Update: Constellation Stalking Horse Purchase Price For Agera Energy Book Revealed

October 2, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Chapter 11 bankruptcy filing of Agera Energy LLC and affiliates (the Debtors) reveals that Constellation's (Exelon Generation Company, LLC, or Exelon) acquisition of the Agera customer book is subject to a bid process under which Exelon has been named the stalking horse bidder

On October 3, 2019, the Debtors and Exelon Generation Company, LLC executed an Asset Purchase Agreement, pursuant to which Exelon will serve as the stalking horse bidder to acquire a "significant portion" of the Debtors’ customer contracts for $24,750,000.00, subject to certain adjustments

Notably, Agera noted in its bankruptcy petition that the size and value of its’ book of customer contracts decreases with the passage of time. "Specifically, pending and future regulatory action against the Debtors may soon result in suspension or revocation of the Debtors’ licenses to sell energy in certain states," Agera noted. As exclusively reported by EnergyChoiceMatters.com, Agera's license in Rhode Island was suspended for non-payment of RPS obligations, and Agera disclosed that it is facing similar action in at least Massachusetts and New Hampshire

The asset purchase agreement with Exelon includes a purchase price adjustment mechanism that will adjust downward for every customer contract not successfully transferred to the stalking horse bidder.

Under the proposed bid process, the bid deadline is October 29, 2019. An auction, if necessary, would be held November 4, 2019, with a sale hearing on November 5, 2019

Agera's filing also provides background on the events leading to its Chapter 11 petition

"Across both electricity and natural gas supply, the Debtors service 87 distinct utility regions and provide service to approximately 35,000 customers, comprised of over 75,000 accounts in California, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas and Virginia," Agera said

"Approximately 75% of those accounts are commercial, with the remaining 25% being residential," Agera said

"More than half of all customers in the Debtors’ existing book have been with the Debtors for more than 2.5 years (up to 6.6 years), and more than 25% of all customers have been with the Debtors for more than 4 years," Agera said

"The Debtors bill roughly one-half of their delivered energy volumes through a purchase of receivable ('POR') billing program," Agera said

"For the remaining energy volumes that are not billed through a POR program, approximately 80% are billed to customers by the debtors, and approximately 20% are billed to customers by the local utility, after which the Debtors receive payment from the utility when the customer pays the utility," Agera said

"The Debtors grew their power business significantly in the 18 month period from January 2017 through June 2018. Most of that growth resulted from selling and onboarding customers on fixed price (as opposed to variable price) power contracts. The size of the Debtors’ power business, as measured by annualized volumes on flow, more than doubled (120%+) during this time period. Fixed price contracts are inherently riskier than variable price contracts. The ability to accurately price customers and properly risk-manage the customer load is critical to the ongoing commercial sustainability of any retail supplier business," Agera said

A new senior management team joined the Debtors approximately one year ago

"Upon arrival, the new senior management team uncovered a number of challenges, including, but not limited to: Poor (and in some cases, no) visibility into forward margins and, consequently, poor overall financial planning and forecasting; A significant number of customer contracts at very low and negative forward margins (uncovered only after developing visibility into forward margins and doing root cause analysis); A suboptimal control environment (financial, pricing, risk management, etc.); An overstated balance sheet," Agera said

"Upon discovering these issues, management developed, and presented in late September 2018, a number of strategic options for Eli Global [a portfolio company of an individual owning an interest in Agera's parent] to assess, ranging from a bankruptcy filing to a turnaround plan," Agera said

"In September 2018, the Debtors’ current management identified 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," Agera said

"After further discussions with various constituents, BP, the Agera Opco Entities, and Agera Holdings executed that certain Forbearance Agreement and Limited Waiver, dated November 20, 2018 (the 'Forbearance Agreement'), pursuant to which: (i) the Agera Opco Entities and Agera Holdings acknowledged that they had breached their covenant in the Senior Lien Supply Agreement to maintain a Tangible Net Worth (as defined in the Senior Lien Supply Agreement) of at least $16 million, (ii) BP agreed to forbear from enforcing remedies under the Senior Lien Supply Agreement as a result of such breach, and (iii) Agera Holdings agreed to make additional capital contributions to Agera Energy of at least $51 million," Agera said

Agera detailed a payment schedule required under the forbearance agreement, noting several late or partial payments

"Eli Global ultimately committed to a turnaround plan, with full recognition of the capital necessary to fund the plan. The Debtors’ business was not expected to be profitable until 2020 given that it was straddled with the run-off of low- and negative-margin customer contracts," Agera said

"The Debtors were executing the turnaround plan up until the unexpected capital liquidity problems," Agera said

"On May 9, 2019, during a triparty meeting between the Debtors, Eli Global, and BP, it became clear that Eli Global was no longer in a position to inject the requisite capital needed to support the Debtors’ business," Agera said

On September 25, 2019, BP provided notice to the Agera Opco Entities of their breaches under the Senior Lien Supply Agreement and Senior Lien ISDA Master Agreement, for failing to timely remit payment for power and gas invoices in the amount of $103,022,968.20, under the Senior Lien Supply Agreement and Senior Lien ISDA Master Agreement.

"The Debtors are currently in default of their 2018 RPS obligations in Massachusetts, New Hampshire, and Rhode Island as a result of the Debtors’ financial inability to acquire RECs or subsequently satisfy their ACP obligations. The Debtors will soon be in default of RPS obligations in other states. The Debtors estimate that their inability to satisfy RPS obligations in the normal course has resulted in an aggregate ACP 'premium' of approximately 60%, as compared to the cost of acquiring the RECs necessary to avoid ACP obligations. As of the Petition Date, the Debtors estimate that they owe more than $72 million on account of REC and ACP obligations for the 2018 compliance year," Agera said

energy.me midwest llc and Aequitas Energy Inc. are both wholly-owned by Agera Energy

Case 7:2019bk23802

From Ocrober 4:

Agera Energy and its affiliates have filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court, Southern District of New York and is facilitating an asset sale to Constellation, a subsidiary of Exelon Corporation, subject to bankruptcy court approval. If approved by the bankruptcy court, the majority of Agera’s existing customers will be transferred to Constellation upon completion of the sale.

“Due to unforeseen circumstances impacting the viability of Agera Energy’s business and its objectives, the company’s management team has made the decision to facilitate a sale under chapter 11 to minimize disruptions to our customers,” comments Mark Linzenbold, CFO of Agera Energy. “While we are deeply disappointed to be filing bankruptcy, we’re excited that a market-leading energy company will be able to continue serving our customers’ needs.”

Headquartered in Briarcliff Manor, New York, Agera Energy provides retail electricity and natural gas to commercial, industrial, and residential customers. Agera Energy provides services to customers in California, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas and Virginia.

“This agreement would provide an opportunity to grow our retail business in strategic markets and strengthen our position as the nation’s largest competitive energy provider,” said Jim McHugh, Constellation CEO. “Provided the court process unfolds favorably, we look forward to providing Agera Energy’s retail customers with the same quality products, services and clean energy solutions that Constellation customers currently enjoy.”

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