Undisclosed Energy Company

Situation

Market conditions caused a breach of the net worth covenant under its supply agreement (the “Agreement”) with its provider (“Provider”). Over the next four years, Provider-mandated fees and limitations impaired the Company’s operations, reducing profitability and forcing the Company to incur a substantial amount of revolving debt under the Agreement. With the Agreement set to expire in 2019, the Provider (a major energy conglomerate) required the Company to pay down half its debt (which had grown to about $100 million), “or else”.

Gordian was retained to lead negotiations with the Provider and support the Company’s existing investment bank in exploring both an M&A or capital markets solution

Engagement

The Company is a large, closely-held player in the energy sector. Gordian advised the Company in resolving a four-year dispute that avoided a bankruptcy filing and maintained significant ownership for the founders. Our work provided both significant advantages for refinancing the debt and real operating flexibility to maximize enterprise value.

Outcome

After negotiating an initial extension of the Agreement, Gordian worked closely with the Company and counsel (Akerman) to develop credible, non-consensual alternatives to create leverage in negotiations with the Provider. This effort was ultimately successful, with Gordian and the Company negotiating a restructuring of Provider’s debt (with no pay down) into a subordinated obligation that included significant debt service relief (including an early repayment discount), contingent on effecting a successful supplier transition. Work began on finalizing negotiations with an alternative supplier.

However, after the alternative supplier backed out in early 2020, citing uncertainty around the impact of COVID-19 on operations, Gordian, counsel and the Company quickly pivoted to focus on both an alternative supplier and “encouraging” the Provider to be cooperative. A deal was then negotiated that maintained significant equity control for the founder, provided a capital infusion and transitioned the supply agreement to new operating partner, keeping the Provider’s debt on advantageous terms for the Company.

Meanwhile, at the time of the July 2020 restructuring, the operations were already showing signs of improvement. And, since then, projections are being exceeded and such a continued trajectory will likely enable an early refinancing of the debt.