October 4, 2019
Agera Energy LLC, a retail electricity and natural gas provider to commercial, industrial and residential customers filed for bankruptcy in the Southern District of New York. The company blames, among other things, mismanagement and poor strategy for the run-up to its financial problems: too many low margin fixed contracts in an environment that calls for variable contracts proved to be an albatross. Nevertheless, in September ‘18, sponsor Eli Global LLC agreed to pursue a turnaround plan including any and all capital infusions that might be necessary.
But then the hammer dropped. New management discovered “material balance sheet issues, which led to a restatement of the Debtors’ financials. Specifically, as of August 31, 2018, there was approximately $39 million of over stated receivables, of which $37 million related to unbilled receivables. As a result of the foregoing discovery, the Debtors suddenly found themselves in breach of the Senior Lien Supply Agreement’s $16 million Tangible Net Worth covenant.” WHOOPS.
Thereafter, the company and its lenders operated pursuant to a series of forbearance agreements while Eli Global LLC made millions of dollars of capital contributions. Until they didn’t. In May, Eli Global indicated that it was no longer in a position to inject capital into the business — and it still had $21mm in commitments from that point forward. Without the capital, the company was unable to satisfy, among other things, renewable portfolio standards it is subject to.* This dominoed into a separate liability for the company of approximately $72mm and a slate of enforcement actions from the Massachusetts Department of Energy Resources, the Rhode Island Public Utilities Commission and the New Hampshire Public Utilities Commission that threatened the debtors’ ability to sell electricity or natural gas in those states. Consequently, the debtors initiated a strategic alternatives review process which, naturally, included a marketing process for the sale of the debtors. The company now has Exelon Generation Company LLC lined up as a stalking horse purchaser (for the debtors’ contracts) for $24.75mm.
*RPS laws require a certain portion of a state’s electricity consumption to be generated from renewable sources, such as wind, solar, biomass, geothermal, or hydroelectric.
Jurisdiction: S.D. of New York (Judge Drain)
Capital Structure: $161.6mm Senior Lien Supply Agreement and Senior Lien ISDA Master Agreement (BP Energy), $35mm Second lien Revolving Credit Facility (Colorado Bankers Life Insurance Company)
Legal: McDermott Will & Emery (Timothy Walsh, Darren Azman, Ravi Vohra, Debra Harrison)
Independent Manager: Stephen Gray
Financial Advisor: GlassRatner Advisory & Capital Group LLC
Investment Banker: Miller Buckfire & Co. LLC & Stifel Nicolaus & Co. Inc.
Claims Agent: Stretto (*click on the link above for free docket access)
Other Parties in Interest:
DIP Lender: BP Energy Company
Legal: Haynes and Boone LLP (Charles Beckham Jr., Kelli Norfleet, Arsalan Muhammad, Kathryn Shurin)
Stalking Horse Bidder: Exelon Generation Company, LLC
Legal: McGuireWoods LLP (Cecil Martin III)
Legal: Otterbourg PC (Melanie Cyganowski, Eric Weinick)