Tue. Jan 18th, 2022

Bulb Energy, the failed UK provider backed by the biggest bailout since Royal Bank of Scotland more than a decade ago, collapsed because it had insufficient credit lines to hedge against rising wholesale energy prices, new documents show.

A report compiled by the administrators for Bulb’s parent Simple Energy, seen by the Financial Times, also shows that they started talking to potential advisers about a combined sales process for the two companies.

The documents disclose details of the invasion of Britain’s seventh largest energy supplier in November last year. With 1.6 million customers, Bulb was considered too large to save through normal energy industry processes and is backed in a “special administration” process on behalf of the UK government with a taxpayer loan, initially of £ 1.7 billion.

Bulb previously had a six-month continuous hedging strategy to manage against wholesale price volatility. But as gas and energy prices soared in the summer and fall of last year, it reportedly had insufficient credit lines to hedge in 2022.

The company, which was founded in 2015 by former management consultant Hayden Wood and former Barclays energy trader Amit Gudka, attempted to raise additional funds as early as May last year. In September, Bulb’s advisers joined Lazard trying to get a buyer for the supplier.

But by mid-November, all potential bidders indicated that they were no longer willing to invest in Bulb or obtain “on a solvent basis”, the report said. Opponents including Centrica, Ovo Energy and Octopus are known to have watched Bulb during the sale process, although they are not mentioned in the documents.

Interpath Advisory, the administrator for Simple Energy, and Bulb’s special administrator, Teneo, began talking to potential third-party advisors about conducting a joint sales process for both companies, as they “see significant benefits to a combined sales approach”, show the documents.

Simple Energy employs the 855 staff needed to manage Bulb and also owns its IT software and intellectual property, although Interpath states in the report that it also has the right to sell its assets through an independent process .

Bulb’s Spanish arm, launched in July 2020, was sold to local group Holaluz-Clidom at the end of December. A sale process was also launched for Bulb’s French business in December, but no bid was received.

Simple Energy went into administration in November with £ 9.9 million in cash available in bank accounts, most of which was to cover employee costs.

It is owed £ 9.7 million by HMRC for VAT refunds and is claiming another £ 3.9 million for other tax payments, although part of this is disputed by the authorities, the documents show.

Bulb owed investment company Sequoia Economic Infrastructure Income Fund about £ 55 million when it was placed under administration under loans guaranteed by Simple, Interpath said. Sequoia has security over some of Simple’s assets, but administrators said they do not yet know if there will be a shortfall in the amount returned to the company.

By the end of December, Interpath administrators had paid more than £ 1 million in fees – almost £ 36,000 a day since their appointment on November 24, the report shows.

The company, which was sold by KPMG last year, did not provide an estimate of its total administration management fees.

According to the documents, the law firm Freshfields was owed almost £ 500 000 when Simple Energy was placed in administration. The firm is also in line to be paid the bulk of an estimated £ 1.5 million to be spent on lawyers during administration.

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