Drastic Changes to the Company Causes a 48% Dip – XPLR Infrastructure (Previously NEP) 4Q24 Report

As predicted in my last article, the dividend cut has severely punished $XPLR Infrastructure, LP(XIFR)$ (previously $NextEra Energy Partners LP(NEP)$) share prices. They announced an indefinite 100% cut in dividend distributions, and the prices dropped by a whopping 48%. Since the last all-time high, the total losses have amounted to ~87% trading price as of the publishing date of this article.

This article will be a wild ride since there is a LOT to cover about their 4Q24 report, so grab your popcorn!

Name Change & Corporate Reorganization

Let’s start with the elephant in the room, NextEra Energy Partners has rebranded to XPLR Infrastructure.

While there was no explicit explanation for this change, their announcement of a new strategic positioning suggests that it will align with their focus on moving from an acquisition-driven business model to investing in existing assets and infrastructure.

There were also changes to their Leadership and Management teams due to their new ‘strategic repositioning’.

Resignations:

• John W. Ketchum (CEO)

• Rebecca J. Kujawa (President)

• Brian W. Bolster (CFO)

• James M. May (Chief Accounting Officer) – but remains as Controller.

New Appointments:

• Alan Liu (new CEO & President)

• Jessica Geoffroy (new CFO)

There is very limited public information about Alan Liu’s professional background, and according to XPLR’s report, he has been with NextEra Energy since 2021. He started as a Director in Corporate Development (2021-2022), then moved on to Director of Risk Management (2022-2024), and was also serving as Vice President of the Partnership. Previously he worked in Investment Banking at Goldman Sachs, which seems to have been a big industry shift when joining NextEra Energy.

The limited information available does not provide strong confidence that XPLR will be in good hands, so Alan Liu will be put to the test for the next couple of years.

On the other hand, information about Jessica Geoffroy’s experience in financial strategy and investment within the energy sector is widely available and aligns with her new role as CFO.

Business Strategy Changes

Distribution Suspension & Strategic Repositioning

XPLR announced they are going to suspend its distributions (dividends) to facilitate its move to a business strategy that does not include equity issuance and focuses on capital allocation using retained cash flow. Their capital allocation plan is:

• Fund cash buyout of selected Convertible Equity Portfolio Financings (CEPF)

• Invest in their existing asses for higher returns (wind repowering & battery renewable portfolio)

• Exploring additional growth opportunities via new renewable projects

• Return capital to shareholders via buybacks.

To explain the recent changes in the business, we first need to discuss the previous strategy.

XPLR initially focused on providing cash distributions to shareholders (unitholders) and gradually increasing these distributions by acquiring renewable projects.

One of the financing methods they used was through convertible notes. This structure allowed them to raise capital by offering notes that investors could purchase with the option to later convert their investment into equity (shares) in the company, such as through Convertible Equity Portfolio Financing (CEPF).

In January 2025, XPLR provided a more detailed account of their CEPFs, unlike in previous reports. They have five CEPFs and intend to buy out three of these portfolios by 2027. They confirmed they have sufficient balance sheet capacity to refinance approximately $2.8 billion of debt maturities and CEPF buyout payments in 2025 and 2026. Their plan is as follows:

• CEPF 1 (2025) - Use balance sheet and cash ($945 million)

• CEPF 2 (2025) - Sale of Meade pipeline assets ($150 million)

• CEPF 3 (2027) - Sale of underlying assets ($465 million, unconfirmed if it’s from the Meade sale)

• CEPF 4 minimum buyouts (2029-2032) - Use cash flow

• CEPF 5 minimum buyouts (2026 and 2027, 2030-2034*) - Use cash flow

*The CEPF 5 has an approximate $1 billion buyout payment due in 2030, but XPLR has worked with the investor to create an option to restructure it into smaller payments through 2034 so they can fund it using their cash flow (more details in the Transactions & Agreements section below in this article). 

Key Financial Transactions & Agreements

Genesis Solar Holdings Buyout Agreement

Back in 2020-21, XPLR sold 100% of Class B membership interests in Genesis Solar Holdings (one of their solar power subsidiaries) to other investors, and in their agreement, they had the option to repurchase these membership interests between the fifth and tenth anniversaries of the initial funding, which corresponds to the period from 2025 to 2030.

For context, Class B membership interests still receive profits, but their share is smaller at 25%, compared to XPLR's 75% share in profits (as they own Class A interests).

In case XPLR decides to go ahead with the repurchase, they would need to meet very strict conditions:

• Buy an extra $945M worth of convertible equity interests in NEP Renewables II, LLC by June 2025 (another solar power project)

• Buy at least 10% of the investors' share by 2026.

• Buy at least 40% by 2027.

• Buy at least 65% or pay off $400M in debt by 2030.

However, they now have an option to extend their buyback deadline from 2030 to 2034. Should they decide to extend it, they will have to pay investors a guaranteed return of 9.75% per year from 2030 onwards.

If XPLR is unable to buy enough membership interests by the deadlines, the profit split will change drastically:

• Only 1% of profits will go to XPLR until they catch up on the conditions

• 85% of XPLR’s recently acquired Class B membership interests will go back to the investors until the buyout requirements are met

While XPLR has not publicly confirmed specific plans to repurchase interests, the combination of existing buyout options and the recent business strategic changes indicates that such repurchases may be under consideration. Should this be the case, we may see potential repurchase activities starting this year (2025), in line with the terms outlined above.

 Balance Sheet & Financials

Adjusted EBITDA increased 4.47% in 2024 compared to 2023, and in the last five years, XPLR has delivered an average of 11.2% adjusted EBITDA growth per year. Management advised they expect EBITDA to be flat year over year in 2025 and there might be some negative impact on these numbers depending on the Meade pipeline sale investment expected for the 4Q25.

Cash Available for Distribution (CAFD) decreased by 4.78% to 656 million in 2024 compared to 2023. XPLR is changing its cash flow expectations metric to Free Cash Flow Before Growth (FCFB) since CAFD is no longer meaningful due to dividend cuts. The expectation for FCFB in 2025 is to have an impact of approximately $945 million, and it should remain in the range of $600-$700 million from 2026 to 2030.

Operating Cash Flow (OCF) increased by 9.43% compared to 2023, driven by $538 million goodwill impairment, better earnings from equity investments, and fewer losses on asset sales.

Free Cash Flow (FCF) increased from -$538 million in 2023 (negative FCF) to $559 million in 2024, mostly due to a massive drop of more than $1 billion in investment spending.

The Debt to EBITDA Ratio decreased by 19.10% compared to 2023, from 3.35 to 2.71. XPLR managed to pay off $975 million in total debt in 2024. Management noted during their earnings call that they anticipate an increase of $1.5 billion in new debt to fund their growth strategy. They clarified that this new debt will not be issued through convertible equity notes, as they are moving away from that approach.

Book value per share decreased by 8.1% to $138 in 2024, mostly caused by the goodwill write-down and dividends distributed for the year. Currently, the company is trading at around 6% of its book value (in other words, peanuts). It will be important to monitor for any further write-downs that could indicate overvalued assets and could punish the stock even more.

 NextEra Energy ($NextEra(NEE)$)

XPRL is a subsidiary of NextEra Energy. In the most recent report from NextEra Energy, their investment in XPRL was determined as ‘other-than-temporarily impaired’ due to a significant decline in the trading price. This decline is not simply a temporary fluctuation, it indicates a long-term or permanent loss in value. As a result, they announced an impairment charge of $800 million on their balance sheet, signifying that these losses are not expected to recover in the near future.

It is important to note that XPLR advised there is no change to its existing relationship with NextEra Energy, its largest unitholder. They will continue to benefit from the same operational expertise provided by them.

 Future Expectations

Expansion in Infrastructure Investment

• XPLR expects to complete its previously announced 1.6-GW repowering program by mid-2026.

• Beyond renewables, potential growth in co-located storage, and related energy infrastructure but nothing very specific was announced.

 Regulatory & Market Risks

• Potential changes in U.S. clean energy incentives could impact project economics.

• Trade tariffs and political factors can affect costs and project execution.