#canpower14

INFRASTRUCTURE
JOURNAL

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INFRASTRUCTURE
JOURNAL

Dear Reader,
Welcome to Project Finance and Infrastructure Journals Canadian
Power Finance Briefing. This paper draws on the data and analysis of
Project Finance, the Project Finance Deals Database, and Infrastructure
Journal, which are now all part of Euromoney Institutional Investor.
This paper is designed to provide some context for the discussions of the
Fifth Annual Canadian Power Finance Conference, brought to you by
Project Finance and Euromoney Seminars. The event will take place on
28-29 January in Toronto, and will feature a more detailed look at our
market data.
You can find more information on the conference, and sign up at
http://www.euromoneyseminars.com/canadapower14. You can also
get updates on the event on twitter by looking for #canpower14
We also encourage you to take a look at Project Finances Deals
Database today and sign up for a free trial at:
http://www.projectfinancemagazine.com/freetrial.html
Finally, you can also find more information about, and take a free trial to,
Infrastructure Journal at http://www.ijonline.com
We look forward to welcoming you to the event, and answering any
questions you might have about this paper.

Tom Nelthorpe
Editor, Project Finance
Manjot Gobindpuri
Deals Database Co-Ordinator

WWW.PROJECTFINANCEMAGAZINE.COM

JANUARY 2014

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CANADIAN POWER INFRASTRUCTURE CONFERENCE

Market Snapshot: Infrastructure Journals Database complies information on the Canadian
power and renewables market to highlight trends within the market and the pipeline of
deals for the future. Showcasing the biggest lenders within the market and spread of
lending across the industry.

Canadian power and

renewables market
Canada power infrastructure market 2005-2013
US$m
6,100

25

5,490
Total value, US$m

4,880

20

Deal count
4,270
3,660

15

3,050
10

2,440
1,830

1,220
610

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Infrastructure Journal

Top lenders in Canadian power market 2005-2013

US$m

Deal count

2,500

30

2,250

Value invested, US$m

Deal count

2,000

25

1,750

20

1,500
1,250

15

1,000
10

750
500

250
0

0
BTMU Scotiabank

RBC

Dexia

CIBC

Mizuho

Deutsche Manulife Bank of

Bank Financial Montreal

SMBC

NordLB

Natixis

KfW

Source: Infrastructure Journal

WWW.PROJECTFINANCEMAGAZINE.COM

JANUARY 2014

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CANADIAN POWER INFRASTRUCTURE CONFERENCE

Pipeline of power projects by value of investments
Thermal
1%
Biofuels
0%

PV Solar
3%

Waste-to-energy 4%
Offshore wind 6%

Onshore wind
12%

Hydro
57%

Gas-fired
17%

Source: Infrastructure Journal

5 largest conventional power deals 2005-2013

Bruce-A Nuclear Power Plant Refurbishment
875MW Goreway CCGT Plant Refinancing
875MW Goreway CCGT Plant
570MW St Clair Ontario CCGT Plant
Lower Manhattan Hydropower
Portfolio Redevelopment

Subsector
Nuclear
Gas-fired
Gas-fired
Gas-fired
Hydro

Value
US$m
1,520
839
824
784
672

Financial
close
10/10/2007
02/07/2013
02/04/2006
30/05/2007
17/08/2010

Sponsors
Borealis, TransCanada
Toyota, Chubu Electric Power Co
Blackstone, Reservoir Capital
Invenergy, Stark Investments
Ontario Power Generation
Source: Infrastructure Journal

5 largest renewables deals 2005-2013

100MW Grand Renewable PV Solar Plant

Subsector
Onshore wind
Onshore wind
PV solar,
onshore wind
PV solar

150MW Grand Renewable Wind Farm

Onshore wind

272MW Seigneurie de Beaupre Wind Farm

270MW South Kent Wind Farm
268MW C2C Wind and Solar Portfolio

WWW.PROJECTFINANCEMAGAZINE.COM

Value
US$m
863
836
807

Financial
close
10/11/2011
18/03/2013
19/12/2012

613

27/09/2013

451

13/09/2013

Sponsors
Gaz Metro, Valener, Boralex
Samsung, Pattern Energy
Mitsui & Co, GDF Suez,
Fiera Axium Infrastructure
Connor Clark & Lun Infrastructure,
Samsung
Samsung, Pattern Energy
Source: Infrastructure Journal

JANUARY 2014

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EXCLUSIVE

POWER
DEAL ANALYSIS: Metlife and Fiera-Axium used staggered private placements and will use
staggered follow-on financings for their Borealis solar photovoltaic portfolio.

Project Borealis
Metlife and Fiera Axium will launch followon private placement financings early in
2014 for the C$460 million ($430 million)
Project Borealis solar photovoltaic portfolio
in Ontario. The placements will provide
additional leverage on the portfolio, which
was the subject of staggered construction
private placements that closed between
May and September 2013.
The financings illustrate that the Canadian
private placement market is increasingly
accommodating of the construction
financing requirements of solar
developers. Banks have retained a role in
construction financings for solar projects in
the country, even as they cede market
share in wind to the life insurance
companies that offer private placements.
But the financing for the four clusters of
PV projects that make up the Project
Borealis portfolio shows that life
companies can offer developers some
certainty over the spread they will pay on
debt. It was also structured to allow for
flexibility in how the sponsors raise
additional debt on the assets.
The two financial investors will acquire the
108MW portfolios four clusters from
developer Recurrent Energy at commercial
operations. They announced the
agreement in October, shortly after the
close of the last of the four construction
financings for the portfolio.
But the developer and buyers agreed form
documentation in May for the portfolios $390
million 19-year construction debt package
with National Bank Financial (bookrunner
and administrative agent) and Sun Life
(lead lender). Among the participants in the
debt were Sun Life, Great-West Life, Siemens
Financial, Caisse De Depot et Placement Du
Quebec, Desjardins and Business
Development Bank of Canada.
The deal is structured so that the private
placement debt funded as each cluster
entered construction in May, June, August
and September. Cluster one is subject to
C$63 million on construction financing,
and will close on another C$8.5 million in
debt at commercial operations. Cluster 2 is
subject to C$100.5 million in construction
debt, with C$33.6 million in debt to follow at
completion. Cluster three has C$77.2
million in construction and C$29.7 million
in follow-on debt. And cluster four has C$62
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million and C$13 million in construction

and follow-on debt, respectively.
Breaking down the deal into smaller
clusters eliminates some, though not all,
negative carry (paying interest rates on
unused proceeds greater than what they
earn on account), and, crucially, gives the
borrower spread certainty. The borrower
and lenders could hedge the risk of
movements in underlying benchmark
government of Canada bonds, at least
until the final cluster closed.

Recurrent Energy
Borealis Solar Portfolio
Financing
STATUS

Construction financing terms agreed

May 2013, staggered closings for
construction debt to September 2013,
additional financings at completion
still to come
SIZE

At completion, the assets will be able to

support a larger debt amount than was
necessary to fund their construction, and
the new owners, Metlife Capital and the
Fiera Axium Infrastructure Canada II fund,
can then close the additional bond issues
against the assets. The two sponsors are
contributing around C$77 million in equity.
The construction financing has been
structured to accommodate the presence
of slightly different lender groups, both
from one cluster to another and on the
follow-on financings for each cluster, which
required complex intercreditor provisions.
While there are no indications that any of
the lenders are likely to leave the financing
before the final clusters enter operations,
the structure allows the new owners to
manage any changes to the group.
The financing features a mechanism that
traps cash in the event that the portfolios
panels degrade ahead of projections and
the sponsors are unable to call on a
manufacturer warranty. This reserve first
appeared on the C$195 million bond
financing for NextEras 40MW St Clair
project, also in Ontario, which closed in
September 2012. The use of the reserve has
quickly become market standard, even for
deals like Borealis that are not rated.
The plants benefit from a 20-year feed-in
tariff priced at C$0.44 per kWh, and sell
power to the Ontario Power Authority under
a power purchase agreement of the same
length. The plants are located in Barrie, in
central Ontario to the north of Toronto, and
in London, in western Ontario.
The ability of the private placement market
to provide cost-effective and flexible
construction financing will create further
pressure on bank lenders active in the
Canadian market.

C$460 million
DESCRIPTION

108MW solar photovoltaic

portfolio in Ontario, Canada
OFFTAKER

Ontario Power Authority

DEVELOPER

Recurrent Energy
SPONSORS

Metlife Capital and Fiera Axium

Infrastructure Canada II
EQUITY

C$77 million
DEBT

C$390 million
ARRANGERS

National Bank Financial

and Sun Life
PARTICIPANTS

Sun Life, Great-West Life, Siemens

Financial, Caisse De Depot et
Placement Du Quebec, Desjardins
and Business Development Bank
of Canada.
ENVIRONMENTAL ADVISER
Hatch
INDEPENDENT ENGINEER
DNV
PANEL SUPPLIER
Celestica
INSTALLATION CONTRACTOR
PCL
OPERATOR
EDF Renewables.
INSURANCE ADVISER
Moore-McNeil.
DEVELOPER LEGAL COUNSEL
Torys
SPONSOR LEGAL COUNSEL
Gowling Lafleur Henderson
LENDER LEGAL COUNSEL
Borden Ladner

JANUARY 2014

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CANADIAN POWER
Northland Power continues its push into renewables as it seeks a PPA for a planned
pumped storage plant in Ontario. Its development slate will test the relationship lenders
it has cultivated. By Brian Eckhouse.

Pumped up
Northland Power has been adding capacity at an impressive rate.
The installed capacity of the Canadian independent power
producer (IPP) stood at 742MW in 2009. But John Brace, Northlands
president and chief executive officer, projects that it will have
1,325MW in service by the end of 2013, and over 1,500MW by 2016.
He expects Northland to more than double its Ebitda (earnings
before interest, taxes, depreciation and amortisation) by 2015.
New projects, including joint venture developments, and
acquisitions explain this sharp growth. The company owns 21.5MW
of wind capacity in Germany the Eckolstdt and Kavelstorf
facilities as well as a 19% stake in the 230MW Panda-Brandywine
plant in Maryland, which it acquired in 2004. But its growth, and
strong bank following, both result from its record in Canada.
Northland is developing the 400MW Marmora pumped storage
hydro project in Ontario, which will give lenders a chance to get
to grips with a rare asset type. It will also bring 70MW of solar
photovoltaic (PV) capacity to market, probably in two clusters,
and is nearing launch with a financing for the 60MW McLeans
Mountain wind project on Ontarios Manitoulin Island, for which
Manulife Financial will be the lead lender. Northland is
developing Manitoulin with the islands United Chiefs and
Councils of Mnidoo Mnising tribal council.
Northland rivals Brookfield, which has a larger footprint outside
Canada, and wider infrastructure and real estate interests, as a
top-tier Canadian IPP. Northland is mostly agnostic about fuel
types. About three-quarters of its fleet is gas-fired and wind makes
up the bulk of the rest, though it has small PV and biomass
holdings, and is developing hydro.
It develops power plants with the aim of managing them over their
full life-cycles and seeks assets with predicatable revenues from
long-term power purchase agreements. Our investors are looking
for stable, if not growing, dividends, Brace says. We need projects
that can deliver that.
u Marmora pumped storage
Northland is developing new PV and wind projects. But the
proposed Marmora pumped storage hydro project, with a cost
between C$700 million ($675 million) and C$800 million, has
attracted far more attention. It would have a capacity of 400MW
and a load when pumping for storage of 400MW.

Marmora would use a closed-loop open pit and an upper

reservoir, and when power prices are low, it will pump water into
that reservoir. When prices are higher, the plant will release water
downhill. An estimated 127,000MW of pumped storage is available
globally. Brace says that Ontario in general lacks the natural
geography for pumped storage to be viable, but that Marmora is
feasible. Northland proposes repurposing an old mining site,
located near major power lines, between Toronto and Ottawa.
Northland has argued to provincial leaders that Ontario needs a
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means of offsetting the variability of the 10,700MW of renewables

capacity that it may have online by 2018.
Third-party consultant Navigant produced a report that said that,
had Marmora been operational between 2009 and 2011, it would
have reduced curtailment of generators because of surplus
baseload generation by 35%, according to John Wright,
Northlands director of business development. Pumped storage,
Northland has suggested, generally enjoys lower capital costs
than other technologies. Marmora, it says, enjoys a strong position,
because it has a lower reservoir that is already filled with water,
and already has the materials for the upper reservoir in place.
Northland will build the project if it can sign an offtake agreement
of up to 40 years with the Ontario Power Authority, a provincial
agency. While pumped storage facilities tend to be very efficient
means of capturing differentials in market prices, Northlands
business model does not allow for it to take on significant
merchant risk. Northland hopes that any PPA for Marmora would
feature capacity payments, and allow it to raise debt for up to 80%
of project costs.
u Northlands back story
Northland was founded in 1987, near the onset of independent
power production in Canada. This was no coincidence. In the mid1980s, Ontario Hydro a publicly-owned provincial utility had
begun to lose its grip on its monopoly of the power, transmission
and distribution industries. The province broke Ontario Hydro up in
1999, but retains a significant role in Ontarios power sector.

Northlands first project was Canadas first power plant to use

unprocessed wood chips as fuel. It ran on excess wood waste from
a mill in Cochrane, Ontario, that had received cease-and-desist
orders for its glut of supply. That was the genesis of Northland,
says Brace, who joined the company in 1988. A later project,
Kirkland Lake, is said to be the first IPP in the country to close a
project financing with insurance companies.
Because we were early movers in independent power production,
we were national leaders from the get-go, recalls Brace, although
Northland only operated in Ontario at the time. Northland
developed projects that used biomass boilers, gas-fired turbines,
cogeneration or a combination of these configurations. The
opportunity to do gas-fired was vigorously pursued, Brace adds,
though that would prove difficult at first, because Western Canada
possessed much of the countrys gas reserves.
In the early days, there was no gas market in Ontario, Brace
recalls. Ontario Hydro bought and sold electricity, but didnt use
natural gas. This created a significant challenge, as there [were] no
system/tools in place for buying natural gas or reliably predicting
the cost over the long-term, except through a direct contract.
Northland attempted to resolve this gas-electricity puzzle, as
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CANADIAN POWER

The site of Northlands proposed Marmora pumped storage project in Ontario.

Brace labels it. On our 66th try, we were successful at bridging the
gap between the gas producers and the electricity producers,
Brace says. Indeed, Northland helped make its name by
transporting natural gas.
In 1997, Northland set another precedent when it closed a C$308
million initial public offering (IPO) for the Northland Power Income
Fund the first public offering of an independently power project
in Canada. Some of Northlands peers soon copied its strategy. The
fund launched as a single-asset venture, but soon bought more
assets to diversify its portfolio and limit its exposure. By 2009, it
indirectly owned equity in six power projects.
In 2011, Northland merged with the fund, which it had managed
through its wholly-owned subsidiary Northland Power Income
Fund Management, simplifying its development and operational
activities. The fund became less useful when Canada phased out
the pass-through tax treatment of income funds. Northland had to
be nimble to seize opportunities in gas-fired generation in Ontario
renewables, where province of Ontario was using a feed-in tariff to
encourage development. It was kind of a no-brainer to put the
companies together, says Paul Bradley, who joined Northland as
chief financial officer in 2011.
u Bradley joins
Bradley had been familiar with Northland for more than a
decade before he joined as CFO. He first dealt with the company
whilst at CIBC, which he had joined in 1997, just as the funds IPO
closed, and got to know Brace and Tony Anderson, his
predecessor as CFO.

After Bradley left CIBC, he shifted to advisory work, with Northland

as his first client. Bradley then joined the OPA, where he was a
counterparty to Northland. Bradley helped launch the agency,
managing the tenders for independent power production and
negotiating PPAs. Bradley then moved to Macquaries office in
Toronto after two years at the OPA.
Shortly after that, Northland called to gauge his interest in
replacing Anderson, who was retiring from that post. But Bradley
initially declined the offer, saying he wanted to help build
Macquaries business in Toronto. Northlands merger was also
looming. But when Northland later asked Bradley to help find
Andersons successor, he reconsidered.
u Building

relationships
Northland depended initially on Canadian lenders for nonrecourse debt, often life-insurance companies. BMO, CIBC, Manulife,
Scotiabank and Sun Life are among Northlands relationship
lenders. But as Northland and its projects gained in size, it started
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building up a larger lender base beyond Canada. Its push into

renewables would require access to a wider universe of lenders.
In 2007, Northland closed a C$244 million syndicated loan
package with four international lenders Allied Irish Bank (AIB),
Bank of Tokyo-Mitsubishi UFJ, Fortis and Union Bank. The debt
supported Northlands 265MW Thorold cogeneration project on the
Canadian side of Niagara Falls, and broke down into a C$207.5
million construction and term loan, and a C$36.5 million letter of
credit facility. The loan was part of a larger $451 million financing
package, and complemented a C$207 million institutional tranche
led by Manulife and Sun Life.
Northland added to its pool of relationship lenders in August 2010
with the C$580 million debt package for its 265MW North
Battleford combined-cycle project in Saskatchewan. Union Bank
was a lead lender in that deal, which featured a mini-perm, and
attracted international lenders AIB, Bayern/LB, Helaba, Mizuho,
Natixis, Siemens Financial Services, SG and Sumitomo Mitsui
Banking Corporation.
North Battleford was Northlands second Saskatchewan gas-fired
project to close a non-recourse financing in 2010. The 86MW Spy
Hill peaker preceded it, in the second quarter of 2010. Both plants
benefit from 20-year power purchase agreements with SaskPower,
the provincial-owned utility. Tonys vision at the time was this:
With North Battleford being so easy to understand, you get the
banks in, then get them ready for the coming renewables deals,
Bradley says.
u Recent activities
Union Bank has emerged as a regular Northland lender. It also
was a lead on a long-dated C$227 million term loan for 60MW of
ground-mounted solar photovoltaic capacity, a financing that
closed in mid-2012.

In January, Northland closed its first-ever rated project bond for

Spy Hill. The A-rated private placement was 3.5x oversubscribed
and had a coupon of 4.14%. Northland may look to refinance
North Battleford in the Canadian private placement market after
operations begin this year. Our goal is to close the last open switch
in the project created by the spread risk on the mini-perms,
Bradley said earlier this year.
Earlier in 2013, Northland bought a controlling interest in
Canadian Environmental Energy Corporation, which controls the
voting shares in Kirkland Lake Power, the owner of the 132MW
Kirkland Lake project. It also bought all the shares in Capais Power
Services, the owner of the 40MW Cochrane project, from the
Probyn Group. Northland has been the operator of both projects.
JANUARY 2014

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POWER
DEAL ANALYSIS: Northland Power tempts investors hungry for rare, well-rated paper
supporting gas-fired generation with its first-ever project bond issue, for its Spy Hill peaking
power plant, and strengthens its name in the Canadian private placement market.

Spy Hill
Northland Power closed a C$156.3 million
($157.3 million) private placement
supporting its 86MW Spy Hill plant on 21
January. The 4.14% senior secured
amortising series A bonds were 3.5x
oversubscribed, thanks in part to A rating
from DBRS. The bonds will fully amortise in
March 2036, six months before the expiration
of the projects offtake agreement, and have
an average life of 15 years.
The PPP bond market in Canada is the
healthiest in the world, though it has
suffered from a drop in volumes in recent
months. But investment-grade bonds for
generation assets Canada are rare, with
the exception of hydro projects. Private
placements for wind projects are a little
more common, though these are
essentially long-dated loans with
institutions, and there are signs of an
increase in activity in solar, but gas-fired
generators are infrequent borrowers
Spy Hills solid performance and generous
power purchase agreement with SaskPower,
which is almost as friendly to lenders as a
PPP contract, helped it attract an A rating.
The 86MW peaking power plant started
operations in October 2011 and is located in
Saskatchewan, 230km east of Regina.
The availability component of the PPA tariff
covers about 83% of the base case
revenue, with the rest dependent on
production levels. The 25-year PPA transfers
market, fuel and volume risks to the utility,
though Spy Hill retains performance risk
and must meet minimum availability and
heat rate requirements. Spy Hill has
achieved 97.6% availability at its two
LM6000-PF General Electric combustion
turbines. Effectively, the projects
profitability does not depend on how much
electricity is produced but only that its
generation is available if called upon by
SaskPower, according to the DBRS report.
The financing features a six-month debt
service reserve backed by a letter of credit,
two maintenance reserves, and has a
minimum debt service coverage ratio of
1.7x, according to DBRS.
It will repay an existing C$110.5 million
bank financing, which closed in April 2010,
and settle almost C$33 million in interest
rate swaps. Northland will receive a
roughly C$5.6 million distribution, and
distributions are allowed if Spy Hills
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reserves are fully funded and if it meets a

1.2x historical senior DSCR test. Since the
original bank deal closed, the project has
made C$15.6 million in distributions.

in debt, but also because it wanted to

build new relationships to support a
planned C$1 billion slate of greenfield
renewables financings.

Casgrain & Company and CIBC, the leads

on the Spy Hill issue, held road shows in
Montreal and Toronto and a national call
with investors. BMO Nesbitt Burns, National
Bank Financial and Scotiabank rounded
out the bond syndicate.

Whereas Spy Hill was a strictly Canadian

deal CIBC, BMO and Scotiabank were the
lead arrangers North Battleford featured
Union Bank as a lead alongside BMO and
CIBC; participating banks included Allied
Irish Banks, Mizuho, Siemens, Socit
Gnrale, Sumitomo Mitsui Banking
Corporation, BayernLB, Helaba and
Natixis. The North Battleford mini-perm,
which closed in August 2010, has a tenor of
construction plus seven years.

Casgrain, which is based in Montreal,

helped bring in several Quebec
participants, and Quebec institutional
investors account for half of the issue. The
debt attracted 26 accounts, among them
pension funds, mutual funds and some
small life insurance companies. Its the
beginning of the year, so a lot of investors
have funds available and theres a lot of
pent-up demand for gas-fired bonds,
explains a market observer.
The mini-perm financing for the plant had
four years remaining, giving the sponsors
ample time and opportunity to refinance
the debt. But Northland wants to reduce its
refinancing risk, first with Spy Hill and soon
on the bank debt for its 265MW North
Battleford gas-fired combined-cycle
project, also in Saskatchewan. Our goal is
to close the last open switch in the project
created by the spread risk on the miniperms, says Paul Bradley, Northland chief
financial officer in Toronto.
Spy Hill is Northlands first-ever rated bond
issue, though it has issued corporate
convertible bonds, and has received a
corporate income fund stability and
sustainability rating in the past. The sponsor
has relationships with the life insurance
companies that offer placement debt to
generation projects but the rated market
typically offers cheaper pricing. A private
placement will probably not work for the
refinancing of North Battleford either, since
that deal will be bigger and require a
much broader investor base. Spy Hill will
serve to introducer Northlands fleet to the
rated markets deeper pool of investors.
This wider bond market access will
complement Northlands efforts to
expand its bank following. When it began
the financing process for North Battleford,
it wanted to attract international lenders
to join their Canadian brethren, partly
because it needed to find C$580 million

Northland expects North Battleford to begin

operations in the second quarter of this
year, and for a bond refinancing to follow
soon afterwards potentially before yearend. Its second batch of solar projects could
come to market in the second quarter, and
their financing will have a strong
international presence. For the 30MW solar
deal, Northland is asking banks for debt
with an 18-year tenor, about eight years
longer than Canadian banks prefer. In July
2012, Northland closed an 18-year C$227
million debt financing with Union Bank,
Mizuho and CIT for 60MW of groundmounted solar projects.

Spy Hill Power LP

STATUS

Closed 21 January 2013

SIZE

C$156.3 million ($157.3 million)

DESCRIPTION

Refinancing of 86MW peaking power

plant in Saskatchewan, Canada
SPONSOR

Northland Power
BOOKRUNNERS

Casgrain & Company and CIBC

DEALERS

BMO Nesbitt Burns, National Bank

Financial and Scotiabank
SPONSOR FINANCIAL ADVISERS
Casgrain & Company and CIBC
SPONSOR LEGAL ADVISER
Borden Ladner Gervais
BOOKRUNNER LEGAL ADVISER
McCarthy Ttrault

JANUARY 2014