates disclosed in the filing.
- Assess the debt assumed or repaid in connection with CELSE and the effect on NFE’s consolidated debt and liquidity.
- Confirm the ongoing terms, counterparty obligations, and economic value of NFE’s 20-year Golar Nanook charter.
- Review subsequent filings for changes to closing conditions, termination rights, litigation, or material adverse effects.