TransAlta Corporation ($TA)

Thank you. Good afternoon, everyone. My name is Stephanie Paris, and I'm the Vice President of Investor Relations and Corporate Strategy of TransAlta. Welcome, and thank you for joining our call. This afternoon, we announced that TransAlta has entered into a purchase and sale agreement to acquire 2 new natural gas peaking facilities near Denver, Colorado, along with a concurrent common share offering. We look forward to providing you more information during this call. With me today to discuss this announcement are Joel Hunter, President and Chief Executive Officer; and Mike Politeski, EVP, Finance and Chief Financial Officer. Today's call is being webcast, and I invite those listening in to view the supporting slides and press release that are posted on our website. A replay of the call will be available for a 12-month period through the link provided in the press release. All information provided during this conference call is subject to the forward-looking statement qualification set out here on Slide 2. All amounts referenced during the call are in Canadian currency unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA and free cash flow are reconciled in the MD&A for your reference. On today's call, Joel will provide an overview of the acquisition and Mike will speak to the financial benefits and funding plan. Given the concurrent equity offering, there will be no question-and-answer session following the remarks. With that, I will turn the call over to Joel.

Thank you, Stephanie. I'm pleased to announce that TransAlta has entered into an agreement to acquire 2 natural gas-fired peaking facilities in Colorado. Both assets are fully contracted to investment-grade counterparties under long-term tolling agreements and include full cost pass-through of all operations and maintenance, fuel and capital expenses, which meaningfully reduced the risk profile of the acquired assets. The transaction valued at USD 1 billion is inclusive of the assumption of USD 750 million of senior secured asset level debt and USD 250 million to be raised via concurrent bought deal equity financing for CAD 350 million. The acquisition is expected to deliver immediate accretion to free cash flow per share, adding value to TransAlta and its shareholders. We expect closing to occur in the fourth quarter of this year following receipt of all regulatory approvals as well as Canyon Peak Power achieving commercial operations. Together, the 2 facilities are expected to contribute approximately USD 80 million per year in low-risk, high-quality adjusted EBITDA to our portfolio. Additionally, there is upside potential through availability incentive payments, which reward strong operational performance. Given operational excellence is a competitive advantage of ours, we are confident in our ability to realize this upside. We also expect to unlock synergies by bringing asset management in-house as well as realizing insurance benefits through the integration of these assets into our existing portfolio-wide programs. Additionally, we expect to generate tax efficiencies by leveraging our current U.S. tax pools. Collectively, these advantages enhance the acquisition's financial profile with mid-single-digit free cash flow per share accretion projected in the first full year of ownership. The 27-year weighted average contract tenure represents a fundamental component of the acquisition's value proposition. With the addition of these assets, TransAlta's overall contractedness meaningfully increases and our average contract duration is extended, while also simultaneously reducing the average age of our fleet. Additionally, the comprehensive pass-through provisions for all fuel, operations and maintenance and capital costs, we have effectively mitigated the majority of associated risks. With today's announcement, we are expanding our physical presence in the Western United States, a core geography for us by adding essential infrastructure to our portfolio that enhances reliability in the region. Our established energy marketing and trading operations reinforce our confidence in the region's strong fundamentals. Notably, Colorado's growth is accelerating, driven by population increases, electrification and rising data center demand. Establishing a physical position near our U.S. head office in Denver provides a strategic platform for future opportunities in the region. This acquisition is consistent with our strategy and builds on our established track record of identifying value-enhancing opportunities that leverage our core competitive advantages. As we continue to evaluate our broader capital allocation strategy, adding stable operating assets like this delivers immediate cash flows to be redeployed into our most compelling growth initiatives, including the Centralia coal-to-gas conversion and Alberta data center projects. I am pleased to share that these projects remain our top priority and continue to make meaningful progress. We have a clear path to improving credit metrics and assets like these, immediately enhance our overall business risk profile. The Colorado Gas portfolio consists of 2 new fully contracted facilities that together have a generating capacity of 318 megawatts. Mountain Peak Power is a 162-megawatt facility that achieved commercial operation in September 2025. The facility utilizes 6 GE gas turbines, which is a proven and reliable aeroderivative technology that TransAlta has an extensive operating experience with. The facility is contracted for 30 years through United Power, which is A-rated. The contract is structured as a 100% fixed capacity with full pass-through of fuel, operations and maintenance and capital costs, providing a highly predictable derisked revenue stream. Project financing associated with the facility is USD 365 million at a 6.2% interest rate and is amortized over the contract life, eliminating any refinancing risk. Canyon Peak Power is a 156-megawatt facility expected to reach commercial operation in the third quarter of 2026 prior to the close of the acquisition. It employs the same GE turbine configuration as Mountain Peak, ensuring operational consistency across the portfolio. Canyon Peak is contracted for 25 years to CORE Electric Cooperative, which is rated AA-. The same favorable contract structure will apply to this facility, 100% fixed capacity with full pass-through of costs. Associated project financing is USD 385 million, also at 6.2% and amortizes over the life of the contract. Our disciplined M&A track record reflects a disciplined, criteria-driven strategy that has consistently delivered value for our shareholders, and this acquisition is no exception. When considering an M&A opportunity, it must be immediately accretive on a free cash flow per share basis, largely contracted with strong counterparties, not compromise our financial position and provide a platform for future growth. Between the acquisitions of TransAlta Renewables, Heartland, Far North and now the Colorado Gas portfolio, we're adding assets at attractive risk-adjusted multiples and with high levels of contracted cash flow with optionality upside, all within our core geographies as discussed in detail at our recent Investor Day. I'll now pass it over to Mike to discuss the details and metrics.

Thanks, Joel. I'm pleased to share some additional financial details on the acquisition. The transaction value is priced below the cost of new gas-fired peakers with none of the associated construction or supply chain risk. This is a critical point in today's environment where supply chain disruptions, labor shortages and permitting delays are pressuring greenfield costs and time lines. On a Canadian dollar basis, the assets are expected to generate $110 million of adjusted EBITDA per year and $45 million of annual free cash flow which translates to a 13% free cash flow yield. As Joel noted, our return profile reflects upside from the utilization of our existing U.S. tax pools, insurance synergies and bringing operations in-house. We have the ability to capture operational incentive payments by realizing availability over 95% on an average basis across the 2 assets. The acquisition meaningfully benefits our portfolio where our average weighted contract life increases from approximately 10 to 11 years from the addition of just these 2 assets and installed contracted megawatts moved from 50% to 52%. We will also see an approximate 10% increase in our adjusted EBITDA using the midpoint of our 2026 guidance as a base, adding scale through this transaction. The total transaction value of USD 1 billion includes the assumption of USD 750 million of senior secured project level debt, which is fully amortizing over the contract duration and carries investment-grade ratings. The remaining value of USD 250 million will be raised via a concurrent CAD 350 million bought deal common share offering, which we announced today. The offering will also include a 15% over-allotment option, exercisable by the underwriters for 30 days after closing of the offering. We will continue to actively manage our capital structure through multiple levers including active portfolio optimization and asset recycling opportunities, combined with the expected recovery of Alberta power prices and the return to service of Centralia. Credit metrics are expected to strengthen while our business risk profile is immediately enhanced with the addition of these contracted assets. With that, I'll turn the call back over to Joel.

Thanks, Mike. I believe TransAlta offers a compelling investment opportunity. We have operated a safe and reliable power generation fleet for over 115 years, providing strong and consistent cash flows. That strength is grounded in a diversified portfolio of hydro, wind, solar and thermal assets across 3 countries, and it's enhanced by our industry-leading asset optimization and energy marketing capabilities. Our legacy thermal sites continue to represent considerable and increasing value. We are proactively pursuing repurposing initiatives at these facilities to address the growing demand for dependable power in our operating markets. Concurrently, we maintain a leadership position across multiple technologies, consistently prioritizing responsible and reliable generation. We are disciplined in how we grow. Our priority is creating value for our shareholders as we diversify our portfolio within our core geographies and continue to increase the stability and contracted nature of our cash flows. And today's announcement is very aligned with our strategic priorities. This strategy is supported by a strong financial foundation. We have a flexible balance sheet and ample liquidity, giving us the ability to pursue and deliver multiple growth opportunities while continuing to return capital to shareholders. And finally, and most importantly, we have our people. Everything we achieve is powered by the dedication and expertise of our employees and contractors. I want to thank them for their commitment and for positioning TransAlta for continued success in 2026 and beyond. In summary, today's announced acquisition is on strategy and consistent with our value proposition, providing a long-term stable cash flow horizon, attractive risk-adjusted returns and delivers immediate accretion, creating durable long-term shareholder value. Thank you. I'll now turn the call back over to Stephanie.

Thank you, everyone. That concludes our call for today, and please visit our website for more information.