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Management Side
Enviva Partners, LP Announces Transformative Acquisitions and Increases 2020 Guidance
BETHESDA, Md. (News release) -- Enviva Partners, LP announced that it has agreed to purchase a wood pellet production plant in Waycross, Georgia with associated export terminal capacity in Savannah, Georgia (the "Georgia Biomass Acquisition") from innogy SE and also has agreed to purchase the wood pellet production plant in Greenwood, South Carolina owned by our sponsor (the "Greenwood Acquisition" and, together, the "Acquisitions"). In connection with the Greenwood Acquisition, our sponsor has agreed to assign to the Partnership five firm, long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties (the "Associated Off-Take Contracts") that have maturities between 2031 and 2041, aggregate annual deliveries of 1.4 million metric tons per year ("MTPY"), and an aggregate revenue backlog of $5.3 billion. The Partnership also announced that it has signed a purchase agreement with investors for the sale of $200.0 million in common units in a private placement (the "Private Placement") to finance a portion of the combined purchase price of the Acquisitions.

Highlights:

* The Partnership increased its distribution guidance for full-year 2020 and now expects to distribute at least $3.00 per common unit, at a target forward-looking annual distribution coverage ratio of at least 1.20 times, representing at least a 13 percent increase over its per-unit distribution for 2019
* The Partnership now expects full-year 2020 net income to be in the range of $33.9 million to $43.9 million and adjusted EBITDA to be in the range of $185.0 million to $195.0 million
* With the benefit of the Associated Off-Take Contracts, the Greenwood plant and the Waycross plant will be fully contracted through 2035 and the Partnership's total product sales backlog will increase by 52 percent from $10.2 billion to $15.5 billion, on a pro forma basis as of April 1, 2020
* On total investment of $375 million, the Acquisitions are expected to generate net income in the range of $18.7 million to $22.7 million and adjusted EBITDA in the range of $56.0 million to $60.0 million once they and the Associated Off-Take Contracts are fully ramped and integrated
* The Partnership is financing the Acquisitions through a combination of the net proceeds from the sale of $200.0 million in common units in the Private Placement and expected borrowings under its existing $350.0 million revolving credit facility
* The ValueAct Spring Fund, a leading investor in companies with environmental and social value, anchored the Private Placement and ValueAct's Chairman, Jeff Ubben, has joined our Board
"The Greenwood and Georgia Biomass acquisitions are fundamentally transformative for Enviva's scale and diversification," said John Keppler, Chairman and Chief Executive Officer of Enviva. "Not only are we increasing Enviva's fully contracted production capacity by 35 percent, but we are doing so in new fiber baskets, with new deep-water terminal infrastructure, and with new customers under new long-term, take-or-pay off-take contracts that we expect will enable us to continue our track record of generating durable cash flows and growing our distributions sustainably well into the future."

Acquisitions

The Partnership has agreed to purchase Georgia Biomass Holding LLC, which, through its wholly owned subsidiary, owns a wood pellet production plant in Waycross, Georgia (the "Waycross plant"), from innogy SE and one of its subsidiaries for a purchase price of $175.0 million in cash, subject to customary adjustments. The Waycross plant has been operating since 2011 and has a production capacity of approximately 800,000 MTPY. As part of the Georgia Biomass Acquisition, the Partnership also will acquire long-term, take-or-pay off-take contracts with an existing Partnership customer (the "Acquired Waycross Contracts") for annual deliveries of approximately 500,000 MTPY through 2024. The Waycross plant exports its wood pellets through a terminal at the Port of Savannah, Georgia under a long-term terminal lease and associated services agreement. The Partnership expects the Georgia Biomass Acquisition to close in the third quarter of 2020, subject to customary closing conditions.

The Partnership also has agreed to purchase Enviva Pellets Greenwood Holdings II, LLC, which, through its wholly owned subsidiaries, owns a wood pellet production plant in Greenwood, South Carolina (the "Greenwood plant"), from its sponsor for cash consideration of $132.0 million and the assumption of a $40.0 million third-party promissory note bearing interest at 2.5 percent per year. The Greenwood plant has been operating since 2016 and its wood pellets are exported through the Partnership's terminal at the Port of Wilmington, North Carolina. The Partnership plans to invest $28.0 million to expand the Greenwood plant's production capacity to 600,000 MTPY by the end of 2021, subject to receiving the necessary permits. To support the Partnership during its completion of the expansion project, the sponsor has agreed to (i) waive certain management services and other fees that otherwise would be owed by the Partnership through December 31, 2021 and (ii) continue to waive certain management services and other fees that otherwise would be owed by the Partnership if the Greenwood plant's actual production volumes are lower than expectations (such waivers, the "Fee Waivers"). The sponsor also has agreed to reimburse the Partnership for any construction costs incurred for the planned expansion in excess of $28.0 million. The Partnership expects the Greenwood Acquisition to close on or about July 1, 2020.

Associated Off-Take Contracts

Our sponsor has agreed to assign five firm, long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties, aggregate annual deliveries of 1.4 million MTPY, and a total revenue backlog of $5.3 billion to the Partnership as part of the Acquisitions. The Associated Off-Take Contracts include:

* An 18-year, take-or-pay off-take contract to supply Sumitomo Corporation with 440,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022
* A 15-year, take-or-pay off-take contract to supply Sumitomo Corporation with approximately 250,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2021
* A 10-year, take-or-pay off-take contract to supply Mitsubishi Corporation with 210,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022
* An 18-year, take-or-pay off-take contract to supply Sumitomo Forestry Co., Ltd. with 150,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2023
* A 17-year, take-or-pay off-take contract to supply Suzukawa Energy Center Ltd. with 340,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022
Including the Associated Off-Take Contracts and the Acquired Waycross Contracts, the Partnership's total weighted-average remaining term of off-take contracts will increase from 11.4 years to 12.7 years and total product sales backlog will increase from $10.2 billion to $15.5 billion, on a pro forma basis as of April 1, 2020.

In addition, with the Associated Off-Take Contracts and the Acquired Waycross Contracts, the production from the Greenwood plant and the Waycross plant is expected to be fully contracted through 2035. In 2021, the Acquisitions are expected to generate net loss in the range of $13.7 million to $17.7 million and adjusted EBITDA in the range of $39.0 million to $43.0 million. In 2024, once the Acquisitions and Associated Off-Take Contracts are fully ramped and integrated, the Acquisitions are expected to generate net income in the range of $18.7 million to $22.7 million and adjusted EBITDA in the range of $56.0 million to $60.0 million. On this basis, the combined purchase price for the Acquisitions, including the expected costs to expand the Greenwood plant, represents an adjusted EBITDA multiple of approximately 6.5 times.

For the Greenwood Acquisition, Evercore served as exclusive financial advisor and Baker Botts LLP served as legal counsel to the conflicts committee of the board of directors of the Partnership's general partner (the "Board"). Vinson & Elkins LLP served as legal counsel to the sponsor.

For the Georgia Biomass Acquisition, Vinson & Elkins LLP served as legal counsel to the Partnership.

Financing Activities

The Partnership has signed a purchase agreement for the sale of an aggregate of 6,153,847 common units in the Private Placement in exchange for proceeds of $200.0 million at a purchase price of $32.50 per unit, representing a 5.6 percent discount to the 20-day volume-weighted average price of the Partnership's common units as of June 17, 2020. The Private Placement is expected to close on June 23, 2020 and is not conditioned on the closing of either of the Acquisitions. The proceeds of the Private Placement will be used to fund a portion of the consideration for the Acquisitions, as well to fund a portion of the Greenwood plant expansion project described above and for general partnership purposes. At the closing of the Private Placement, the Partnership and the investors will enter into a registration rights agreement whereby the Partnership will agree to register the resale of the common units to be sold in the Private Placement, as well as provide certain investors with customary piggy-back registration rights in certain cases. The Partnership expects to borrow under its existing $350.0 million revolving credit facility to finance the remainder of the combined purchase prices of the Acquisitions and the costs to expand the Greenwood plant.

"A key pillar of Enviva's growth is our ability to undertake accretive drop-down acquisitions from our sponsor, which we again demonstrated with the Greenwood transaction," said Shai Even, Chief Financial Officer of Enviva. "What is particularly exciting is that we also had the opportunity to acquire another large-scale plant and associated export terminal capacity from an independent third-party, in what we view to be a highly accretive transaction. The combination of these fully contracted assets and Enviva's proven execution strategy received strong capital markets interest."

Additionally, recognizing ValueAct Capital's existing holdings and significant participation in the Private Placement, the sole member of the Partnership's general partner has appointed Jeffrey W. Ubben, Chairman of ValueAct Capital and Co-Portfolio Manager of its Spring Fund, to the Board.

Goldman, Sachs & Co. LLC and Barclays Capital Inc. acted as lead placement agents and BMO Capital Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, and Raymond James and Associates, Inc. acted as placement agents in connection with the Private Placement.

Guidance Update

With the benefit of the Acquisitions, the Partnership now expects full-year 2020 net income to be in the range of $33.9 million to $43.9 million and adjusted EBITDA to be in the range of $185.0 million to $195.0 million. The Partnership expects full-year 2020 distributable cash flow to be in the range of $134.0 million to $144.0 million, prior to any distributions attributable to incentive distribution rights paid to our general partner. For full-year 2020, the Partnership now expects to distribute at least $3.00 per common unit.

The guidance amounts provided above, including the distribution expectations, include the benefit of the Acquisitions and the Fee Waivers, and reflect the associated financing activities. The guidance amounts provided above do not include the impact of any additional acquisitions by the Partnership from the sponsor, its joint venture, or third parties. The Partnership's quarterly income and cash flow are subject to seasonality and the mix of customer shipments made, which vary from period to period. When determining the distribution for a quarter, the Board evaluates the Partnership's distribution coverage ratio on an annual basis and considers the expected distributable cash flow, net of expected amounts attributable to incentive distribution rights, for the next four quarters. On that basis, the Partnership's targeted annual distribution coverage ratio is at least 1.20 times.


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