CASE SUMMARY: Liberty Power Holdings Subject to ‘Perfect Storm’ of ERCOT Price Hikes in Wake of Winter Storm Uri; Looking to Prepetition Credit Support Provider for DIP Financing

Relevant Documents:
Voluntary Petition
First Day Declaration
Motion to Compel Turnover
First Day Hearing Notice
 

Summary
Liberty Power Holdings is a retail electricity provider servicing 14 states, including Texas
Filed in the wake of Winter Storm Uri and related electricity price hikes by the Electric Reliability Council of Texas
Says negotiating final terms of use of cash collateral and DIP financing from Boston Energy Trading and Marketing LLC, or BETM, which provides funding and capital to Liberty under a prepetition supply agreement

Liberty Power Holdings LLC, a Fort Lauderdale, Fla.-based retail electricity provider servicing 14 states, filed for chapter 11 protection on Tuesday, April 21, in the Bankruptcy Court for the Southern District of Florida as the latest victim of severe wholesale electricity price hikes by the Electric Reliability Council of Texas, or ERCOT, in response to Winter Storm Uri, which left over 4.2 million people across the South-Central states without power. The company reports $50 million to $100 million in assets and $100 million to $500 million in liabilities.

The debtor is “negotiating the final terms of the use of cash collateral and the provision of DIP Financing” from Boston Energy Trading and Marketing LLC, or BETM, which provides funding and capital to Liberty’s “credit intensive” business as a secured lender under a supply agreement based on a borrowing base subject to a $40 million cap. “Due to the emergency nature of the filing of this Chapter 11 case, those terms were not able to be finalized in advance,” according to the first day declaration. However, according to the debtor, BETM has agreed to “allow the Debtor to use cash collateral and that BETM intends to support the credit support and other related needs of the Debtor in order to enable the Debtor to (a) continue the day-to-day operation of its business; (b) fund the expenses necessary to preserve the value of it business operations; and (c) fund this chapter 11 case.”

The first day hearing has been scheduled for tomorrow, Thursday, April 22, at 2:30 p.m. ET.

In July 2020, the debtor restructured its capital structure and transitioned its wholesale energy supply arrangement from Shell Energy North America (US) to BETM. Pursuant to the restructuring, Shell agreed to take a third-tier note in lieu of outstanding debt that the debtor owed to Shell at that time in the amount of $63.5 million. At the same time, Liberty’s CEO, David Hernandez, and Martin Halpern provided Liberty with a $10 million second-tier mezzanine loan. The company entered into a supply and services agreement through which BETM provides credit support to independent system operators (including ERCOT) and other “key” service providers or regulators, hedges, working capital, access to third-party sellers in the wholesale markets and/or financial hedge providers through intermediation trades and provides operational services.

The debtor is a wholly owned subsidiary of Liberty Power Super Holdings LLC, which is owned by the debtor’s ultimate parent company, Liberty Power Corp. LLC.

The debtor is represented by Genovese Joblove & Battista in Miami. Bob Butler is the chief restructuring officer. The case number is 21-13797. The case has been assigned to Judge Peter D. Russin.

Events Leading to the Bankruptcy Filing / Prepetition Restructuring Efforts

“ERCOT set wholesale energy and ancillary services prices at stratospheric and unprecedented levels, creating a ‘perfect storm’ of conditions that were impossible for Holdings and other market participants to anticipate or prepare for,” Liberty says in its first day declaration, hitting the debtor with a financial charge from ERCOT that was “well beyond” Liberty’s capability to pay. The storm event undermined the debtor’s ability to pay its debts when due. “Many other retail electric providers, municipalities and cooperatives have suffered similarly to Holdings and are facing similar financial challenges as a result of this situation,” the debtor adds.

On March 26, BETM issued Liberty a notice of potential default for failure to pay, notifying the debtor that failure to pay an unpaid amount of $85.9 million would constitute an event of default under the supply and services agreement. The parties were unable to agree on forbearance terms, and BETM terminated the supply facility by notice on April 12. Even though its obligations under the transaction documents were terminated by BETM, BETM did not withdraw its support to the debtor with respect to providing collateral to independent service operators, such as ERCOT, to secure the debtor’s payment obligation prior to any settlement cycle despite being entitled to do so. The continued independent service operator credit support has allowed the debtor to continue its retail operations to date despite the pendency of the default, the debtor adds.

On or around April 15, BETM exercised certain of its rights and remedies and, among other things, reconstituted the debtor’s board. On April 16, the newly constituted board held a meeting and engaged Butler as chief restructuring officer to provide certain financial advisory and restructuring services.

Subsequently, on April 18, the debtor’s ultimate parent, Liberty Power Corp., which provided management and operating services to the debtor under a master services agreement, including the employment of more than 80 employees critical to the operations of the debtor, “took precipitous action to terminate all of ParentCo’s approximately 80+ employees effective immediately, thereby placing the entire business operation and going concern value of the Debtor in serious jeopardy.” The actions of Liberty’s parent were taken notwithstanding the commitments made by BETM to fund the parent company’s payroll through April 30. The parent company then rejected Butler’s attempts to negotiate a solution that would include the immediate rehiring of the employees.

“Faced with the lack of management services from ParentCo due to the termination of all of its employees and a refusal by ParentCo to provide access to the Debtor’s books, records, systems and processes, the Debtor was forced to file the within Chapter 11 proceedings to preserve and protect the going concern value of the Debtor for the benefit of all of its stakeholders,” the debtor says.

Background

Liberty Power Holdings is a retail energy provider active in competitive electricity markets in over a dozen jurisdictions across five organized markets. The company and its subsidiaries are certified and licensed to provide retail electric service by the public utility commissions in California, Connecticut, District of Columbia, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas and Virginia. Liberty services “hundreds of thousands” of customer accounts in these jurisdictions.

In general, Liberty sells electricity to residential, commercial and industrial customers, competing in price and terms with other retail energy providers and the public utility in a given market area. The company typically makes a profit in the form of a margin between the price it charges a customer under a sales contract for electricity and the cost at which it sources this electricity in the wholesale market. These margins must also account for the costs associated with hedging, financing and commercial operating expenses, among other things.

The list of largest unsecured creditors says that the creditors are “Unavailable” but that “[t]he Debtor will amend this document as soon as it has access to its books and records.”

The debtor's largest unsecured creditors are listed below: