Ormat Monetizes Production Tax Credits
In a deal announced this morning, Ormat has formed a new subsidiary, OPC LLC, with Morgan Stanley and Lehman Brothers. Under the terms of the deal, Ormat will transfer the Desert Peak 2, Steamboat Hills, and Galena 2 geothermal facilities to the subsidiary and upon completion, Galena 3. The equity investors will receive the benefits of the production tax credits at the geothermal plants and Ormat will gain cash proceeds from plant operations and will continue to operate the facilities.
Under the terms of the deal, Ormat will gain $118.4M from the asset transfer in two tranches, $71.2M now and $46.6 when Galena 3 is operational and transferred into the new entity. Upon reaching ROI thresholds for the equity investors, Ormat will have the option of repurchasing the assets from the subsidiary and will continue to harvest operating income until the capital investment of plant development is repaid in any case.
This is a smart use of excess production tax credits that benefits shareholders over the long term. At prices under $35/share, we continue to believe that Ormat presents an attractive investment opportunity.
