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Texas Retail Provider Files Bankruptcy Petition
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Pogo Energy, LLC (the 'Debtor' or 'Pogo') has filed a Chapter 11 bankruptcy petition
Since emerging from a prior chapter 11 restructuring, Pogo’s credit facility has
been through V3 Capital Funding Group, LLC ('V3').
Pogo Energy indicated that it is seeking restructuring and relief, including the use of "cash collateral" in which its credit provider, V3 Capital Funding Group,
LLC, holds an interest, that would allow Pogo to serve customers during the summer while seeking to execute a sale after the summer (as Pogo alleged that no buyers would acquire the customers for the summer period)
Pogo alleged, "Ultimately, the use of Cash Collateral on a final basis will maintain the going-concern value of the Debtor’s business and improve the ability of the Debtor to facilitate an
effective and timely reorganization by maintaining the going-concern value of its business by
continuing to operate and provide electricity services to customers. Without such minimal financial
accommodations, the hope of an effective reorganization (including a likely sale of the Debtor’s
assets) would be extremely jeopardized."
Pogo alleged that after executing a Loan and Energy Services Agreement ('LESA') with V3 in 2022, "Pogo began to experience difficulty with
V3 executing trade requests in a timely manner, making it difficult, or in some cases impossible
for Pogo to hedge properly and comply with its risk management policy. Specifically, there have
been twenty-nine (29) episodes beginning in January 2023 where either V3 ignored or was unable
to trade/buy energy for Pogo’s customer volumes, or to respond to Pogo’s requests until days later."
Pogo alleged, "As a result of V3’s failure to execute trade requests in a reasonable and timely
manner, Pogo was forced to make certain prepaid energy purchases with Shell Energy . [sic] However,
the use of these prepaid energy purchases was, and continues to be, costly and cash-constraining
for Pogo. The financial impact on Pogo from its inability to rely on V3 for essential energy hedges
has been cumulative and immeasurable."
Pogo alleged that, "The more often V3 failed to execute a reasonable energy trade, the more precarious Pogo’s cash
situation became, and the threat that Pogo would be unable to repay V3 likewise increased. V3
had effectively instituted a death spiral for Pogo."
Pogo alleged that V3's actions constituted an event of default by V3 under
the LESA
Pogo alleged, "Despite its own role in causing Pogo’s financial problems, V3 requested that the
LESA be terminated early, on May 31, 2024, which was 2 years earlier than it was originally
scheduled to expire. In order to avoid a default on the January 2024 invoice, Pogo agreed to the
early termination, and the parties executed an additional amendment to the LESA on February 26,
2024, providing approximately 90 days to secure a new credit facility and energy trading partner
before for termination on May 31, 2024."
In order to preserve its business and repay V3, Pogo alleged that it has:
• "Obtained a term sheet from a global energy supplier and trader to replace the
V3 credit facility"
• "Obtained an LOI from a strategic technology retailer for purchase of Pogo
Energy; and"
• "Received entreaties from two Texas REPs that have expressed interest in
acquiring Pogo or purchasing its assets."
However, Pogo alleged that the May 31 termination date provided by V3 made these efforts unworkable
Pogo alleged, "While the assets of a REP may be
very attractive to prospective lenders and buyers at the beginning of the milder months in Texas,
there are no interested lenders or buyer who will take on a REP at the beginning of summer."
"Indeed, such interested parties will not even take on a REP’s customers for free on the verge of summer," Pogo alleged
"V3’s
May 31 termination date rendered all of Pogo’s efforts to engage prospective partners meaningless,
at least until the end of the summer," Pogo alleged
V3 filed an objection to certain relief sought by Pogo and countered Pogo's allegations in a court filing
V3 alleged, "The Debtor ’s own budget projects its cash position to continue to deteriorate over
the coming weeks. In the Budget, the Debtor projects their 'Ending Cash Balance – Book' to be
'$(202,660)' by July 26, 2024."
V3 alleged, "The Debtor acknowledges it can only plug this hole with an emergency and
substantial DIP loan – but the Debtor does not have a DIP lender. In essence, the Budget proposes
to exhaust V3’s Cash Collateral, on the illusory promise of DIP financing. This is not adequate
protection."
V3 alleged that Pogo, "devotes
[a] first day declaration to a 'blame the lender' rant, improperly projecting the Debtor’s risk management failures, business missteps, and chronic liquidity problems onto V3, without legal or
factual basis."
V3 alleged that Pogo, "falsely implies the V3 is
obligated to conduct the Debtor’s hedging and risk management policy, or honor
trades on any set timeline. Under the V3 Agreements, V3 has the option, but not
the obligation, to transact and sell physical and financial commodity products to the
Debtor. Further if V3 does transact, there is no specified timing or deadline to
respond and transact with the Debtor. For this and other reasons, the facility
between the Debtor and V3 was intentionally nonexclusive, allowing the Debtor to
freely buy supply directly from other wholesale suppliers. For example, the Debtor
maintained a trading relationship directly with Shell and was free to place its energy
purchases with Shell, or anyone else."
V3 alleged, "The Debtor’s summer 2023 losses were due to an
extended heat wave and weather moratorium that prevented the Debtor from
disconnecting non-paying customers for weeks, resulting in a significant increase
in bad debt cost. The Debtor admitted this as a flaw in their business model as new
customers 'gamed the system' in the summer of 2023 by signing up for service just
before the weather moratorium went into effect, and withholding payments once
the moratorium went into effect and the Debtor could not terminate service."
V3 alleged, "Contrary to [Pogo's] statements, V3 in fact
placed a number of hedges for the Debtor for January and February 2024 delivery
volumes in the first week of January 2024. The next business day (Monday, January
8) the Debtor wanted to hedge additional volumes and asked for indicative pricing
for the week of January 15. V3 provided incremental hedges on Wednesday, January 10. Hedge prices were higher across the board in the ERCOT market, and
the Debtor, as a retailer, bears this risk. The Debtor was free to hedge and buy
power from anyone, it was not captive to V3."
V3 alleged, "[T]he May 31, 2024 expiration was
voluntarially [sic] agreed to by the Debtor as part of an overall agreement that provided
significant benefits to the Debtor, who was in default under the V3 Agreements."
The bankruptcy case number is 24-51324-mv1-11, Texas Northern District
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June 4, 2024
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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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