Exceeding Client Objectives for a Consensual Resolution to Complex Bankruptcy Proceedings

THE CHALLENGE:

After years of selling services at a loss to grow its customer base, Agera Energy—a retail electricity and natural gas provider for commercial, industrial and residential customers in 16 states—realized its business was no longer viable. The company decided to file for chapter 11 bankruptcy protection after evaluating strategic alternatives.

At the time of the filing, Agera had defaulted on its credit agreement with secured lender BP Energy Company, which wanted to foreclose on Agera’s assets and shut down the company to recoup as much of its investment as possible. At the time, Agera owed approximately $180 million to BP, $35 million to its second lien lender, Colorado Bankers Life Insurance Company, and approximately $160 million to unsecured creditors.

Agera’s management team was certain that they could sell the company’s assets to repay more of its debt and minimize service disruptions to customers. To help convince BP that finding a buyer and conducting a sale process through bankruptcy was the superior alternative, Agera brought in a skilled cross-practice group of McDermott lawyers with experience in complex chapter 11 cases.

OUR OBJECTIVE:

Led by Darren Azman in restructuring and Debra Harrison in transactions, with energy regulatory support from Rob Lamkin, Agera’s team of McDermott lawyers stepped in to help their client navigate the challenging, highly regulated legal landscape they faced.

To achieve Agera’s goals, the team needed to convince BP that selling the company through bankruptcy presented the best option for maximizing Agera’s value. Agera presented several liquidation scenarios to BP, illustrating that a sale process through bankruptcy and an orderly wind-down of the remaining assets would yield a greater recovery to BP and other creditors than a foreclosure under state law.

When BP was on board, Agera sought a consensual chapter 11 process, negotiated a restructuring support agreement with BP and coordinated extensively with the unsecured creditors’ committee throughout the case. In working toward that consensual process, the McDermott team identified three primary objectives:

First, find a buyer, negotiate the highest possible purchase price and close the sale. Second, secure confirmation of the client’s plan of liquidation from the bankruptcy court. Third, obtain a meaningful financial recovery for Agera’s unsecured creditors.

THE OUTCOME:

Following a lengthy search for a buyer, Agera signed an agreement with Exelon Generation Company/Constellation to sell the majority of its 70,000 existing customer contracts for $24.75 million. The deal will allow Exelon to scale its retail energy business in strategic markets.

The sale proceeds Agera would ultimately realize depended entirely on maintaining its customer contracts until the sale with Exelon closed. Energy customers generally have the right to switch providers at any time, and each lost contract would reduce the final purchase price that Exelon paid to Agera. Between the bankruptcy filing and closing the transaction, the McDermott team coordinated seamlessly across practices to hold together the majority of Agera’s customer book and keep the sale on track.
On the regulatory side, McDermott lawyers deflected state regulators that were owed millions and sought to suspend and revoke Agera’s licenses to sell energy because of its failure to comply with renewable portfolio standards. Had Agera lost its license in any state, all of its customers there would have returned to a default utility provider, resulting in a significant decrease in the company’s final sale price.

When a senior sales employee at Agera was suspected of taking customer data to a competitor, McDermott’s litigation group conducted an internal investigation to determine the extent of the damage. And when one Agera’s competitors was suspected of poaching Agera’s sales employees in contravention of a non-solicitation agreement, a separate McDermott litigation team sought and obtained a temporary restraining order on an expedited basis to minimize harm.

In all of their efforts, the McDermott team was racing against the clock. Under the terms of the purchase agreement with Exelon, they had just 120 days to work with 91 different utility companies in transferring Agera’s retail energy customers to Exelon. The task demanded swift, savvy legal action and compliance with different regulatory frameworks in each of the 16 states where Agera operated.

As a result of the sale, BP is expected to recover up to approximately 85% of its outstanding claims against Agera, a significantly greater distribution than it anticipated. In addition, under the approved plan of liquidation, Agera’s unsecured creditors—who would have received nothing without the bankruptcy filing—are expected to recover up to 16% of their outstanding claims from the post-confirmation Agera Liquidation Trust.

DIG DEEPER:

Agera’s cross-practice legal counsel at McDermott, from restructuring and transactions to regulatory, insurance, real estate, labor and litigation, collaborated to employ innovative strategies and solutions to overcome the complexities of filing for bankruptcy and selling Agera’s customer contracts. The client and its various constituents were incredibly pleased with the consensual resolution of the case.

Because of the legal team’s creativity and agility, the American Bankruptcy Institute honored Agera Energy with its 2020 “Asset Sale of the Year” award. Each year, the award recognizes just one distressed asset sale that displays excellence across the full spectrum of the sale process.

A representative of one of the primary constituents in the case, who took an adverse position to Agera in many instances during the process, told the McDermott team, “Thank you for all your work. There were so many potential complicated road blocks…that required a lot of strategy and diligence. I know we weren’t always easy to work with. My hope is that we will not have to experience this again! However, if our paths cross again, it would be a pleasure.”

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