Ector County Energy files bankruptcy, cites impact of winter storm

By Sarah Lizee

Olympia, Wash., April 12 – Ector County Energy Center LLC filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the District of Delaware.

Like other Texas-based energy companies, Ector was negatively impacted by winter storm Uri, which occurred in February 2021, John Baumgartner, the company’s chief restructuring officer, said in court documents.

The company was unable to procure natural gas needed to power its turbines for a period of several days when production systems that fed into the gas pipelines froze, preventing the debtor from dispatching power at a time of extreme demand.

At the time of the storm, Ector was party to a heat rate call option (HRCO) which provided for Direct Energy Business Marketing, LLC to pay a monthly premium to Ector for the right to call on the debtor to produce energy and various quantities of ancillary services.

Baumgartner said the conditions of the storm resulted in Ector being unable to deliver power or ancillary services, ultimately leading to the purported termination of the HRCO by Direct Energy in May 2021, when Direct Energy disputed the debtor’s assertion of a “force majeure” event.

Direct Energy began litigation in the New York Supreme Court asserting a claim for damages of over $400 million, of which $393 million was alleged to be owed for February 2021.

Baumgartner said the monthly expense burden resulting from the litigation, as well as over 100 personal injury and property damage cases, has caused uneven and difficult to predict cashflow.

Plan support agreement

Over the last several months, the company negotiated a plan support agreement with agent Credit Suisse AG, Cayman Islands Branch and an informal group of prepetition secured lenders.

The lenders agreed to support the company through a process geared toward closing a sale of substantially all the company’s assets by mid-summer. The net sale proceeds will be distributed through a liquidating Chapter 11 plan.

The PSA also contains terms for consensual use of the prepetition secured lenders’ cash collateral during the pendency of the case.

The lenders have agreed to partially subordinate their liens and payment priority to a $5 million post-petition financing to be provided by the debtor’s affiliate, Invenergy Thermal Operating I LLC.

The loan is set to mature eight months after entry into a final order approving the financing. Payments won’t be due until maturity. The outstanding principal balance will bear interest at SOFR plus 350 basis points.

The PSA provides that the DIP financing be repaid after the prepetition secured lenders receive $55 million toward their nearly $340 million claim. The unsecured creditor class will receive a $5 million allocation of funds for pro rata distribution under a plan and an amount of up to an additional $5 million will be set aside to complete administration of the post-effective date Chapter 11 case.

Following the prepetition secured lenders receiving $55 million and the funding of an additional $15 million for the DIP financing, unsecured creditor allocation and wind-down reserve, the prepetition secured lenders have agreed to limit their recovery under the plan toward their $340 million term debt to receipt of the next $20 million plus fees and expenses, with any balance of the debtor’s funds being distributed to unsecured creditors until paid in full.

Asset sale

The company has entered into a stalking horse agreement with an affiliate of Rockland Capital, LLC for the purchase of its assets. The proposed purchase price is $91.25 million, subject to various adjustments, inclusive of $2.7 million in incentive consideration to be received if a closing occurs on or prior to July 31.

The agreement includes a 3% breakup fee and a 0.5% expense reimbursement. Alternatively, the Rockland affiliate has negotiated to receive a reduced 1% breakup fee payable as an allowed super-priority administrative expense claim if the debtor abandons its efforts to pursue the sale.

Competing bids must be at least 5% greater than the stalking horse bid.

Under the proposed bid procedures, bids are due at 4 p.m. ET on June 17, an auction, if needed, will be held on June 22, and a sale hearing will take place on June 27.

Other details

The company listed $50 million to $100 million in assets and $500 million in $1 billion in liabilities.

Its largest unsecured creditor is Direct Energy, based in New York, with the $396 million litigation claim. No other creditors were listed with unsecured claims of $1 million or more.

Holland & Knight LLP is representing the company in its restructuring efforts. Polsinelli PC is local counsel to the debtor. Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. is serving as investment banker.

Goldsmith, Tex.-based Ector owns and operates a 330 MW natural gas-fired electricity-generating facility. The Chapter 11 case number is 22-10320.

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