November 10, 2021 – In advance of their November 10th Disclosure Statement hearing, the Debtors filed an Amended Plan of Liquidation and a related Disclosure Statement with each attaching a redline showing changes to the version filed on September 27, 2021 [Docket Nos. 402 and 400, respectively]. The Debtors also filed a proposed order relating to the approval of the Disclosure Statement and Plan voting/solicitation procedures [Docket No. 399]. As proposed, the Debtors are aiming for a December 20th Plan confirmation hearing.
Amongst material changes: (i) the Debtors' 15 classes of interest (ie equity classes) are now entitled to voted on the Plan (previously deemed to reject), (ii) further disclosure on the Shell Energy and Shell Trading claims and the related adversary proceeding, (iii) further disclosure relating to the Oversight Committee, Liquidating Trustee and other post-effective/wind-down matters, (iv) the addition of a recovery analysis (Exhibit B to Disclosure Satement), (v) further disclosure relating to the investigation of the Debtors' by their official committee of unsecured creditors (the "Committee"); the resolution of disagreements amongst the Debtors and the Committee; and the Committee's resulting support of the Plan (see full text below) and (vi) the Debtors' intention to have the cases of certain administratively insolvent Debtors dismissed.
Not materially changed but still worth revisiting, is the staus of ERCOT negotiations, with the Disclosure Statement providing: "ERCOT is the single largest creditor of the Debtors and makes up over 70% of the asserted third-party unsecured claims in the Bankruptcy Cases. The Debtors have commenced a review of the ERCOT claim as well as potential objections and affirmative claims for relief the Debtors may have against ERCOT. In recent months, settlement discussions between the Debtors and ERCOT intensified. ERCOT is finalizing its retention of a financial advisor in connection with its settlement discussions with the Debtors and the Debtors are hopeful that it will be able to reach a settlement with ERCOT which may result in an earlier and higher payout to holders of General Unsecured Claims in Classes 6 and 20. In the event the Debtors can reach a resolution with ERCOT, it anticipates modifying or amending the Plan to improve the treatment of the affected classes."
Plan Summary
On March 30, 2021, Entrust Energy, Inc. and 14 affiliated Debtors (“Entrust” or the “Debtors”) filed for bankruptcy with estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $50.0mn and $100.0mn (this latter figure clearly not including the $270.0mn invoiced by the Electric Reliability Council of Texas, Inc. or ERCOT). The lead Debtor is 100% owned by affiliated Debtor Strategic Power Holdings LLC with manager Kunihiko Kashiwaya signing the latter’s consent for the Debtors to file their Chapter 11 cases. Mr Kashiwaya is a long-serving senior executive at Japan’s Nippon Gas Co. (aka Nicigas), with Nippon Gas establishing the Debtors’ Texas operations in 2011.
At filing, the Debtors cited "[T]he combination of ERCOT’s failure to appropriately safeguard the grid from systematic failure during extreme winter weather and Shell’s unilateral termination of the Global Agreement based on its expectation that the Debtors hedges were inadequate [as eliminating] the Debtors’ ability to continue as a going concern."
The Amended Disclosure Statement [Docket No. 400] notes, “The purpose of the Plan is to provide for the equitable distribution of the Debtors’ Cash as well as any proceeds received in connection with the prosecution and/or settlement of the Causes of Action. The Debtors have no assets of material value other than the Remaining Assets. All Claims against the Debtors are classified and treated pursuant to the terms of the Plan. As noted more fully below, the Plan contains sixty-four (64) Classes of Claims and Interests. There are twenty-six (26) Classes of Secured Claims, two (2) Classes of Priority Non- Tax Claims, twenty-one (21) Classes of Unsecured Claims, and fifteen (15) Classes of Interests.”
Committee Support
The Disclosure Statement now adds: "Immediately following its formation, the Committee began its investigation into the Debtors’ businesses and the actions and activities that preceded the filing of the Bankruptcy Cases. In its effort to determine whether any potential claims and causes of action existed that may have benefited the Debtors’ Estates, the Committee, pursuant to Bankruptcy Rule 2004, requested discovery, including the production of numerous documents and records from the Debtors’ management team. Based on the Committee’s review of the numerous documents provided by the Debtors, the Committee prepared a comprehensive claims analysis memorandum evaluating potential causes of action against third parties, including Shell, ERCOT, and Nippon.
The Committee actively engaged with the Debtors in connection with such potential causes of action, as well as the Debtors’ efforts to maximize value to the Estates (as discussed in greater detail below) and formulation of the Plan. During discussions regarding the Plan, the Committee and the Debtors disagreed with respect to the post-Confirmation governance of the Liquidating Trust. To resolve these concerns and progress the Bankruptcy Cases towards Confirmation, the Debtors and the Committee entered into negotiations to resolve these concerns and reached a resolution, which has been incorporated into the Plan, as set forth in Section E below.
The Committee has determined that the resolution embodied in the Plan and the recoveries to the Holders of General Unsecured Claims represent a fair and reasonable resolution of the rights and interests of the Debtors’ creditors. Accordingly, the Committee supports the Plan and the Debtors will be including in the solicitation materials a letter from the Committee recommending that creditors vote to approve the Plan."
The following is an amended summary of classes, claims, voting rights and expected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement); see also the Liquidation Analysis below:
- Class 1 (“Priority Non-Tax Claims Against Entrust Energy, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Ad Valorem Tax Claims Against Entrust Energy, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Entrust Energy, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 3 Claim will be litigated as part of the case styled Entrust Energy, Inc., Entrust Energy East, Inc., and Power of Texas Holdings, Inc. v. Shell Energy North America (US), L.P., and Shell Trading Risk Management, LLC, Adv. Pro. No. 21-
3930 ([together with any subsequently commenced litigation, the] “Shell Litigation”). To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 3 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors. - Class 4 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Entrust Energy, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading’s rights, if any, related to the asserted Class 4 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Trading is entitled to any rights in connection with its asserted Class 4 Claim those rights are unimpaired under the
Plan, but subject to the claims of the Debtors. - Class 5 (“Convenience Class Unsecured Claims Against Entrust Energy, Inc”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Allowed Class 5 Claim without interest.
- Class 6 (“General Unsecured Claims Against Entrust Energy, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Entrust Energy Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 7 (“Equity Interests in Entrust Energy, Inc.”) is impaired and entitled to vote on the Plan.
- Class 8 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Entrust Treasury Management Services, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 8 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 8 Claim those rights
are unimpaired under the Plan, but subject to the claims of the Debtors. - Class 9 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Entrust Treasury Management Services, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading’s rights, if any, related to the asserted Class 9 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Trading is entitled to any rights in connection with its asserted Class 9 Claim those rights
are unimpaired under the Plan, but subject to the claims of the Debtors. - Class 10 (“General Unsecured Claims Against Entrust Treasury Management Services, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Entrust Treasury Management Services, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 11 (“Equity Interests in Entrust Treasury Management Services, Inc.”) is impaired, and entitled to vote on the Plan.
- Class 12 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Entrust Energy East, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 12 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 12 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 13 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Entrust Energy East, Inc”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 13 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 12 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 14 (“Convenience Class Unsecured Claims Against Entrust Energy East, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Claim without interest.
- Class 15 (“General Unsecured Claims Against Entrust Energy East, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Entrust Energy East, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 16 (“Equity Interests in Entrust Energy East, Inc.”) is impaired and entitled to vote on the Plan.
- Class 17 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Power of Texas Holdings, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 17 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 17 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 18 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Power of Texas Holdings, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 18 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 18 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 19 (“Convenience Class Unsecured Claims Against Power of Texas Holdings, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Claim without interest.
- Class 20 (“General Unsecured Claims Against Power of Texas Holdings, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Power of Texas Holdings, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 21 (“Equity Interests in Power of Texas Holdings, Inc.”) is impaired and entitled to vote on the Plan.
- Class 22 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Akyta Holdings, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 22 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 22 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 23 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Akyta Holdings, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 23 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 23 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 24 (“General Unsecured Claims Against Akyta Holdings, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Akyta Holdings, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 25 (“Equity Interests in Akyta Holdings, Inc.”) is impaired and entitled to vote on the Plan.
- Class 26 (“Priority Non-Tax Claims Against Enserve, Inc”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 27 (“Secured Claim of JP Morgan Chase Bank (NA) Against Enserve, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 28 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Enserve, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 28 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 28 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 29 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Enserve, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 29 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 29 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 30 (“Convenience Class Unsecured Claims Against Enserve, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Allowed Class 30 Claim without interest.
- Class 31 (“General Unsecured Claims Against Enserve, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Enserve, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 32 (“Equity Interests in Enserve, Inc.”) is impaired and entitled to vote on the Plan.
- Class 33 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Akyta, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 33 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 33 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 34 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Akyta, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 34 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 34 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 35 (“Convenience Class Unsecured Claims Against Akyta, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Allowed Class 35 Claim without interest.
- Class 36 (“General Unsecured Claims Against Akyta, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Akyta, Inc’s Liquidating Assets less applicable expenses.
- Class 37 (“Equity Interests in Akyta, Inc.”) is impaired and entitled to vote on the Plan.
- Class 38 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Energistics, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 38 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 38 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 39 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Energistics, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 39 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 39 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 40 (“General Unsecured Claims Against Energistics, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Energistics, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 41 (“Equity Interests in Energistics, Inc.”) is impaired and entitled to vote on the Plan.
- Class 42 (“Secured Claim Asserted by Shell Energy North America (US), LP Against SPH Investments, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 42 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 42 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 43 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against SPH Investments, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 43 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 43 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 44 (“General Unsecured Claims Against SPH Investments, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from SPH Investments, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 45 (“Equity Interests in SPH Investments, Inc.”) is impaired and entitled to vote on the Plan.
- Class 46 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Akyta IP, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 46 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 46 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 47 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Akyta IP, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 47 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 47 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 48 (“General Unsecured Claims Against Akyta IP, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Akyta IP, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 49 (“Equity Interests in Akyta IP, Inc.”) is impaired and entitled to vote on the Plan.
- Class 50 (“General Unsecured Claims Against Strategic Power Holdings, LLC”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Strategic Power Holdings, LLC’s Liquidating Trust Assets less applicable expenses.
- Class 51 (“Equity Interests in Strategic Power Holdings, LLC”) is impaired and entitled to vote on the Plan.
- Class 52 (“General Unsecured Claims Against NGAE, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from NGAE, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 53 (“Equity Interests in NGAE, Inc.”) is impaired and entitled to vote on the Plan.
- Class 54 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Surge Direct Sales, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 54 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 54 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 55 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Surge Direct Sales, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 55 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 55 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 56 (“General Unsecured Claims Against Surge Direct Sales, Inc”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Surge Direct Sales, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 57 (“Equity Interests in Surge Direct Sales, Inc.”) is impaired and entitled to vote on the Plan.
- Class 58 (“Secured Claim Asserted by Shell Energy North America (US), LP Against Entrust Energy Operations, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Energy’s rights, if any, related to the asserted Class 58 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 58 Claim those rights are unimpaired under the Plan, but subject to the claims of the Debtors.
- Class 59 (“Secured Claim Asserted by Shell Trading Risk Management, LLC Against Entrust Energy Operations, Inc.”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Shell Trading's rights, if any, related to the asserted Class 59 Claim will be litigated as part of the Shell Litigation. To the extent the Court in the Shell Litigation determines that Shell Energy is entitled to any rights in connection with its asserted Class 59 Claim those rights are unimpaired
under the Plan, but subject to the claims of the Debtors. - Class 60 (“General Unsecured Claims Against Entrust Energy Operations, Inc.”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Entrust Energy Operations, Inc.’s Liquidating Trust Assets less applicable expenses.
- Class 61 (“Equity Interests in Entrust Energy Operations, Inc.”) is impaired and entitled to vote on the Plan.
- Class 62 (“Convenience Class Unsecured Claims Against Knocked, Corp.”) is impaired and entitled to vote on the Plan. Each Holder will receive payment from the Liquidating Trust within 60 days after the later of the Effective Date or such claim becoming an Allowed Claim, of 90% of its Allowed Class 62 Claim without interest.
- Class 63 (“General Unsecured Claims Against Knocked, Corp”) is impaired and entitled to vote on the Plan. Each Holder will receive a Beneficial Interest in the Liquidating Trust Cash derived from Knocked Corporation’s Liquidating Trust Assets less applicable expenses.
- Class 64 (“Equity Interest in Knocked, Corp.”) is impaired and entitled to vote on the Plan.
Key Documents
The Disclosure Statement [Docket No. 360] attached the following documents:
- Exhibit A: Liquidation Analysis
- Exhibit B: Schedule of Causes of Action to be Transferred and Retained by the Liquidating Trust
Key Dates:
- Solicitation Deadline: November 15, 2021
- Plan Supplement Date: December 6, 2021
- Voting Deadline: December 13, 2021
- Plan and Disclosure Statement Objection Deadline: December 16, 2021
- Combined Hearing on Disclosure Statement and Plan: December 20, 2021
Background
On March 30, 2021, Entrust Energy, Inc. and 14 affiliated Debtors (“Entrust” or the “Debtors”) filed for bankruptcy with estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $50.0mn and $100.0mn (this latter figure clearly not including the $270.0mn invoiced by the Electric Reliability Council of Texas, Inc. or ERCOT).
The lead Debtor is 100% owned by affiliated Debtor Strategic Power Holdings LLC with manager Kunihiko Kashiwaya signing the latter’s consent for the Debtors to file their Chapter 11 cases. Mr Kashiwaya is a long-serving senior executive at Japan’s Nippon Gas Co. (aka Nicigas), with Nippon Gas establishing the Debtors’ Texas operations in 2011.
Events Leading to the Chapter 11 Filings
In a Declaration in support of first day motions (the “Keene Delaration”) [Docket No. 9], C. Alexis Keene, the Debtors’ President and Chief Executive Officer provides:
Deteriorating Relationship with Shell
“As a necessary component of the Debtors’ operations prior to the Petition Date, the Debtors entered into a series of agreements with Shell Energy North America (US), L.P. and other Shell-related entities (collectively, “Shell”) for the purchase and sale of physical and financial electrical energy and related services, and to provide credit support arrangements for Debtors.
On July 1, 2014, the Debtors and Shell entered into that certain Amended and Restated Global Agreement (as amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “Global Agreement”), to govern the parties’ business relationship.
As of the Petition Date, by Shell’s calculations, Shell is holding in excess of $60 million from termination of the Debtors’ hedges, and the Debtors owe Shell approximately $52 million. By Shell’s calculations, Shell acknowledges it owes the Debtors more than $8 million. The Debtors are awaiting further information from Shell and are currently investigating Shell’s calculations.
In 2018, as selling, general, and administrative costs increased by approximately $15.5 million, multiple extreme weather events negatively impacted the Debtors’ costs which ultimately led to Shell, the Debtors’ primary secured creditor, to issue a default notice on or about April 30, 2019 claiming that the Debtors were out of compliance with the financial metrics required under the Global Agreement and Shell Loan.
Notwithstanding the Debtors’ efforts to improve their balance sheet and financial metrics to the satisfaction of Shell, Shell issued another default notice on March 16, 2020 declaring a default due to the Debtors failure to meet the net worth calculation under the Global Agreement and Shell Loan. In connection with the alleged default, Shell again required the infusion of $10 million in capital.
[O]n July 1, 2020, the Debtors closed on a sale of 35,200 residential customer equivalents (‘RCEs’) to US Retailers LLC, which resulted in approximately $13.2 million in sale proceeds (“NRG Sale”). The NRG Sale dramatically improved the Debtors’ financial position and brought the Debtors back into compliance with all financial metrics under the Global Agreement and Shell Loan.
Winter Storm Uri
"Unfortunately, on or about February 13, 2021 a historic blast of arctic weather engulfed the state of Texas, producing abnormal sub- freezing temperatures for multiple days. It was widely reported that this extreme weather event caused electric generation equipment and natural gas pipeline equipment to freeze or stop functioning, causing the available generation within the market operated by the Electric Reliability Council of Texas Inc. (‘ERCOT’) to dramatically decline. ERCOT’s CEO, Bill Magness, acknowledged that during this time ERCOT’s entire grid system was only minutes away from complete failure. As a result of the crisis, the Public Utility Commission of Texas (‘Texas Utility Commission’) instructed ERCOT to set record high prices for electricity including substantial ancillary fees for several days.
The consequences of these events had a devastating effect on all retail energy providers in the State of Texas, including the Debtors.
Only one day into the historic and extreme weather event, Shell attempted to have the Debtors agree to a mutual termination of their agreements. When the Debtors did not agree, Shell notified the Debtors that it was declaring a default under the Global Agreement and would no longer transact with the Debtors (‘Termination Notice’). The Termination Notice states:
As evidenced by the POTX forecast and hedge report provided today by Entrust to Shell, Entrust is in material default of the hedging requirements of Section 3.17 of the Global Agreement, thereby causing an Event of Default with respect to Entrust under the Global Agreement. Due to the current extreme weather event, Entrust’s failure to maintain hedges as required by the Global Agreement has resulted in, or will result in, expected losses to Entrust in excess of $40 million, making Entrust deeply insolvent and no longer financially viable, and Shell can no longer risk increasing its exposure to Entrust.
The combination of ERCOT’s failure to appropriately safeguard the grid from systematic failure during extreme winter weather and Shell’s unilateral termination of the Global Agreement based on its expectation that the Debtors hedges were inadequate eliminated the Debtors’ ability to continue as a going concern.
Immediately following the Termination Notice given to Entrust, Shell terminated hedges which Shell acknowledges were adequate to pay all amounts owed to Shell under the Global Agreement, Shell Loan, and other amounts owed to Shell under their related contracts.
The Debtors have been actively communicating with Shell for weeks regarding an accounting of the funds collected and application of those funds. Preliminary reports from Shell indicate that Shell owes the Debtors well in excess of $8 million, but despite numerous efforts to seek more definitive documentation around mark-to-market valuations and evidence of each liquidating trading settlement activity, Shell has not yet provided complete backup documentation requested by the Debtors to verify the initial accounting reconciliation of the funds provided by Shell. The Debtors are still investigating Shell’s termination of the Global Agreement and related agreements as well as the amounts they are owed in connection with the early and unilateral termination of their hedges at the onset of the extreme weather event in Texas."
Liquidation Analysis (See Exhibit A of Disclosure Statement for Debtor-by-Debtor breakdown]
Recovery Estimates (see Exhibit B to Disclosure Statement)
About the Debtors
The Keene Declaration provides: “Entrust Energy Inc. (‘Entrust’) is a Texas corporation formed in or around August 2010. Entrust, together with its affiliates, is a retail energy company delivering electricity and natural gas to homes and businesses in deregulated markets throughout the United States.
Entrust and its direct or indirect subsidiaries and affiliates of SPH are headquartered in Houston, Texas and served consumer and commercial customers throughout Texas as well as Illinois, Maryland, New Jersey, New York, Ohio, and Pennsylvania for more than a decade.”
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