Updated: Liberty Power Holdings To Consider Sale Process As Part Of Debtor-In-Possession Financing -- EnergyChoiceMatters.com

Updated: Liberty Power Holdings To Consider Sale Process As Part Of Debtor-In-Possession Financing

Liberty Says It Remains Open and Serving Customers

Court Filing Details Dispute Between Liberty Power Holdings Under Reconstituted Board, Parent Company

April 21, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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Liberty Power Holdings LLC ("Liberty" or the "Company") issued a statement concerning its filing of a voluntary petition for reorganization under Chapter 11, stating that it, "remains open and serving customers."

Liberty Power said that it, "remains open with adequate cash on hand and financing secured to support continuing operations."

"As of the filing date, the Company had adequate cash on hand and has received a commitment for debtor-in-possession ('DIP') financing. Following Court approval, this financing, combined with cash flow generated by the Company's ongoing operations, is expected to be sufficient to meet Liberty's operational and restructuring needs," Liberty said in a statement

Under a court filing further described below, Liberty Power Holdings had said that it was negotiating final terms for DIP Financing from Boston Energy Trading and Marketing, its existing credit provider, but further details were not immediately available.

"As part of the DIP commitment, Liberty will explore additional opportunities to maximize value, including a third-party sale process," Liberty said in a statement

Liberty said in a statement that Liberty operates in over fourteen states and the District of Columbia and serves over 330,000 "retail customer equivalents." All sales contracts and customer programs are expected to continue as usual, the Company said

Liberty said in a statement that, "As part of the reorganization process, the Company is in the process of filing customary 'First Day' motions, which we expect will be approved and will allow it to maintain operations in the ordinary course. Liberty intends to continue to provide the same products & services and competitive pricing and intends to continue to pay vendors and suppliers under customary terms for goods and services received on or after the filing date."

Liberty said in a statement that, "The impact of the February extreme weather event in Texas was sudden and dramatic, causing an abrupt spike in wholesale costs of serving Electric Reliability Council of Texas (ERCOT) customers due to unprecedented market prices for energy and ancillary services, as widely reported in the press and discussed in state legislature hearings throughout February and March. Liberty was able to provide service to its customers during this period. Liberty took immediate actions to prioritize services to customers, reduce non-essential spending and preserve liquidity. Liberty's business outside of ERCOT in northeastern and Midwest U.S. markets was not impacted and remains robust. However, Liberty was forced to pay for the full costs of energy provided to Texas customers in order to maintain ongoing operations, and this large payment necessitated today's action. The financial reorganization will provide Liberty a path toward a more robust financial structure that best positions the Company for the future as it navigates what could be a prolonged process of cost recovery."

"Liberty was on a strong upward financial trajectory prior to the Texas extreme weather event, including consecutive quarters of EBITDA improvement. The financial impact of the Texas weather event, however, necessitated restructuring actions," Liberty said in a statement

"Today's action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through the fallout of the Texas weather event and to better position us for the future." said Bob Butler, Chief Restructuring Officer of Liberty

Liberty Power Holdings, LLC (the 'Debtor' or 'Holdings') further described the event leading to the bankruptcy filing in an affidavit from Bob Butler, Chief Restructuring Officer for Holdings, filed with the court

The affidavit notes that the Debtor’s ultimate parent company, Liberty Power Corp, LLC ('ParentCo'), provided management and operating services seven (7) days a week to Holdings pursuant to the terms of that certain Management Services Agreement. "As such, Holdings relied on ParentCo to be able to conduct its business, manage customers’ accounts, deal with regulatory matters and perform other critical business operations on a daily basis," the affidavit states

The affidavit notes that, in July 2020, Holdings completed a restructuring of its capital structure and transitioned its wholesale energy supply arrangement from Shell Energy North America (US), L.P ('Shell Energy') to Boston Energy Trading and Marketing LLC (BETM). In that transaction, Shell agreed to take a third-tier note in lieu of outstanding debt that Holdings owed to Shell at that time in the amount of $63,492,663 (the 'Shell Loan'). In addition, [CEO David] Hernandez and Mr. Martin Halpern provided Holdings with a $10 million second-tier mezzanine loan (the 'Mezzanine Loan').

Among other things, the Supply and Services Agreement, BETM extended credit to Holdings based upon a borrowing base, subject to a cap of $40,000,000.

The affidavit states, "The impact of Winter Storm Uri caused a spike in wholesale prices for electricity. 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."

"These events, in turn, resulted in the Debtor incurring a financial charge from ERCOT that was well beyond its capability to pay. In fact, such charge was larger than the amount of credit that BETM would have provided otherwise to Holdings under the Supply and Services Agreement. Primarily because of this storm event, Holdings became unable to pay its debts when due and had liabilities in excess of its assets," the affidavit states

"On March 26, 2021, BETM provided Holdings with a Notice of Potential Event of Default for Failure to Pay (the 'Potential Event of Default Notice'). In the Potential Event of Default Notice, BETM advised Holdings that BETM’s invoice dated February 22, 2021 (the 'February Invoice') in the amount of $85,908,252.15 had not been paid in full and that Holdings continued to owe BETM $81,284,305 (the 'Unpaid Amount'). BETM notified Holdings that its failure to pay to BETM the Unpaid Amount by March 31, 2021 would constitute an Event of Default under the Supply and Services Agreement. Holdings failed to pay the Unpaid Amount. On March 31, 2021, BETM provided Holdings with a Notice of Event of Default," the affidavit states

"Following a protracted set of negotiations in which BETM and Holdings were unable to agree on the terms of a forbearance, BETM terminated the supply facility by notice to Holdings on Monday, April 12, 2021. Even though BETM terminated its obligations under the Transaction Documents, BETM did not and has not withdrawn the ISO Credit Support, despite being entitled to do so. The continued ISO Credit Support has allowed Holdings to continue its retail operations to date despite the pendency of the default," the affidavit states

On or about April 15, 2021, BETM exercised certain of its rights and remedies under a Pledge Agreement with Holdings and, among other things, reconstituted the Board of Managers of Holdings. Thereafter, on April 16, 2021, the newly constituted Board of Managers of Holdings held a meeting and engaged Butler as CRO to provide certain financial advisory and restructuring services to Holdings.

Butler, in an affidavit for Liberty Power Holdings, alleged, "On Sunday evening April 18, 2021, ParentCo, under the direction of Messrs. [Holdings President Derik] Viner and Hernandez, 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. ParentCo’s action was taken notwithstanding the commitment made by BETM to fund ParentCo’ s payroll for the next two (2) week period through April 30, 2021."

Butler, in an affidavit for Liberty Power Holdings, alleged, "The termination of ParentCo’s employees was communicated to counsel to the Debtor in the morning of April 19, 2021 via email. No attempt was made to discuss such termination of employees with me or counsel prior to taking this serious and damaging action. News of the employee termination was immediately leaked and disseminated to various media sources, causing more harm to the Debtor."

Butler, in an affidavit for Liberty Power Holdings, alleged, "Immediately upon learning of the termination, I attempted to negotiate a solution that would include immediately rehiring the employees and granting me and my team access to the Debtor’s books, records, systems and processes that were in the possession and control of ParentCo. ParentCo refused to cooperate with my request for access. Additionally, I directed counsel to make demand on ParentCo, its management, owners, professionals and employees to preserve any and all books and records in their possession, custody or control involving or related in any way to the Debtor, including without limitation all financial records (and related servers) and all emails (and related servers). To date, no response nor access has been provided to the Debtor or access to the corporate premises."

"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 [sic] Chapter 11 proceedings to preserve and protect the going concern value of the Debtor for the benefit of all of its stakeholders," Butler said in the filing

"Since being advised of the termination of ParentCo’s employees on Monday morning, April 19, 2021, I have attempted to resolve the issues with ParentCo without success. Moreover, the ParentCo has refused to cooperate with and has imposed unacceptable conditions in regards to the Debtor‘s requests for turnover of the Debtors’ books and records and access to the corporate premises at which the Debtor’s operations were conducted," Butler alleged in the filing

"Given the drastic measures taken by ParentCo in terminating all of the employees and its failure to cooperate with the Debtor, emergency relief is being sought to compel turnover of the Debtor’s books, records, systems and processes to as to enable the CRO to try to preserve and protect and value of the Debtor’s business for the benefit of all of its stakeholders," Butler said in the filing

Butler further said, "I am in the process of negotiating the final terms of the use of cash collateral and the provision of DIP Financing from BETM. Due to the emergency nature of the filing of this Chapter 11 case, those terms were not able to be finalized in advance. BETM has advised me that they intend 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."

Earlier:

Retail energy provider Liberty Power Holdings, LLC has filed a Chapter 11 bankruptcy petition

Estimated liabilities were listed as $100,000,001 - $500 million

Estimated assets were listed as $50,000,001 - $100 million

The bankruptcy petition notes that, "the Company no longer has access to and the benefit of the management services previously provided to the Company by Liberty Power Corp, L.L.C. pursuant to and as defined in that certain Second Amended and Restated Management Services Agreement, dated July 6, 2020, due to the termination by Liberty Power Corp, L.L.C. of all of its employees as of Sunday evening, April 18, 2021," and that, "the Company does not have access to the books, records, systems and processes (among other things) of the Company's operations held by Liberty Power Corp, L.L.C."

Apart from a declaration concerning authorization for the Chapter 11 filing from Liberty Power Holdings' board of managers, there were no additional narrative documents related to the bankruptcy filing at this time

In the bankruptcy filing, Liberty Power Holdings stated that a list of its twenty largest unsecured creditors was unavailable, but would be amended once it has access to its books and records

The case is 0:2021bk13797, filed in United States Bankruptcy Court, Southern District of Florida

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