WARRINGTON Borough Council looks set to get back its loans from collapsed energy company Together Energy, with the “worst-case scenario” being a circa £18m loss from its initial investment for a 50 percent stake in the business.
With outstanding customer debt of £13.5m still to be collected and a further £13.7m at the bank, unsecured creditors are also likely to get a payout.
Meanwhile, the initial report from the administrators also reveals that the council refused to invest further funds into the business in the weeks leading up to its collapse following the spike in wholesale energy prices as it was considered too risky.
Council leader Cllr Russ Bowden
Leader of the Council, Cllr Russ Bowden, said: “The administrator’s initial report shows that the council is expected to get back all of its loans to Together Energy and, equally, that the guarantee with our energy wholesaler will not require funding from the council to resolve.
“We now need to allow the administrators to complete their work to ensure the maximum returns for all of the company’s creditors. Whilst we cannot confirm ultimately how much we will receive back, we know with certainty that previous speculation about the council facing a loss of £52 million is inaccurate.”
After ceasing to trade 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 Joint Administrators.
From 2019, the Company had primarily been funded by facilities from WBC (including a revolving credit facility) totalling £20.25m, at the date of the Administrators’ appointment of which £18.8m was drawn, and preference share investment of £18m. In addition, WBC provided a guarantee of 80% of the Company’s outstanding energy liabilities to Orsted A/S (“Orsted”), the wholesale supplier of gas and electricity to the Company, estimated at circa £29m. This investment was used to fund trading across all entities, acquisitions including the Bristol Energy customer base, and any networking capital requirements.
The Group became profitable at an EBITDA level (£1.56m) during the year ended 31 October 2020 and management accounts indicate it continued to generate a positive EBITDA until February 2021.
Wholesale gas prices began to increase from Q1 2021 against historic norms. The Company had throughout its trading sought to reduce wholesale price fluctuation exposure by purchasing forward power contracts (alternatively known as hedges) for customers who had taken longer term “fixed” price deals. However, the Group continued to carry potential market exposure for customers on the standard variable tariff and/or coming off fixed price deals. Whilst this strategy provided some mitigation to the increasing wholesale pricing, the price increases were so significant that even with this hedging strategy in place, significant losses were incurred given the limited ability to increase end customer pricing due to the regulatory market price cap. WBC had previously indicated a willingness to increase their investment, however, given the continuing and increasing volatility in wholesale power prices from September 2021, WBC decided they were unable to offer the further funding required due to the risk profile of any further investment. TEL subsequently approached its bankers who were also unable to offer any facilities.
Over this period, Orsted requested an increase in its guarantee from WBC. On 21 November 2021 the Company engaged Alvarez & Marsal LLP to obtain either new investment or a sale of the Group as a whole. Interest was shown in the process by more than 10 parties, comprising both industry players, new market entrants, and investment funds.
At this time the Group was forecasting losses for year ending 31 October 2022 of £43m with a working capital requirement of £55m.
Whilst interest was forthcoming, interested parties withdrew following further spikes in the wholesale gas price, which peaked during late December 2021 at over 450p per therm. This spike saw forecast losses increase to £181m and the working capital requirement increasing to £115m.
Whilst the wholesale pricing softened following Christmas 2021, the Company continued to forecast losses and working capital requirements in excess of the initial working capital requirement (£55m).
On 29 December 2021, the Group again approached WBC regarding funding, who reconfirmed they were still unable to provide further support at the levels required against the uncertain market backdrop.
The Company liquidated its forward power contracts (hedge) contracts in January 2022 given the withdrawal of interested parties, the inability to service the forecast working capital and guarantee shortfalls, and to mitigate the counterparty risk with Orsted.
The Company operated from three sites:
Glasgow housed the head office, back office and management functions
alongside the customer service operations for the Together Energy brand;
Bristol housed the customer service operations for the Bristol Energy brand;
Warrington housed additional employees offering support functions across both brands.
Whilst the Company employed some 229 persons at appointment, the administrators identified that a number of areas including the Warrington site would not be required and 39 people associated with these areas were made redundant following the Administrators’ appointment.
The administrators have worked with the Company’s management team to ensure that appropriate staff resource is retained during the wind down period. A further 9 employees have been made redundant to the date of the proposals. Regular ongoing communications are being held with the retained employees.
As the final billing exercise is ongoing and payments are being reconciled to accounts, the administrators are currently unable to provide an accurate assessment of the final debtor value
however it is estimated to be in the region of £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 debt appears.
They have received £193k of debtor receipts directly into the Administrators’ bank account.
There remains a further debtor amount of c£13.5m relating to former customer debt which is being pursued by the Company’s in-house revenue assurance team alongside Company appointed external debt collection agencies.
The Company operated several bank accounts and the sum of £13.7m was remitted to the administrators for the benefit of the Administration on appointment. A further balance of approximately £1.2m is held by the Company’s bankers.
Outcome for Secured Creditor – Warrington Borough Council
The Company granted the following fixed and floating charges in favour WBC, dated:
26 October 2020 and 23 November 2021
In addition, the Company granted fixed charges in favour of WBC, dated:
30 October 2020 and 23 November 2021
The fixed charges include an assignation of bank accounts. Our initial review indicates that the bank account over which the charge is held has a nil balance.
Whilst the administrators consider that the asset realisations will be subject to the WBC floating charges, the validity of the charges is subject to legal review.
On appointment, WBC was owed c£18.8m relating to the provision of loans and a revolving credit facility plus accrued interest. WBC also had exposure under a guarantee to Orsted estimated at £29m.
Based upon current information, the administrators consider that WBC will have no call under its guarantee to Orsted and should have its outstanding debt paid in full. This is however still subject to the final determination of asset ownership.
A full copy of the administrator’s report can be downloaded by clicking the logo below.
8 Comments
I’m not sure £18m is an entirely accurate figure and I believe the report is preliminary.
That said there is no way in the world Mr Bowden can claim any sort of victory or moral high ground on this debacle.
A loss is a loss whether it be £1 or £18,000,0000
Heads HAVE to roll at WBC for this failure or else they are taking the people of Warrington who will have to make up for this loss as mugs.
Phew … so we should be delighted that the mis-leaders vanity project (by his declaration) is an 18m LOSS by his estimates . What a great job he and Cathy have done .. cost us 3 new hubs .. we thank them !
But seriously – this is damage limitation .. the council have lost at least 18m and more likely 23m of our money abd he hasn’t resigned ??
His hubris beggars belief – up until the year end he and Cathy and broomhead were all telling us “things are ok”
.. “te is performing well” .. we can clearly see from the auditors interim report that they recognized it was bust from mid year ! The truth hurts but it’s the lies that kill trust . Time for all 3 to go and take mr green with them ..
ps did I miss any apology from mr bowden for
1. Losing our cash
2. Failing to deliver any cash to the town
3. Failing to deliver the promised jobs
4. Leaving a debt to many small companies of about 50m quid … including one of almost 10k to CARPE DIEM based in the pyramids
Did we see an apology ??
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Wow he thinks it’s all forgotten about!
Problem is there are to many in this town who will vote for him again that is if he is allowed to run after his court case!
Yes Cllr. Bowden,
May I suggest you follow your own advice and let the administrator get on with their task, instead of trying to spin what we all know is the inevitable. May I remind you that nobody ever said the council faced a loss of £52m. The £52m was a reasonable assessment of WBC’s exposure, i.e. the initial investment, in shares, loans to TE and liabilities for guarantees given to Orsted for any failure of TE to meet its energy contract with Orsted.
There is so much that is as yet uncertain or unclear. That’s what the Administrator is telling us. Hence any statement from anyone, including you and Cllr. Mitchell that suggests the likely outcome without also caveating it with the known uncertainties is misleading the public.
As the Administrator reports. At one point “Losses were forecast to increase to £181m with working capital required of £115m”
No one is suggesting the loss will be £115m, but the size of this number should be born in mind. It rather gives the lie to your oft made statement that TE was profitable. So stop trying to spin things. Your ridiculous crutch, relying on an EBITDA definition of profit was laughable. Even after Paul Richards had announced to the BBC & Sky that TE would be insolvent after last Christmas without further investment, your lapdog Cllr. Mitchell was in denial, as were you by supporting her comments at Cabinet meetings.
I would also remind you that it was you and Cllr Mitchell who took a unilateral decision without seeking any Cabinet input in September 2020 to provide a further guarantee to Bristol Energy Limited(“BEL”) in respect of TEL’s acquisition of BEL’s customer book. The value of the guarantee was around £7m. If that guarantee is part and parcel of the Administration then your decision will have added to the eventual loss WBC will make from its TE adventure.
From the second half of 2021 it was clear to all but the blind that there would only be one outcome yet still you and the rest of the Cabinet were talking it up.
As Blackadder might have said the chance of WBC getting away Scot free from this is about as low as the ankle socks on a small dwarf, crouching in a trench in a mine in a valley in the Low Countries.
Let no one forget that this money was borrowed and will have to be paid back plus interest. The final cost to the residents of Warrington are far from being determined.
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