Information on the target
Polaris Infrastructure, formerly known as Ram Power, is a Canadian-listed thermal energy company with a market capitalization of approximately C$160 million. The company operates a producing asset in Nicaragua, specifically the San Jacinto-Tizate geothermal power plant. Following significant operational challenges that hindered production levels, Polaris underwent a substantial equity recapitalization in 2015, led by Goodwood Funds. The recapitalization has resulted in an improved balance sheet, new management, and a track record of eight consecutive quarters of stable energy production, enhancing the risk-reward profile for equity investors.
Polaris Infrastructure carries a debt load of US$193 million, primarily at the project level, resulting in a debt-to-EBITDA ratio of 5.0x and a net debt-to-EBITDA ratio of 3.2x. The company is positioned to transition from a development-focused entity to one that emphasizes sustainable, incremental growth, with a focus on generating free cash flow for shareholders through potential dividends.
Industry overview in the target’s specific country
Nicaragua's energy sector is characterized by a growing demand for renewable energy sources, driven by both domestic consumption and international investment interest. The country has made significant strides in diversifying its energy mix, with geothermal energy playing a crucial role due to its abundant geothermal resources. The government has implemented policies to encourage investment in renewable energy, which has led to increased capacity and infrastructure development in the sector.
The geothermal energy market in Nicaragua is particularly attractive, as it offers a stable and reliable source of power generation. The San Jacinto-Tizate plant, operated by Polaris Infrastructure, is one of the key assets contributing to the country's renewable energy goals. The presence of power purchase agreements (PPAs) ensures a steady revenue stream, although there are concerns regarding the pricing of future contracts beyond the current agreements.
Despite the positive outlook, the industry faces challenges, including operational risks associated with geothermal resource management and the need for ongoing capital investment to maintain production levels. The geopolitical landscape in Nicaragua also presents potential risks for foreign investors, necessitating a thorough understanding of the local regulatory environment and market dynamics.
The rationale behind the deal The investment in Polaris Infrastructure by Goodwood Funds is driven by the opportunity to capitalize on a company trading at a significant discount to its net asset value (NAV). With the recent recapitalization and the establishment of a new management team, Po…