Thu 04/01/2021 18:25 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Notice





















Summary
Entrust is a Houston-based retail power provider
Filed in wake of Texas winter storm, after which counterparty Shell ended its relationship with the debtors
Entrust sold about 91,000 commercial and residential customer equivalents and other assets to Texas renewable energy provider Rhythm Ops in early March
Debtors say ERCOT has frustrated their further sale efforts

Entrust Energy Inc., a Houston-based retail power provider, filed for chapter 11 protection on Tuesday, March 30, in the Bankruptcy Court for the Southern District of Texas. The debtors were party to various agreements with Shell Energy North America (US) LP and other Shell-related entities for the purchase and sale of “physical and financial electrical energy and related services” and for credit support. The debtors were in compliance with the Shell agreements before the “historic blast of arctic weather engulfed the state of Texas” in mid-February. However, after the storm, Shell declared another default and said it would no longer transact with the debtors. For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Entrust Energy chapter 11 filing Request a Trial here.

As part of Entrust’s efforts to sell its remaining customers to other retail energy providers, the debtors sold, for $3.2 million in sale proceeds, about 91,000 commercial and residential customer equivalents and other assets, including certain systems and intellectual property to Texas renewable energy provider Rhythm Ops LLC. According to a March 4 press release, the deal, “which was reviewed and accepted by ERCOT and the Public Utility Commission of Texas, comes after winter storm Uri, when Entrust Energy and Power of Texas could no longer guarantee continuous service to customers.”

After the Rhythm sale, the debtors still had about 13,000 customers (or 90,000 residential customer equivalents) and continued their sale efforts. JP Energy Resources LLC submitted a letter of intent to the debtors on March 3 to purchase a “significant portion” of their remaining customer relationships. Within “hours,” the debtors notified ERCOT and requested a week to close the sale. ERCOT informed the debtors that same day, however, that they were in material breach of a standard form market participation agreement and that ERCOT planned to transition the debtors’ existing Texas customers to the “provider of last resort” program. The debtors’ further requests to ERCOT to reconsider were “dismissed,” which the debtors say “effectively terminated the Debtors’ ability to consummate a sale under the JP Resources LOI.”

The first day hearing has been scheduled for Tuesday, April 6, at 3:30 p.m. ET.

The company’s unsecured debt includes $270.3 million owed to ERCOT and $67.8 million owed to Nippon Gas Co. Ltd. for shareholder loans and interest.

The debtors have $24.7 million in cash on hand and approximately $17.1 million in accounts receivable.

The debtors say that they have been communicating with Shell on an accounting, and the preliminary reports from Shell show that Shell owes the debtors “well in excess” of $8 million, but that Shell has yet to provide backup documents. The debtors say they are still investigating Shell’s termination of their agreements plus the “amounts they are owed in connection with the early and unilateral termination of their hedges at the onset of the extreme weather event in Texas.” By “Shell’s calculations,” Entrust says that Shell is holding more than $60 million from termination of the debtors’ hedges and that the debtors owe Shell approximately $52 million. Therefore, the debtors say, by “Shell’s calculations, Shell acknowledged it owes the Debtors more than $8 million.”

Background

Entrust, formed in 2010, is a retail energy company delivering electricity and natural gas to homes and businesses in deregulated markets throughout the United States. The debtors are headquartered in Houston and have served consumer and commercial customers throughout Texas as well as Illinois, Maryland, New Jersey, New York, Ohio and Pennsylvania for more than a decade.

Shell issued a default notice to Entrust in April 2019 based on noncompliance with financial metrics, at which point Shell required the debors to recapitalize their business with a $10 million capital infusion. Further, Shell required that the debtors self-fund operating and capital expenditures going forward and that all existing losses under the Shell loan would be separated into a separate term loan to be amortized over three years. When Entrust was unable to find capital as required by Shell, certain of the shareholders of NGAE and SPH, Nippon Gas Co. Ltd. and Nippon Gas USA Inc. agreed to loan the debtors $10 million. In July 2019, Nippon established a $10 million letter of credit, of which $5 million was drawn in July 2019 and the remaining $5 million was drawn in February 2020. The debtors defaulted again in March 2020 due to a failure to meet a net worth calculation, at which point Shell required an additional infusion of $10 million in capital. The debtors explored a sale to pay down the Shell debt, resulting in a sale of 35,200 residential customer equivalents, or RCEs, to US Retailers LLC for $13.2 million in sale proceeds. This sale “dramatically improved” the debtors’ finances and brought them back in line with the Shell agreements.

The effect of the storm was “devastating” to all retail energy providers in Texas, including the debtors. “Only one day into the historic and extreme weather event,” Entrust says, Shell tried to get the debtors to agree to a mutual termination of the agreements; however, when the debtors did not agree, Shell declared a default and said it would no longer transact with the debtors. “The combination of ERCOT’s failure to appropriately safeguard the grid from systematic failure during extreme winter weather and Shell’s unilateral termination of the Global Agreement based on its expectation that the Debtors hedges were inadequate eliminated the Debtors’ ability to continue as a going concern,” the debtors say. “Immediately” after sending the termination to Entrust, Shell terminated hedges, “which Shell acknowledges were adequate to pay all amounts owed to Shell under the Global Agreement, Shell Loan, and other amounts owed to Shell under their related contracts,” the first day declaration reads.

The debtors' largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Electric Reliability Council
of Texas Inc.
Austin, Texas Supply
Obligations
$    270,270,343
Nippon Gas Co. Ltd. Tokyo Shareholder
Loan
59,146,038
Nippon Gas USA Inc. Dover, Del. Shareholder
Loan
8,648,225
Oncor Dallas Transportation
Distribution
Service Provider
2,230,590
Centerpoint Houston Transportation
Distribution
Service Provider
1,948,541
PJM Audubon, Pa. "COGS" 1,775,759
JPMorgan Chase Houston PPP Loan 1,614,254
Texas Comptroller of
Public Accounts
Austin, Texas Sales Tax
Audit Penalty
1,610,201
AEP Corpus Christie, Texas Transportation
Distribution
Service Provider
1,494,141
NYC Department of
Finance
New York NYC Utility
Tax
1,343,419

The case representatives are as follows:



 
















































Representatives
Role Name Firm Location
Debtors' Counsel Jorian L. Rose Baker &
Hostetler
New York
Elizabeth A. Green Orlando, Fla.
Counsel to ERCOT Deborah M. Perry Munsch Hardt
Kopf & Harr
Dallas
Kevin M. Lippman
Counsel to PUCT Jason B. Binford Office of the
Attorney General
of Texas
Austin, Texas
Layla D. Milligan
United States
Trustee
Stephen Douglas Statham Office of the
U.S. Trustee
Houston



Cash Collateral Motion

The debtors say that “as a practical matter,” they require the use of cash on hand to “continue operations, pay employees, and allow for a successful transition into these chapter 11 cases.” The debtors seek to use approximately $1.3 million of cash collateral for the next six weeks, pursuant to a budget.

According to the motion, the debtors are not aware of any other creditors other than Shell that have a perfected lien on the debtors’ cash, and that they do not believe that Shell will have a right to seek any additional cash in their position. The debtors say it is “clear” that either “(a) Shell is holding more than enough of the Debtors’ cash to satisfy all amounts the Debtors could owe Shell under the Global Agreement, Shell Loan and other agreements with Shell, or (b) Shell has already applied the Debtors’ funds to the obligations and no further amount is owed.” As discussed above, though the debtors are investigating Shell’s calculations, they say that Shell has “acknowledged it owes the Debtors more than $8 million.”

The debtors assert that Shell, to the extent it holds liens against the debtors’ cash on hand, is adequately protected by the debtors’ funds Shell is holding after the “unilateral” termination of the global agreement and termination of the debtors’ hedges.

Other Motions

The debtors also filed various standard first day motions, including the following:



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