8-K: FTAI Infrastructure Completes Acquisition of Long Ridge Energy & Power, Issues Convertible Preferred Stock

FTAI Infrastructure Inc. finalizes the acquisition of Long Ridge Energy & Power, issuing Series B Convertible Junior Preferred Stock and related agreements.

Summary

• FTAI Infrastructure Inc. acquired 100% of LIF LR Holdings LLC, gaining full control of Long Ridge Energy & Power LLC.
• The consideration included a $20 million promissory note, $9 million in cash, and 160,000 shares of Series B Convertible Junior Preferred Stock.
• The Series B Preferred Stock ranks senior to common stock and junior to Series A Preferred Stock regarding dividends and asset distribution.
• It carries a quarterly compounding dividend of 9.00% per annum if paid in cash, or 10.00% per annum if paid-in-kind.
• The company is obligated to repurchase the Series B Preferred Stock upon a change of control at 102% of the liquidation value.
• The company has the right to redeem the Series B Preferred Stock at any time, with specific prices and warrant issuance depending on the timing.
• Each share of Series B Preferred Stock is convertible into common stock at a conversion price initially set at $8.18, subject to adjustments.
• Conversion is limited by a share cap of 22,237,370 shares and a beneficial ownership limitation of 19.99% of outstanding common stock.
• Holders of Series B Preferred Stock have limited voting rights, primarily concerning senior equity issuances and adverse changes to their rights.
• The company entered into an Investor Rights Agreement with GCM affiliates, covering registration rights, refinancing rights, and board representation.
• Ares Management LLC amended its warrant agreement with the company, receiving warrants for 550,000 shares of common stock at $10.00 per share.
• The company issued an option to its manager, FIG LLC, to purchase 2,852,049 shares of common stock at $5.61 per share.
• Matthew Rinklin, a Managing Director at GCM Grosvenor, was appointed as a Class II director to the board.
• The Series A Preferred Stock certificate was amended to permit the Long Ridge Acquisition and the Series B Preferred Stock issuance.
• The company cautions that forward-looking statements are subject to risks and uncertainties, as detailed in their SEC filings.

Sentiment

Score: 6

Explanation: The document is neutral in tone, detailing a complex financial transaction. While the acquisition itself could be seen as positive, the associated financial instruments and potential risks temper the overall sentiment.

Positives

• The acquisition consolidates FTAI Infrastructure's control over Long Ridge Energy & Power.
• The Series B Preferred Stock offers a potentially attractive dividend yield.
• The Investor Rights Agreement provides GCM with board representation and certain protections.
• The Series A amendment allows for greater flexibility in dividend payments on common stock.

Negatives

• The Series B Preferred Stock has limited voting rights.
• Conversion to common stock is capped and subject to ownership limitations.
• Dividends on common stock are restricted until Series A Preferred Stock holders receive accrued dividends.
• The company is taking on additional debt and preferred equity obligations.

Risks

• The company's ability to realize the anticipated benefits of the Long Ridge Acquisition is uncertain.
• Regulatory approvals for the Long Ridge Acquisition may be subject to unanticipated conditions.
• Future electricity and gas prices, exchange rates, and interest rates could impact performance.
• Changes in tax laws and regulations could affect the company's financial results.
• Competitive developments in the energy sector pose a risk.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including those related to the Long Ridge Acquisition, regulatory approvals, and market conditions.

Management Comments

• Management is focused on realizing the anticipated benefits of the Long Ridge Acquisition.
• Management is aware of the risks and uncertainties associated with forward-looking statements.

Industry Context

The announcement reflects a trend of infrastructure companies consolidating assets and utilizing complex financial instruments to fund acquisitions.

Comparison to Industry Standards

• Comparable companies in the infrastructure space, such as Brookfield Infrastructure Partners and Global Infrastructure Partners, often use a mix of debt and equity to finance acquisitions.
• The dividend yield on the Series B Preferred Stock is within the range of yields offered by other preferred equity securities in the infrastructure sector.
• The use of warrants and convertible securities is a common practice in infrastructure deals to provide flexibility and potential upside to investors.
• The board representation rights granted to GCM are typical in private equity investments of this size.

Management Changes

Corporate Governance

Related Party Transactions

• The company issued an option to its manager, FIG LLC, to purchase 2,852,049 shares of common stock at $5.61 per share.

Stakeholder Impact

• Shareholders: Potential dilution from conversion of preferred stock and exercise of warrants.
• Employees: Potential impact on job security and compensation depending on the success of the acquisition.
• Customers: No immediate impact expected.
• Suppliers: No immediate impact expected.
• Creditors: Increased debt and preferred equity obligations.

Next Steps

• File financial statements of the business acquired and pro forma financial information within 71 days.
• Prepare and file a resale registration statement for the shares of Common Stock into which the Series B Preferred Stock is initially convertible no later than 30 days following the filing of the company's annual report on Form 10-K for the year ended December 31, 2024.

Key Dates

Keywords

acquisition, preferred stock, infrastructure, energy, convertible, warrants, dividends, governance, Long Ridge, FTAI