Council set to recoup loans from collapse of Together Energy with £18m investment loss in ‘worst case scenario’
WARRINGTON Borough Council appears set to recoup its loans from collapsed energy company Together Energy, with the ‘worst-case scenario’ being a loss of around £18m from its original investment for a 50% stake in the company.
With an outstanding customer debt of £13.5m still to be collected and a further £13.7m in the bank, unsecured creditors are also likely to get a payout.
Meanwhile, the directors’ initial report also reveals that the board refused to invest more funds in the company in the weeks leading up to its collapse following soaring wholesale energy prices because it was considered too risky.
Council Leader Cllr Russ Bowden said: ‘The Trustee’s initial report shows that the council should recover all of its loans to Together Energy and also that the guarantee with our energy wholesaler will not require funding from the advice. to resolve.
“We must now allow the administrators to complete their work in order to ensure maximum returns for all of the company’s creditors. While we cannot ultimately confirm how much we will receive, we know for certain that previous speculation about the board facing a £52m loss is inaccurate.
After ceasing trading in January, on February 4, 2022, the company entered administration and Allan Kelly, Steven Ross and Michelle Elliot of FRP Advisory Trading Limited were appointed as joint directors.
From 2019, the Company was principally financed by facilities from WBC (including a revolving credit facility) totaling £20.25 million, at the date of appointment of directors, of which £18.8 million sterling were drawn down, and a preferred share investment of £18 million. In addition, WBC has provided a guarantee of 80% of the Company’s outstanding energy liabilities to Orsted A/S (“Orsted”), the Company’s wholesale gas and electricity supplier, valued at approximately $29 million. pound sterling. This investment was used to fund swaps across all entities, acquisitions, including Bristol Energy’s customer base, and any network capital needs.
The Group became profitable at an EBITDA level (£1.56m) in the financial year ended 31 October 2020 and the management accounts indicate that it continued to generate positive EBITDA until February 2021 .
Wholesale gas prices started to increase from the first quarter of 2021 compared to historical norms. The Company had throughout its business operations sought to reduce exposure to wholesale price fluctuations by purchasing power forward contracts (also known as hedges) for customers who had entered into “fixed” price agreements at longer term. However, the Group continued to bear potential exposure to the market for customers at the standard variable rate and/or leaving fixed-price offers. Although this strategy was successful in mitigating the increase in wholesale prices, the price increases were so significant that even with this hedging strategy in place, significant losses were incurred given the limited ability to increase prices. end customer prices due to regulatory market price caps. WBC had previously indicated its willingness to increase its investment, however, given the continued and increasing volatility in wholesale electricity prices from September 2021, WBC decided it was unable to provide the additional financing required due to the risk profile of any additional investment. TEL then approached its bankers who were also unable to offer facilities.
Over this period, Orsted requested an increase in his guarantee from WBC. On November 21, 2021, the Company engaged Alvarez & Marsal LLP to obtain either a new investment or a sale of the Group as a whole. More than 10 parties, including both industry players, new market entrants and investment funds, have expressed interest in the process.
At that time, the Group expected losses for the year ending October 31, 2022 of £43 million with a working capital requirement of £55 million.
While interest was high, interested parties pulled out following further spikes in wholesale gas prices, which peaked at the end of December 2021 at over 450p per therm. This spike saw expected losses increase to £181m and working capital requirement to £115m.
As wholesale pricing softened after Christmas 2021, the company continued to forecast losses and working capital requirements higher than the initial working capital requirement (£55m).
On December 29, 2021, the Group again approached WBC regarding funding, which reconfirmed that it was still unable to provide further support at the levels required in the uncertain market environment.
The Company liquidated its power forward contracts (hedging) in January 2022 in view of withdrawal of interested parties, inability to manage projected working capital and collateral shortfalls, and to mitigate risk counterparty with Orsted.
The Company operated from three sites:
Glasgow housed the head office, back office and management functions
alongside Together Energy branded customer service operations;
Bristol housed the customer service operations of the Bristol Energy brand;
Warrington welcomed additional employees providing support functions for both brands.
While the company employed some 229 people at the time of the appointment, the directors identified that a number of areas, including the Warrington site, would not be needed and 39 people associated with those areas were made redundant following the appointment. administrators.
The directors have worked with the Company’s management team to ensure that appropriate human resources are retained during the liquidation period. Nine other employees were made redundant as of the date of the proposals. Regular ongoing communications are held with retained employees.
As the final billing exercise is ongoing and payments are being reconciled to accounts, administrators are currently unable to provide an accurate assessment of the final value of the receivable.
however, it is believed to be around £40m. We will provide details in future reports.
The direct debit system and merchant facilities have been retained to continue to collect accounts where an outstanding payment appears.
They received £193,000 in debtor’s receipts straight to the administrators’ bank account.
There remains a further debit amount of £13.5m relating to old customer debt which is being pursued by the company’s internal Revenue Assurance team alongside the company’s appointed external debt collection agencies .
The company operated several bank accounts and the sum of £13.7 million was given to the directors for the benefit of administration by appointment. An additional balance of approximately £1.2 million is held by the company’s bankers.
Outcome for Secured Creditor – Warrington Borough Council
The Company has granted the following fixed and floating charges in favor of WBC, dated:
October 26, 2020 and November 23, 2021
In addition, the Company agreed to fixed charges in favor of WBC, dated:
October 30, 2020 and November 23, 2021
Fixed charges include an assignment of bank accounts. Our initial review indicates that the bank account the charge is held in has a zero balance.
While the administrators consider that the asset realizations will be subject to the WBC floating charges, the validity of the charges is subject to legal review.
Upon his appointment, WBC owed £18.8 million for the provision of loans and a revolving credit facility plus accrued interest. WBC also had exposure under a bond to Orsted estimated at £29 million.
Based on current information, the directors consider that WBC will have no call under its guarantee to Orsted and should see its outstanding debt paid in full. This is however still subject to the final determination of ownership of the assets.
A full copy of the Administrator’s Report can be downloaded by clicking on the logo below.