In a special letter to stakeholders (see below), John Keppler, chairman and chief executive officer of Enviva Partners, LP, announced that, to date, the partnership’s operations have not been significantly impacted by the outbreak of a novel strain of coronavirus (COVID-19). In addition, the partnership’s liquidity remains robust, with substantial availability under our $350 million revolving credit facility. With no debt maturities until 2023, our conservative balance sheet is supported by contracted revenues under long-term, take-or-pay off-take agreements that fully contract our production capacity with a weighted-average remaining term of 11.4 years and a revenue backlog of $10.6 billion as of Feb. 1, 2020, without accounting for the additional contracts held at our sponsor. These agreements have fixed pricing and fixed volumes, which ensure that they do not expose our business to volatility in the price of crude oil, natural gas, or other energy commodities.
We currently expect to make every delivery required under these agreements and, as such, the partnership reaffirms its previously announced distribution guidance of between $2.87 and $2.97 per common unit for full-year 2020, before considering the benefit of any acquisitions or drop-down transactions.
“As critical baseload and dispatchable renewable energy producers, our customers require our product now more than ever,” said Keppler. “Although the current COVID-19 environment remains fluid and uncertain, we believe the flexibility and resiliency of our operations, the designation of our business as critical infrastructure by government authorities, and the decisions we are making to protect our people and our communities, will enable us to continue to safely, stably, and reliably maintain production levels and deliveries.”
“Our business is built on long-term contracts with fixed volumes and fixed pricing that are not impacted by crude oil, natural gas, or other energy commodity prices,” added Keppler. “We believe our operations and business model remain well-positioned to continue our track record of sustainably growing distributions to our unitholders.”
Special letter to stakeholders follows below:
Dear Enviva Stakeholders,
Like many of you, we have spent a great deal of time over the last few weeks adapting to a new way of working and living. Our number one priority in these times is to ensure the health and well-being of our employees, their families, and the communities that surround them. Enviva is a business deeply rooted in places around the world, large and small, urban and rural, and we are taking extra steps to make our work environment as safe as possible for continued operations, especially in light of COVID-19. For some locations that means staggered work schedules and teleworking to the greatest degree feasible, while for others it means restricted access and limiting personnel in certain places. At every site we are undertaking the cleaning and social distancing protocols the Centers for Disease Control and Prevention indicates will mitigate the spread of the disease. We are also exercising extra caution by working to identify and help care for people who demonstrate symptoms of any sort to ensure they are healthy and safe before coming into our workplaces.
We need to keep working because our business supplies essential fuel for heat and power across the globe. It makes me immensely grateful and proud to see the efforts our employees are putting into this mission, and I continue to believe we are well-positioned to succeed because of the way we have built our business.
Our operations are continuing as critical infrastructure
We specifically designed our operations and logistics systems with flexibility and redundancies, so they are capable of effectively responding to unforeseen events. Together with our sponsor, we operate a portfolio of eight wood pellet production plants geographically dispersed in areas with low population density across the Southeast U.S. We export our product from a portfolio of four bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. These operations currently are unaffected by COVID-19.
In the United States, government-issued guidance identifies biomass energy, forestry, and wood products as industries essential to continued critical infrastructure viability, and this guidance generally has been followed by states in which we operate. If needed, we have contingency and business continuity plans in place we believe would mitigate the impact of potential business disruptions. We have made additional plans to reduce shifts, share workforces, and reassign corporate and regional support personnel to ensure we can continue to be in the plants, terminals, and woods to safely, stably, and reliably perform essential responsibilities that cannot be undertaken from home.
We are not impacted by fossil fuel and other commodity price volatility
Many industrial and energy companies have been negatively affected by current volatility in fossil fuel and other energy commodity prices. We are different. Our wood pellet production capacity is committed under long-term, take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power, or heat. Our off-take contracts, together with those held by our sponsor, have a weighted-average maturity of 13.8 years and a contracted sales backlog of $19.6 billion as of Feb. 1, 2020. It’s also worth noting that most of our current deliveries are to Europe, where they fuel grid-critical baseload, dispatchable generation facilities that provide power and heat required for local communities to navigate through their own COVID-19 responses. There are few substitutes or alternatives to the fuel we supply to our energy generating customers, each of whom is in compliance with their agreements with us, including payment terms.
Our financial condition is strong
Our cash conversion cycle remains quick and we are not experiencing delays in customer or supplier payments. Our balance sheet and liquidity position are strong, with the majority of our $350 million revolving credit facility available for drawings. Our revolving credit facility does not mature until late 2023, our unsecured notes do not mature until 2026, and we have no other debt maturities. We continue to maintain moderate leverage and target a leverage ratio (total debt, net of cash, to adjusted EBITDA) range of 3.5 to 4.0 times, with a leverage ratio under our revolving credit facility of 3.6 times as of year-end 2019.
Some companies have been required to cut their distributions or capital investments as a result of global instability, recessionary expectations, low and volatile commodity prices, and anticipated reductions in customer volumes. We do not believe we will have to take such measures given the fully contracted nature of our business. We do, however, remain vigilant about the unfolding global crisis and continue to monitor and manage the impact on our business of potential health, safety, and other risks associated with the COVID-19 pandemic. As I noted earlier, we have not experienced these issues in any significant way to date either, and we believe we have plans that would mitigate their potential impact. Thus, although we recognize the significant and evolving uncertainty, given the stability of our operations and the fully contracted nature of our business, we are reaffirming our previously announced distribution guidance of between $2.87 and $2.97 per common unit for full-year 2020, before considering the benefit of any acquisitions or drop-down transactions.
We continue to grow
It is not yet clear what, if any, long-term implications may result from COVID-19’s impacts around the world, but our firm contract backlog continues to increase. We recently announced that one of our sponsor’s previously disclosed contingent long-term off-take contracts had become firm. We believe this important development and the progress we continue to make on additional agreements with existing and potential customers confirm Enviva’s pivotal role in the global energy transition away from traditional fossil fuels, allowing customers and their governments to achieve their CO2 reduction goals in a cost-effective manner, even during times of economic turbulence.
We and our sponsor continue to progress development of new assets and construction projects. Although government-imposed travel restrictions and lock-downs could impact deliveries of equipment or workforce availability as the COVID-19 response continues to evolve, our expansions at the Northampton and Southampton plants, as well as the construction of our sponsor’s newest plant in Lucedale, Miss., and the associated marine terminal at the Port of Pascagoula, have not been impacted to date. Our sponsor’s development pipeline remains robust and current events have not significantly interfered with its assessment and development of new plants and terminals. Our sponsor remains committed to the growth profile of the business, including its highly visible drop-down pipeline of fully contracted plants and terminals.
We are supporting our communities
We also are working hard to help those affected by COVID-19 in our communities. In addition to the positive local economic impact we are making by keeping our employees working and our supply chain running, we are supporting people in need. For instance, school closures mean no meals for some of our communities’ children. In response, we are providing meals for underserved students and funding local food banks. We also are providing meals and boxed food deliveries to support hospital personnel, which is especially important as those essential services staff up in crisis response. In our rural communities where internet connections sometimes are slow or limited, we are providing additional connectivity to facilitate telework and online school activities for families. Unfortunately, we expect more trying situations will arise in the coming weeks and months, but we will endeavour to continue to do our part.
I am proud and grateful for the incredible work of the Enviva team and I want to personally thank each one of our associates for their hard work and dedication. The work we do ensures our customers receive the fuel they need to keep their critical operations going. Our role has never been more important. That is a privilege and a responsibility.
I hope you and the people you hold dear remain safe, and my very best regards to you,
Chairman and chief executive officer