Register, or Login to view the article
December 14, 2021 – The Debtors’ filed a bidding procedures motion requesting Court approval of: (i) bidding procedures in respect of a sale of substantially all of the Debtors’ businesses, assets and equipment and certain of the Debtors’ accounts receivable (the "Sale" and “Acquired Assets,” respectively), (ii) bidder protections for stalking horse Texas Peaker Power II, LLC (the “Stalking Horse Bidder” or "Buyer," $64.1mn opening bid) and (iii) a proposed auction/sale timetable culminating in a February 2, 2022 auction and a February 9, 2022 sale hearing. [Docket No. 393]. The Stalking Horse Bidder's APA is attached to the motion as Exhibit B. The Debtors have requested a December 17th hearing to consider the motion.
The Stalking Horse Bidder's APA designates Rockland Capital, LP Co-Managing Partner Jim Maiz as the contact person for the Buyer. rockland Capital describes itself as "a private equity company that was formed in early 2003 in order to acquire and develop selected investment opportunities in power and energy infrastructure markets….Portfolio investments have been located throughout the United States and the United Kingdom, have ranged in size from 1,875 MW to 5 MW and have been fueled by natural gas, coal, biomass, oil, energy storage, wind and solar power."
On June 27th, Agilon Energy Holdings II LLC and two affiliated Debtors (“Agilon” or the “Debtors,” operators of a pair of gas-fired power facilities located near Victoria, Texas which supply "peaking" electric energy to the ERCOT market) filed for bankruptcy noting that they were unable to meet contractual obligations to ERCOT during winter storm Uri (see further below on the irony of a "peaking" provider getting caught out by the storm and leaving them obligated to "incur additional liabilities for a large amount of purchased power…"
Rockland Capital is also a participant in ERCOT's peaking market having most recently completed the acquisition of two 100 MW nameplate natural gas-fired simple cycle power plants, Chamon and Port Comfort, which are located in Houston and Point Comfort, Texas, respectively. Chamon sells energy and ancillary services into the ERCOT Houston Zone, and Port Comfort sells energy and ancillary services into the ERCOT South Zone.
Scott Harlan, a Co-Managing Partner at Rockland Capital commented at the time: “Due to the quick start characteristics of the units, Chamon and Port Comfort are well suited for the ERCOT market, which continues to add renewable generation and requires dispatchable resources to support reliability. The assets also complement Rockland’s existing ERCOT portfolio, allowing us to realize operating efficiencies across our growing ERCOT peaker fleet.”
The current bidding procedure motion states, “The cornerstone of these chapter 11 cases has always been achieving a sale of the Debtors’ assets for the highest price…The Stalking Horse Bid and the Stalking Horse Agreement are the result of extensive post-petition marketing efforts and analysis by the Debtors and their advisors. The Debtors have left no stone unturned in advance of filing and believe that any party that may want to put in a bid is either well aware of or has been participating in the Debtors’ marketing process that has been ongoing since September 2021. Given the extensive marketing efforts, the Debtors’ financial condition, the restrictions in the Debtors’ postpetition financing and use of cash collateral, and the Stalking Horse Bid itself, an expeditious sale of such businesses and assets is critical.”
The motion continues: "The Debtors determined it was in their best interest to explore a sale and marketing process to maximize the value of the Debtors’ estates. To implement this strategy, the Debtors and Energy Resource Management LLC dba ERM Capital (‘ERM Capital’) designed a process to solicit bids for the Debtors’ businesses and assets, including for all or part of the Debtors’ businesses and assets. Beginning in September 2021, ERM Capital began marketing substantially all of the Debtors’ businesses and assets (the ‘Marketing Process’). As described in the Declaration of Craig Orchant in Support of Motion for Entry of Order Approving Bid Procedures, filed in support of the Motion (the ‘Orchant Declaration’), ERM Capital, on behalf of the Debtors, contacted over one-hundred seventy (170) potential investors, including both strategic and financial investors, with the aim of attracting multiple proposals to acquire the Debtors’ businesses and assets on a cash-free, debt-free basis.
During this process, thirty-three (33) interested parties executed confidentiality agreements and…[T]he Debtors received five stalking horse bids for the Debtors’ Facilities. In evaluating the stalking horse bids, the Debtors analyzed, among other considerations: (i) the form and amount of consideration offered; (ii) the structure of the proposed transaction; (iii) the proposed timeline; and (iv) any execution or other risks. The Debtors met regularly with their advisors and consulted with their key stakeholders before and after stalking horse bids were submitted. ERM Capital continued to work with all interested parties to maintain competitive tension and interest.
Prospective bidders have continued to express interest and stay engaged. Accordingly, the Debtors believe that the targeted Marketing Process will allow them to maximize value for their estates for the benefit of their stakeholders. Throughout the Marketing Process, the Debtors coordinated with all of their major stakeholders, allowing such stakeholders to provide input prior to execution of the Stalking Horse Agreement. Additionally, the Marketing Process for the Debtors’ businesses and assets has been, and is expected to remain, comprehensive and vigorous. While the Debtors believe they have conducted a comprehensive outreach in the market to prospective bidders, the Debtors would like to continue to use the Marketing Process to allow additional or existing interested bidders to offer higher or better terms."
Key Terms of the Stalking Horse APA:
- Sellers: Agilon Energy Holdings II, LLC, Victoria City Power LLC, and Victoria Port Power LLC
- Buyer: Texas Peaker Power II, LLC
- Purchase Price: As consideration for the Assets, Buyer shall pay or deliver to Sellers in accordance with this Agreement, $64,100,000 in cash (the “Purchase Price”) and assume all Assumed Liabilities in accordance with this Agreement.
- Bidder Protections: (i) a break-up fee of $2,546,000 (4% of the purchase price) to be treated as a super priority claim in the bankruptcy case, subject to the Carve-Out in the Final DIP Order. and (ii) a minimum bid increment of $500k.
Proposed Key Dates
- Bidding Procedures Hearing: December 17, 2021
- Deadline to Object to (a) Stalking Horse Sale Transaction, (b) Cure Costs, and (c) Adequate Assurance of Future Performance (as to the Stalking Horse Bidder): January 10, 2022.
- Deadline to Submit Bids: January 26, 2022
- Deadline for Debtors to Notify Bidders of Status as Qualified Bidders: January 28, 2022
- Auction, if necessary: February 2, 2022
- Deadline to File Notice of (a) Successful Bid(s) and Back-Up Bid(s) and (b) Identity of Successful Bidder(s) and Back-Up Bidder(s): February 3, 2022
- Sale Hearing on Stalking Horse Agreement (if no other Qualified Bids received): February 4, 2022
- Sale Hearing (if Auction held): February 9, 2022
Events Leading to the Chapter 11 Filings
In a declaration filed in support of the Debtors' first day filings [Docket No.42], the Debtors provide: "During the construction of the Facilities, certain disputes arose that increased costs and delays in bringing the Facilities online. These delays contributed substantially to the Debtors’ inability to timely generate revenues, resulting in the occurrence of defaults under the Debtors’ prepetition financing agreements. Although the Facilities became commercially operational, additional maintenance issues with the refurbished combustion turbines resulted in additional delays and expenses.
In light of these circumstances, the Debtors began exploring debt restructuring options with the Prepetition Secured Parties. The Debtors were making progress toward resolving their operational issues when, in February 2021, an extraordinary cold weather event occurred in Texas. The Debtors’ combustion turbine engines were isolated from the ERCOT grid at one facility due to a transmission outage and faced operating constraints due to the extreme low temperatures. Unable to generate all of the electricity contractually obligated to provide during the cold weather event, the Debtors were forced to incur additional liabilities for a large amount of purchased power, which led to the termination of the Debtors’ supply and purchase agreements and, ultimately, to the filing of these chapter 11 cases."
About Rockland Capital
Rockland Capital (www.rocklandcapital.com) is a private equity company that was formed in early 2003 in order to acquire and develop selected investment opportunities in power and energy infrastructure markets. Rockland is currently investing Rockland Power Partners III, LP, a $454 million private equity fund with investors that include U.S. endowments and foundations, funds of funds, pension plans and family offices. The firm also manages Rockland PJM Partners, LP, a $200 million private equity fund, Rockland Power Partners II, LP, a $425 million fund, and Rockland Power Partners, LP, a $333 million fund. Investments have been located throughout the United States and the United Kingdom, ranging from 1,875 MW to 5 MW, fueled by natural gas, coal, biomass, oil, energy storage, wind and solar power.
About the Debtors
The declaration [Docket No. 42] provides: "The Debtors are in the business of providing gas-fired peaking electric energy to the ERCOT market. The Debtors own and operate two power facilities located near Victoria, Texas: Victoria Port Generation Station ('Victoria Port Facility') and Victoria City Generation Station ('Victoria City Facility' and together with Victoria Port, the 'Facilities'). When fully functional, the Facilities have a total nominal capacity of 172 Megawatts. The Facilities each
incorporate two refurbished LM6000 aero-derivative combustion turbines and associated generators manufactured by General Electric."
The Debtors are owned by Castleman Power Development ("Castleman" which constructs power facilities to provide power during peak periods (eg, winter and summer months, especially when when wind-generated power falls short) and "[u]pon completion of development, Castleman Power Development finances its power projects under an affiliate entity Agilon Energy."
Together Castleman and the Debtors have a business model which specifically leverages the unique power generation regulatory environment in Texas, with Castleman providing a useful summary of this now notorious ERCOT-regulated environment and specifically heralding the opportunities presented by the equally notorious $9,000/MWh incentive for energy producers to be on stand-by to fill holes in Texas's "intermittent renewable generation."
From Castleman: "ERCOT is not synchronously connected to the rest of the U.S. power grid and as a result is not subject to oversight by the Federal Energy Regulatory Commission (‘FERC’), but is instead regulated by the Public Utility Commission of Texas (‘PUCT’) and the Texas Legislature
Another unique feature of the ERCOT market design is the energy-only market structure which does not have bifurcated energy and capacity markets as most of other organizes regional transmission organizations (‘RTOs) within the US.
Instead, ERCOT uses real-time co-optimization of energy and ancillary services that responds to real-time shortages of operating reserves…This structure is called the Operating Reserves Demand Curve (‘ORDC’)
As a result of the energy-only structure, real-time prices are allowed to spike up to $9,000/MWh to incentivize new generation…Natural gas is the marginal fuel in ERCOT and accounts for over 44% of generation, followed by coal, which represents 25% of generation
ERCOT has the largest amount of installed intermittent renewable generation (more than 24 GW of combined installed wind and solar resources)…The wind penetration record is 56% of load, which was achieved in January 2019…"
Further explaining the Debtor's niche market, CEO Ryan Castleman notes: "The two plants will provide power during peak demand, specifically during hot summer days and cold winter days….About half the state’s power comes from the wind…but how much power the wind generates can’t be controlled. They (the plants) come on when the wind is not blowing, there is so much wind power in Texas. There has to be something that comes on when the wind does not blow. The plants will operate during about 10 percent of the year during times of market scarcity."
Read more Bankruptcy News