Atlantic Power Corporation

Transcription

1 Institutional Equity Research Earnings Update November 6, 2012 Stock Rating: Sector Underperformer Sector Weighting: Market Weight mo. Price Target C$13.00 ATP-TS X (11/6/12) C$13.35 Key Indices: Toronto 3-5-Yr. EPS Gr. Rate (E) NM 52-week Range C$12.88-C$15.12 Shares Outstanding M Float M Shrs Avg. Daily Trading Vol. 131, 045 Market Capitalization $1,601.6M Dividend/Div Yield C$1.15 / 8.6% Fiscal Year Ends December Book Value $8.85 per Shr 2012 ROE (E) NM Net Debt* $1,720.1M Preferred $221.30M Common Equity $1,052.8M Convertible Available Yes *Excl. equity inv't debt, Path 15 (incl. conv. debt) EBITDA ($mln) Prev Current 2011 $185.3A 2012 $345.7E $326.6E 2013 $390.6E $360.4E EV/EBITDA x x 11.3x x 10.2x Clean Power Producers Atlantic Power Corporation Tax Equity Financing, Asset Sales Mask A Weak Quarter Atlantic Power reported Q3/F12 revenues of $154.5 mln., about 6% below our adjusted expectations ($163.5 mln.). This top-line decline along with lower gross margins led to project adjusted EBITDA of $77.2 mln., below our adjusted estimate of $82.6 mln. The Canadian Hills wind project remains on schedule for commissioning in Q4/F12. $225 mln. in 'tax equity' has now been secured, and a further $47 mln. is being pursued. Atlantic raised close to $200 mln. in Q3/F12 to finance the equity requirements of the project. Details provided on the company's Florida assets paint a more challenged picture of re-contracting. A PPA of shorter duration is now a more likely interim step, and a sale of the assets is also possible. Weakened renewal economics cast a higher level of uncertainty on future payout levels. We maintain our SU rating and reduce our price target to C$13.00 (was C$13.75), which is based on our discounted cash flow. Our price target implies an EV/EBITDA multiple of 11.7x our 2013E (fully consolidated EBITDA), a slight premium to the current peer average (11.2x). Stock Price Performance Earnings per Share 2011 ($0.50A) 2012 ($0.55E) ($0.65E) 2013 $0.06E $0.10E P/E 2011 NM 2012 NM NM 2013 NM NM Company Description Atlantic Power Corporation owns interests in a diversified ~2,500 net MW portfolio of power generation projects and one high voltage transmission line located in major markets in the U.S. and Canada. Ian Tharp, CFA Lukasz Michalowski Source: Re uters All figures in US dollars, unless otherwise stated.(c$0.992:us$1) CIBC World Markets does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures" section at the end of this report for important required disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. Find CIBC research on Bloomberg, Reuters, firstcall.com CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 (416) and ResearchCentral.cibcwm.com

2 $ millions 77.2 $ millions Tax Equity Financing, Asset Sales Mask A Weak Quarter - Nov ember 06, 2012 Atlantic Power Corp. Sector Underperformer ATP-TSX 11/06/12 C$ To 18- Month Price Target: C$13.00 Clean Power Producers Ian Tharp, CFA ( ) [email protected] Sector Weighting: Market Weight Lukasz Michalowski, MBA ( ) [email protected] All figures in U.S. millions, except per share data. EV/EBITDA Multiples 2011A 2012E 2013E Company Profile Atlantic Power Corp x 11.3x 10.2x Atlantic Power Corp. Fully Adjusted 24.1x 12.5x 11.8x CDN Clean Power Producers 21.0x 14.3x 11.2x Traditional CDN Energy Utilities (Consensus) 8.5x 8.6x 7.8x P/E Multiples 2011A 2012E 2013E Atlantic Power Corp. NM NM NM CDN Clean Power Producers 98.8x 77.9x 46.8x Traditional CDN Energy Utilities (Consensus) 18.3x 19.2x 17.3x Key Financial Metrics 2010A 2011A 2012E 2013E Cash Realization Ratio 1 NM NM NM 19.0x Interest Coverage 10.8x 2.4x 8.6x 21.8x Free Cash Flow Yield -1.8% -54.0% -17.8% 10.2% Tax Rate 125.6% NM NM 32.3% Distributable Cashflow Yield 8.1% 7.7% 8.5% 8.3% Return on Equity -0.6% -3.2% -5.9% 0.9% Income Statement 2010A 2011A 2012E 2013E Valuation Outlook Revenue Current Price C$13.35 Rating SU Gross Profit Price Target C$13.00 Dividend C$1.15 Project Adjusted EBITDA Month Return 6.0% Div Yield 8.6% Fully Consolidated EBITDA Price Target Represents 2010A 2011A 2012E 2013E Depreciation & Amortization EBIT P / E 123.7x 130.1x -67.9x 186.4x Financing Costs Enterprise Value 1, , , ,388.9 EBT 15.1 (44.0) (84.9) 12.4 EV / EBITDA 10.2x 20.4x 11.7x 10.9x Tax Expense (Recovery) 18.9 (8.3) (16.7) 4.0 EV / Sales 7.1x 10.9x 5.4x 4.9x Weighted Average Shares, Diluted P / BV 1.8x 1.3x 1.5x 1.7x Net Income (3.9) (35.6) (68.3) 8.4 FCF Yield -1.9% -55.4% -18.2% 10.5% Basic EPS ($0.07) ($0.50) ($0.65) $0.10 Adjusted F/D EPS $0.11 $0.10 ($0.19) $0.07 Free Cash Flow Performance 2010A 2011A 2012E 2013E Revenue A 2011A 2012E 2013E Operating Cash Flow Northeast Fixed Capital Investments (2.5) (2.0) (2.7) (2.7) Southeast Changes in Working Capital (1.8) (64.8) (3.6) 6.8 Northwest Free Cash Flow (17.7) (620.4) (275.9) Southwest Distributable Cash Flow Other Distributable Cash Flow / share Total Revenue Distributions / Share Payout Ratio 100% 105% 99% 84% Balance Sheet 2010A 2011A 2012E 2013E Cash Total Debt , , ,639.3 Equity , , ,340.1 Net Debt , , ,477.8 Net Debt/EBITDA 5.4x 16.6x 7.1x 6.6x Total Capital Employed , , ,412.2 Net Debt / Total Capital Employed 50.6% 58.8% 61.3% 61.3% Book Value Per Share (FD) $7.13 $9.83 $8.57 $7.80 Operating Performance 2010A 2011A 2012E 2013E Gross Margin 50.4% 47.1% 39.5% 39.6% EBITDA Margin 42.2% 33.7% 34.7% 32.5% EBIT Margin 21.5% 11.3% 11.0% 15.5% EBT Margin 7.7% -15.4% -13.3% 1.8% Return on Capital Employed 4.8% 1.2% 2.7% 4.5% 1 Calculated as CFO divided by Net Income. 2 Based on company disclosure - project level EBITDA including EBITDA from equity investments 3 Used in our valuation, based on project adjusted EBITDA net of some corporate expenses 4 Unadjusted and corporate expenses 5 Estimates exclude project revenue for equity investments Source: Bloomberg, Company Reports and CIBC World Markets Inc. Atlantic Power Corporation owns interests in a diversified ~2,500 net MW portfolio of power generation projects and one high voltage transmission line located in major markets in the United States and Canada. Investment Thesis The New Atlantic Power - The CPILP acquisition has transformed Atlantic Power into a significant player in the Canadian Renewable Energy segment. The Company's net capacity was increased by 150% to 2,140 MW (~2,500 including Canadian Hills) from 871 MW with the majority of capacity being tied to natural gas (77%) and U.S. (85%). Although Atlantic continues to have limited assets in the develpment stage (Piedmont/Canadian Hills), its operating asset portfolio could provide leverage for further acquisitions. Yield Is Sustainable - ATP's dividend yield is 8.6% vs. peer average at 5.5%. Although we see the level of debt and high payout ratio as a concern given the composition of its portfolio, we feel the current distribution level is sustainable in the near-term given expected increases in distributions from Selkirk, Piedmont and Canadian Hills commencing operations and the institution of the DRIP; however, we view its re-contracting risks as fair justification for its higher yield A* A* 2008A* 2009A* Revenue ($ mlns) 2010A* 2011A Project Adjusted EBITDA 2012E EBITDA ($ mlns) 2013E Northeast Southeast Northwest Southwest Total Q3/F12 Q3/F11 2

3 Highlights We maintain our Sector Underperformer rating and have lowered our price target to C$13.00 (was C$13.75) for Atlantic Power (ATP-SU). Atlantic Power reported Q3/F12 revenues of $154.5 mln., which were below our forecast of $170.9 mln., but excluded contribution from Path 15 transmission assets as the project is now being held for sale. Against our adjusted revenues of $163.5 mln. (excluding Path 15), revenues were 5.5% below expectations. Gross margins of 38.9% showed a Q/Q improvement, but compared negatively to our estimate of 43.2%, and this contributed to project-adjusted EBITDA of $77.2 mln., below our adjusted expectations (excluding Path 15) of $82.6 mln. With Path 15 included, our Q3/F12 EBITDA estimate was $89.3 mln. In all, Atlantic lost $0.06/share compared to our estimate of a $0.02/share gain due to lower revenues and higher expenses (including operating/maintenance and interest). Updates On Re-contracting, Asset Sales Operating facility news covered two main areas: re-contracting and divestitures. An element of caution was placed on the prospects of re-contracting of its Florida assets (Auburndale and Lake), and the sale of three assets Delta Person (NG 53 net MW), Gregory (NG 68 net MW), and Path 15 (transmission) is being actively pursued. Outlook For 2012 Remains Essentially Intact Management tightened its 2012 outlook for project distributions to a range of $255 mln. to $265 mln. (was $250 mln. to $265 mln.), while the outlook for the 2012 payout ratio weakened to between 96% and 102% (was 90% to 97%). Our estimate of the 2012 payout ratio (cash basis) is 99%. Q4/F12 Will Be Active On Many Fronts With ~350 MW scheduled for commissioning, Q4 is an important quarter for Atlantic Power. Major delays are unlikely at this point, but would adversely affect our estimates given the need to complete both projects by the end of 2012 in order to secure the available incentives. Key activities underway in Q4 include: Canadian Hills (298 MW Wind) In Q3, Atlantic raised ~$200 mln. ($68.5 mln. in equity and $130.0 mln. in convertible debentures), the proceeds of which will fund the project s equity requirement. Further details are outlined in our July 10 note, Atlantic Power: Financings Completed, Development Efforts The Focus For Construction is progressing well to date $238.8 mln. has been drawn under the project s $290 mln. debt facility, with the full project cost estimated at $470 mln. The company indicated it has now secured tax equity commitments from four investors for $225 mln., and another $47 mln. in tax equity is being pursued. Atlantic expects to start deliveries against one of the power purchase agreements later this week. Piedmont (53 MW Biomass) Atlantic Power incurred approximately $6.0 mln. in capital expenditures relating to the construction of Piedmont in Q3/F12. We expect project completion by the end of 2012, which in turn will enable Atlantic to receive a U.S. Treasury grant of ~$53.7 mln. in Q1/F13. New Asset Divestures Announced The company continues to re-shape its asset portfolio. The sale of its 50% interest in Badger Creek was completed in Q3, netting ~$3.7 mln. in proceeds. The company also announced it has begun the process of divesting other non-core assets: Gregory and Delta Person on the generation side, and also Path 15, the company s only transmission asset. For the time being, we continue to include the generating assets in our estimates, but have removed Path 15 (now included as part of discontinued operations ). 3

4 Pruning The Portfolio Good For Long-term Growth? As mentioned, three new assets have been identified for divestiture. While certain of them are of high quality, in general these potential sales are designed to strengthen the focus on fully owned and contributing assets, while also eliminating the debt associated with each project. 1. Path 15 A Unique, High-Margin, One-Off Transmission Line Path 15 is a 100% owned, 84-mile, high-voltage transmission line that plays a critical role in north-south power transmission in California. A recently completed rate case reaffirmed Path 15 s regulated equity return at 13.5% this high return for a regulated infrastructure asset is likely to encourage a robust bidding process. $142 mln. in long-term debt exists against Path Delta Person 132 MW Natural Gas, New Mexico Atlantic owns a 40% interest (net 53 MW), and a PPA is in place until Delta Person is one of the facilities for which project-level debt covenants are preventing cash distributions. $8.3 mln. in long-term debt exists against the facility. 3. Gregory 400 MW Natural Gas, Texas Atlantic owns a 17.1% interest (net 68 MW), and the PPA for the majority of the output (net 59 MW) expires in Gregory is also one of the facilities for which project-level debt covenants are preventing cash distributions. Atlantic s interest will be sold along with the remaining 82.9% held by its partners. $11.2 mln. in longterm debt exists against Gregory. Sale Option To Be Investigated For Auburndale And Lake The company updated its outlook for re-contracting its Florida-based natural gas power facilities, Auburndale (155 MW) and Lake (121 MW), stating that it did not expect to achieve the same economics/deal terms as those attained for its Pasco natural gas facility in Florida. Recall that a new 10-year PPA was signed for Pasco in 2008 which resulted in a reduction in project contributions of roughly 50%. Given the recession s impact in Florida, Atlantic expects the new PPA terms to result in contributions that fall below this level, and that the PPAs available are likely to be shorter in duration (two to four years). Progress Energy (PGN-NYSE), Atlantic s current counter-party, has recently announced a Request for Proposals for power supply for the period. Atlantic will participate in this competitive bid process, while also pursuing other PPAs as well as potential sale options for the facilities. Financial Position Atlantic s cash position at the end of Q3/F12 was $42.8 mln., plus an additional $112.6 mln. in restricted cash. The company also has $143.5 mln. available under its $300.0 mln. revolving line of credit ($20.0 mln. drawn/ $136.5 mln. issued in letters of credit as of September 30). Net debt decreased slightly to $1,720.1 mln. from $1,798.7 mln. in Q2/F12 due to the omission of debt associated with Path 15. Through 2014, excluding equity-accounted projects and Path 15 (designated for sale), Atlantic has $508.9 mln. in principal repayments which include Canadian Hills ($238.8 mln.), Piedmont ($60.1 mln., of which $51.0 mln. relates to bridge loan), and Curtis Palmer ($190.0 mln.). If successful, up to $272.0 mln. ($225 mln. secured to date, seeking another $47 mln.) will come from tax-equity investors (Canadian Hills) and $53.7 mln. from a U.S. Treasury grant (Piedmont). 4

5 Dividend Still Sustainable, But Risk Is On The Rise Due to Atlantic Power s above-average cost of capital and ongoing cash flow risks associated with near-term PPA/contract expiries for its Florida-based Auburndale and Lake projects, and $190 mln. Senior Notes repayment (due 2014 Curtis Palmer), the sustainability of its dividend policy is frequently questioned. W e maintain that in the near term, Atlantic Power s C$1.15/share annual distribution is sustainable despite the current payout ratio of 120% (was 249% at the end of Q2/F12), although the company s caution about re-contracting of Auburndale and Lake has increased the risk. We do expect the company s institution of a dividend reinvestment plan (DRIP) to provide near-term support. On a cash basis, we expect the 2012 cash payout to decline Y/Y to 99% (previously 97% and 105% in 2011) and decline further in 2013 (to 84%; previously 75%) as the Canadian Hills and Piedmont facilities begin to make their contributions. Especially given today s pullback, the current yield of 8.6% remains above its peers. As we mentioned previously, 2014 remains the critical year for Atlantic Power. Exhibit 1. Atlantic Power s Long-term Debt S. No. Principal Amount (US$000) Rate* (%) Expiry Year Term Left (Years) Description Recourse Debt 1 $460, % Senior notes 2 $213, % Senor unsecured notes 3 $190, % Senor unsecured notes 4 $150, % Senor unsecured notes 5 $75, % Senor unsecured notes Non-Recourse Debt 6 $33, % Epsilon Power Partners 7 $6, % Auburndale 8 $38, % % Cadillac term loan 9 $123,270 Libor plus 3.50% Piedmont construction loan 10 $238,755 Libor plus 3.00% Canadian Hills construction loan 11 $0 Accounting fair value adjustments 12 ($303,890) Current maturities $1,225,661 TOTAL LONG-TERM Convertible Debentures 13 $45, % % Debentures 14 $68, % % Debentures 15 $81, % % Debentures 16 $130, % % Debentures $326,067 TOTAL CONVERTIBLE Equity Investments: Project-Level Debt 17 $55, % % N/A N/A Chambers 18 $8, % N/A N/A Delta-Person 19 $0 9.00% N/A N/A Selkirk 20 $11, % % N/A N/A Gregory 21 $26, % N/A N/A Rockland 22 $49, % % N/A N/A Idaho Wind $150,307 TOTAL EQUITY INVESTMENT Assets Held For Sale 23 $152, % % Path 15 senor secured bonds $152,005 TOTAL HELD FOR SALE Path 15 debt consists of cu rre nt ma turities o f $9. 0 mln, lo ng-t erm de bt of $ mln and purch ase accou nting fai r value adjustme nt of $10. 0 mln Source: Co mpa ny re ports and CIB C Wo rld M arkets I nc. 5

6 Q3/F12 Review And Q4 Outlook Revenues And Project-adjusted EBITDA Miss: Atlantic reported Q3/F12 revenues of $154.5 mln., about 6% below our adjusted forecast of $163.5 mln. (excluding contribution from Path 15). Gross margins were lower (39% vs. 43%) given higher operations and maintenance expenses, partially offset by lower fuel costs. Despite higher contribution from equity investments, adjusted project EBITDA came in at $77.2 mln. compared to our adjusted estimate of $82.6 mln. (excluding Path 15). Our unadjusted EBITDA estimate was $89.3 mln. We Are Now Treating Path 15 Asset As Designated For Sale Discontinued Operations Although we have left our assumptions largely unchanged, by treating Path 15 as part of discontinued operations our estimates were reduced. We now expect Q4/F12 revenues of $162.9 mln. (was $169.2 mln.), up 5.4% from $154.5 mln. in Q3/F12. Project-adjusted EBITDA is expected to be $83.8 mln. (was $90.8 mln.), leading to a $0.18/share loss. Please note that our project-adjusted EBITDA estimate includes project-level EBITDA from equity investments and reflects the company s disclosures. For our valuation calculation, we adjust the project-level EBITDA for additional corporate items, which we refer to as fully consolidated EBITDA. Operations Undamaged By Sandy Although Atlantic has several assets in the New York/New Jersey area, Chambers (coal), Kenilworth (natural gas), Selkirk (natural gas), and Curtis Palmer (hydro), management indicated its assets were not damaged and operations were not materially disrupted by the recent hurricane. We did, however, increase our hydrology expectations for Curtis Palmer on the back of the recent events. Exhibit 2. F2012 And F2013 Forecasts For Atlantic Power Q1/F12 Q2/F12 Q3/F12 Q4/F12 Current Prior % Change Current Prior % Change 3 Revenues $167.6 $155.2 $154.5 $162.9 $640.2 $ % $694.1 $ % Gross Margin $74.0 $53.6 $60.1 $65.3 $253.1 $ % $275.0 $ % Gross Margin % 44.2% 34.5% 38.9% 40.1% 39.5% 41.6% -202 bps 39.6% 42.2% -255 bps 1, 3 Fully Consolidated EBITDA $85.0 $64.7 $70.9 $74.8 $295.4 $ % $310.9 $ % 2, 3 Project Adjusted EBITDA $92.9 $72.8 $77.2 $83.8 $326.6 $ % $360.4 $ % EPS ($0.37) ($0.04) ($0.06) ($0.18) ($0.65) ($0.55) -15.7% $0.10 $ % 1. EBITDA used for ou r valuation ; equ als to p roject-level E BITDA a djusted f or additional co rpo rat e items/ex penses. 2. Project-adjusted EBITDA reflects co mpany 's disclosure; t he p roject -level EBITDA is inclusive of EBITDA from e quity investme nts - it is the basis for ou r fully consolidated EBITDA. 3. All figures Q3, and t hereaft er ex clude Path 15 assets Source: Co mpany rep orts and CIB C Wo rld Ma rkets I nc. Price Target Calculation Our 12- to 18-month price target of C$13.00 (was C$13.75) is based on our discounted cash flow analysis. Our price target implies an EV/EBITDA multiple of 11.7x our 2013 estimate (fully consolidated EBITDA), a slight premium to the current peer average of 11.2x, reflecting the company s above-average dividend yield. Some of the major changes include: Auburndale/Lake Re-contracting Given the increased caution regarding the contribution of potential new PPAs for Auburndale and Lake, we have reduced our assumptions on the future economics of the projects. 6

7 Key Risks To Price Target Balance Sheet Risk Atlantic carries a meaningful debt load within its capital structure. Recent reviews of the ratings on certain portions of the debt assumed as part of the CPILP transaction are expected to bring the ratings on these instruments to below investment grade. These re-ratings, along with the general debt position of the company, could limit the liquidity in these instruments and affect the company s ability to raise future capital at competitive rates. Re-contracting Risk Atlantic is exposed to re-contracting risk for its PPAs that are scheduled to expire prior to Construction Risk Atlantic has two projects (Piedmont and Canadian Hills) that are scheduled for completion by the end of Unexpected delays in commissioning or cost overruns could affect the company s financial position and cash available for distributions. Currency Risk While the acquisition of CPILP assets diversifies the company s operations, Atlantic continues to earn a majority of its revenues in U.S. dollars and pays dividends in both Canadian dollars and U.S. dollars. While the proportion of U.S. dollar exposure has declined, forward currency contracts are actively employed to manage exchange rate fluctuations and mitigate currency risk to the extent possible. Resource Variability While hydro and wind facilities account for only 9% of total net installed capacity, renewable energy sources are seasonal in nature, and Atlantic s cash flows could be negatively affected if resource conditions prove to be worse than expected. Commodity Price Risk Atlantic s net capacity remains highly reliant (currently 91%) on commodity inputs, and its cash flows are affected by changes in electricity, natural gas, wood chip (biomass), and coal prices. Many of its PPAs (except Auburndale and Lake) have pass-through clauses that shield Atlantic from risks associated with commodity feedstock price movements. Integration Risk Delays or higher costs associated with integrating CPILP operations under the Atlantic Power platform may not only affect operational efficiency, but could also negatively affect near-term financial performance. Regulatory/Legislative Risk Atlantic has both regulated and unregulated power assets in the U.S., and each facility is subject to state and federal level regulations and legislation. Regulations related to environmental factors could negatively affect the future value of certain assets on a long-term basis. 7

8 Our EBITDA ($mln) estimates are shown below: 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly 2011 Current $36.0A $42.9A $41.0A $65.5A $185.3A 2012 Prior $92.9A $72.8A $89.3E $90.8E $345.7E 2012 Current $92.9A $72.8A $77.2A $83.8E $326.6E 2013 Prior $390.6E 2013 Current $360.4E Our EPS estimates are shown below: 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly 2011 Current $0.09A $0.19A ($0.40A) ($0.26A) ($0.50A) 2012 Prior ($0.37A) ($0.04A) $0.02E ($0.15E) ($0.55E) 2012 Current ($0.37A) ($0.04A) ($0.06A) ($0.18E) ($0.65E) 2013 Prior $0.06E 2013 Current $0.10E 8

9 Tax Equity Financing, Asset Sa les Mask A Weak Quarter - Nov ember 06, 2012 IMPORTANT DISCLOSURES: Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interes t. Important Disclosure Footnotes for Atlantic Power Corporation (ATP) 2a 2c 2e 2g Atlantic Power Corporation is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months. CIBC World Markets Inc. has managed or co-managed a public offering of securities for Atlantic Power Corporation in the past 12 months. CIBC World Markets Inc. has received compensation for investment banking services from Atlantic Power Corporation in the past 12 months. CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Atlantic Power Corporation in the next 3 months. 9

10 Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by CIBC World Markets Inc.: Stock Prices as of 11/06/2012: Atlantic Power Corporation (2a, 2c, 2e, 2g) (ATP-TSX, C$13.20, Sector Underperformer) Companies Mentioned in this Report that Are Not Covered by CIBC World Markets Inc.: Stock Prices as of 11/06/2012: Progress Energy Inc. (PGN-NYSE, $60.82, Not Rated) Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to Important Disclosure Footnotes" section of this report. 10

11 Key to Important Disclosure Footnotes: 1 CIBC World Markets Corp. makes a market in the securities of this company. 2a This company is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months. 2b 2c 2d 2e 2f 2g 3a 3b 3c 4a 4b 4c 5a 5b 6a CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the past 12 months. CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the past 12 months. CIBC World Markets Corp. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. This company is a client for which a CIBC World Markets company has performed non-investment banking, securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from this company in the past 12 months. This company is a client for which a CIBC World Markets company has performed non-investment banking, non-securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months. The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common equity securities. A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a long position in the common equity securities of this company. The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its common equity securities. 6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this company has a long position in the common equity securities of this company. 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company. 8 An executive of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has provided services to this company for remuneration in the past 12 months. 9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer, director or advisory board member of this company or one of its subsidiaries. 10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., has a significant credit relationship with this company. 11 The equity securities of this company are restricted voting shares. 12 The equity securities of this company are subordinate voting shares. 13 The equity securities of this company are non-voting shares. 14 The equity securities of this company are limited voting shares. 11

12 CIBC World Markets Inc. Price Chart HISTORICAL PERFORMANCE OF CIBC WORLD MARKETS INC. RECOMMENDATIONS FOR ATLANTIC POWER CORPORATION (ATP) Date Change Type Closing Price Rating Price Target Coverage 04/08/ SU Ian Tharp, CFA 06/20/ R - Ian Tharp, CFA 11/14/ SU Ian Tharp, CFA 11/21/ SP Ian Tharp, CFA 04/02/ SP Ian Tharp, CFA 06/26/ R - Ian Tharp, CFA 07/10/ SP Ian Tharp, CFA 10/23/ SU Ian Tharp, CFA 12

13 CIBC World Markets Inc. Stock Rating System Abbreviation Rating Description Stock Ratings SO Sector Outperformer Stock is expected to outperform the sector during the next months. SP Sector Performer Stock is expected to perform in line with the sector during the next months. SU Sector Underperformer Stock is expected to underperform the sector during the next months. NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock. R Restricted CIBC World Markets is restricted*** from rating the stock. Sector Weightings** O Overweight Sector is expected to outperform the broader market averages. M Market Weight Sector is expected to equal the performance of the broader market averages. U Underweight Sector is expected to underperform the broader market averages. NA None Sector rating is not applicable. **Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada. "Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues. ***Restricted due to a potential conflict of interest. Ratings Distribution*: CIBC World Markets Inc. Coverage Universe (as of 06 Nov 2012) Count Percent Inv. Banking Relationships Count Percent Sector Outperformer (Buy) % Sector Outperformer (Buy) % Sector Performer (Hold/Neutral) % Sector Performer (Hold/Neutral) % Sector Underperformer (Sell) % Sector Underperformer (Sell) % Restricted 9 2.4% Restricted % Ratings Distribution: Clean Power Producers Coverage Universe (as of 06 Nov 2012) Count Percent Inv. Banking Relationships Count Percent Sector Outperformer (Buy) % Sector Outperformer (Buy) % Sector Performer (Hold/Neutral) % Sector Performer (Hold/Neutral) % Sector Underperformer (Sell) % Sector Underperformer (Sell) % Restricted 0 0.0% Restricted 0 0.0% Clean Power Producers Sector includes the following tickers: AQN, ATP, AXY, BEP.UN, BLX, CSE, INE, NPI, SPZ. *Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting. Important disclosures required by IIROC Rule 3400, including potential conflicts of interest information, our system for rating investment opportunities and our dissemination policy can be obtained by visiting CIBC World Markets on the web at under 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161 Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request. 13

14 Legal Disclaimer This report is issued and approved for distribution by (a) in Canada, CIBC World Markets Inc., a member of the Investment Industry Regulatory Organization of Canada ( IIROC ), the Toronto Stock Exchange, the TSX Venture Exchange and a Member of the Canadian Investor Protection Fund, (b) in the United Kingdom, CIBC World Markets plc, which is regulated by the Financial Services Authority ( FSA ), (c) in Australia to wholesale clients only, CIBC Australia Ltd, a company regulated by the ASIC with AFSL license number and ACN , and (d) in Japan, CIBC World Markets (Japan) Inc., a registered Type 1 Financial product provider with the registration number Director General of Kanto Finance Bureau #218 (collectively, CIBC World Markets ) and (e) in the United States either by (i) CIBC World Markets Inc. for distribution only to U.S. Major Institutional Investors ( MII ) (as such term is defined in SEC Rule 15a -6) or (ii) CIBC World Markets Corp., a member of the Financial Industry Regulatory Authority ( FINRA ). U.S. MIIs receiving this report from CIBC World Markets Inc. (the Canadian broker-dealer) are required to effect transactions (other than negotiating their terms) in securities discussed in the report through CIBC World Markets Corp. (the U.S. broker-dealer). This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World Markets in Canada, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of wholesale clients of CIBC Australia Ltd. This report has been prepared by the CIBC group and is issued in Hong Kong by Canadian Imperial Bank of Commerce, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance, Cap 571 (the SFO ). This report is intended for professional investors only (within the meaning of the SFO) and has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Any recipient in Hong Kong who has any questions or requires further information on any matter arising from or relating to this report should contact Canadian Imperial Bank of Commerce, Hong Kong Branch at Suite 3602, Cheung Kong Centre, 2 Queen s Road Central, Hong Kong (telephone number: ). Orders for Hong Kong listed securities will be executed by Canadian Imperial Bank of Commerce, Hong Kong Branch. Canadian Imperial Bank of Commerce, Hong Kong Branch has entered into an arrangement with its broker-dealer affiliates worldwide to execute orders for securities listed outside of Hong Kong for Hong Kong clients. This report is intended for distribution in Singapore solely to accredited investors, expert investors and institutional investors (each, eligible recipients ). Eligible recipients should contact Danny Tan at Canadian Imperial Bank of Commerce, Singapore Branch at 16 Collyer Quay #04-02 Singapore (telephone number ) in respect of any matter arising from or in connection with this report. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC World Markets. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances. CIBC World Markets suggests that, prior to acting on any of the recommendations herein, Canadian retail clients of CIBC World Markets contact one of our client advisers in your jurisdiction to discuss your particular circumstances. Non-client recipients of this report who are not institutional investor clients of CIBC World Markets should consult with an independent financial advisor prior to making any investment decision based on this report or for any necessary explanation of its contents. CIBC World Markets will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal. CIBC World Markets accepts no liability for any loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable to CIBC World Markets. Information, opinions and statistical data contained in this report were obtained or derived from sources believed to be reliable, but CIBC World Markets does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by CIBC World Markets or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change 14

15 Legal Disclaimer (Continued) without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser. This report may provide addresses of, or contain hyperlinks to, Internet web sites. CIBC World Markets has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third -party web sites or follow such hyperlinks do so at their own risk. Although each company issuing this report is a wholly owned subsidiary of Canadian Imperial Bank of Commerce ( CIBC ), each is solely responsible for its contractual obligations and commitments, and any securities products offered or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance Corporation ( FDIC ), the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be deposits or other obligations of CIBC, (iii) will not be endorsed or guaranteed by CIBC, and (iv) will be subject to investment risks, including possible loss of the principal invested. The CIBC trademark is used under license CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets is prohibited by law and may result in prosecution. 15