Ector County Energy Center Chapter 11:
Relevant Documents:
Voluntary Petition
First Day Declaration
Ector County Energy Center LLC, which owns and operates a natural gas-fired electric power generation plant in Ector County, Texas, and is a participant in the wholesale electricity market operated by the Electric Reliability Council of Texas, or ERCOT, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware. The company reports $50 million to $100 million in assets and $500 million to $1 billion in liabilities.
According to the first day declaration of Grant Thornton managing director John Baumgartner, who serves as the debtor’s CRO, the chapter 11 case was filed to pursue a sale of its power plant to proposed purchaser
Rockland Capital LLC, a private equity firm “formed to acquire and develop selected investment opportunities in power and energy infrastructure markets,” or to the highest bidder through a 363 sale process. Net proceeds would be distributed to the debtor’s creditors under a “to-be-filed” liquidating chapter 11 plan. Pursuant to the terms of the asset purchase agreement, or APA, the purchaser has agreed to pay approximately $91.2 million, inclusive of $2.7 million in “incentive consideration” to be received if a closing occurs on or prior to July 31, and a purchase price adjustment above a baseline of $550,000 in which “specified cash deposits” under the APA left with the deposit holders post-closing are included.
Pursuant to a plan support agreement, or PSA, which is attached as
Exhibit A to the first day declaration, the prepetition secured lenders agreed to support a process for the sale of substantially all of the debtor’s assets by mid-summer 2022 and for the allocation and distribution of the net sale proceeds through a liquidating Chapter 11 plan. The PSA also contains terms for consensual use of the prepetition secured lenders’ cash collateral during the chapter 11 case. Pursuant to the PSA, the prepetition secured lenders agreed to partially subordinate their liens and payment priority toDIP financing to be provided by the debtor’s affiliate, Invenergy Thermal Operating I LLC, or ITOI. The consenting lenders include entities related to Goldman Sachs, Columbia Threadneedle Investments, Palmer Square Capital Management, MetLife, Benefit Street Partners, Brighthouse Services, Barings, ArrowMark Partners, CVC, US Bank and Fortress.
The debtor is seeking DIP financing in the form of a $5 million multi-draw term loan facility from ITOI. The debtor notes that its “operationally generated liquidity is projected to be insufficient to sustain operations through an anticipated July 31, 2022 closing of the sale transaction. That anticipated cash shortfall is largely a function of a recent increase in natural gas prices and the anticipated demands of gas suppliers for cash deposits or other costs associated with procuring fuel.”
The debtor is owned through intermediate holding companies by Invenergy AMPCI Thermal Power LLC, a joint venture in which Invenergy Clean Power LLC and AMPCI North America Thermal Power Acquisition LLC each hold a 50% interest.
The first day declaration states that the debtor’s secured debt consists of $337 million outstanding under term loans issued by the debtor’s prepetition secured lenders and revolving letters of credit totaling approximately $64.6 million. Credit Suisse AG, Cayman Islands Branch, is serving as the administrative agent and collateral agent. The debtor’s obligations to the prepetition secured lenders are secured by a perfected, first-priority security interest in the debtor’s real and personal property assets, as well as by a mortgage granted against the debtor’s real estate assets pertaining to the power plant property in Ector County, Texas.
The debtor states that the credit agreement as originally executed expressly contemplated a potential sale by Ector of substantially all of its assets and required that an “Ector Target Sale Amount” of $75 million be applied as a mandatory prepayment of the loans.
In conjunction with execution of the PSA, the credit agreement was amended to require that the debtor make a mandatory prepayment of $75 million upon the earlier of a change of control of the debtor and July 31.
In addition, the first day declaration states that the debtor is subject to a disputed, unliquidated, unsecured claim for damages by Direct Energy, in the approximate amount of $403 million, an obligation that is partially backed by a $7 million letter of credit in Direct Energy’s favor. Other unsecured claims include the disputed, unliquidated claims alleged by the plaintiffs in the Storm Uri multi-district litigation in Texas, which the debtor states “potentially” may be covered by prepetition insurance policies; “default uplift” charges due to ERCOT; and accrued and unpaid trade and miscellaneous unsecured claims in the estimated amount of approximately $600,000.
“As a result of Winter Storm Uri, ECEC was unable to procure natural gas needed to power its turbines for a period of several days when production systems that fed into the gas pipelines froze, effectively preventing the Debtor from dispatching power at a time of extreme demand,” the debtor says. When the debtor terminated a heat rate call option agreement with Direct Energy Business Marketing LLC, Direct Energy commenced litigation in the New York Supreme Court asserting a claim for damages in excess of $400 million, “of which $393 million was alleged to be owed for the month of February, 2021.”
The debtor is represented by Holland & Knight as counsel, Polsinelli as local counsel, Locke Lord as special counsel with respect to Winter Storm Uri-based litigation, Crowell & Moring as special counsel in matters adverse to Direct Energy Business Marketing, LLC. In addition, the company has retained Grant Thornton LLP as restructuring advisor, Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. as investment bankers and Donlin Recano as claims agent. Davis Polk & Wardwell and Richards, Layton & Finger are serving as counsel for an ad hoc group of consenting lenders and Credit Suisse as agent. The case number is 22-10320. The case has yet to be assigned to a judge.
Reorg First Day will provide a full summary once the first day briefing is complete.