Solid Energy into temporary voluntary administration

Placing Solid Energy into temporary voluntary administration gives the best chance to secure an ongoing future for the different parts of the business, Finance Minister Bill English and State Owned Enterprises Minister Todd McClay say.

The Board of Solid Energy earlier today placed the company into temporary voluntary administration for around five weeks. It is proposed that certain non-trade creditors ‘freeze’ a majority of their debts for the next two and a half years.

If creditors agree to this at a meeting in mid-September, Solid Energy will exit voluntary administration and undertake an orderly sell-down of its assets over the next two and a half years.

“It is no secret that Solid Energy has faced significant financial hurdles – both from the falling international coal price and its debt burden,” Mr English says. “Despite taxpayer support to date, these factors mean the company in its current state is not financially viable.”

“Entering temporary voluntary administration, and freezing a portion of its debt, provides the best chance for parts of the business to continue to successfully operate in the future, under new ownership.”

Under the proposal, Solid Energy would remain solvent during the two and a half year sales process and continue to operate as per normal, under its existing Board of Directors.

“The proposal will ensure employees and trade creditors continue to be paid on a business-as-usual basis – both during and after the temporary voluntary administration,” Mr McClay says.

“In a situation like this, there are a number of different parties who can effectively pull the plug on the company at any time. Through a lot of hard work and goodwill we have a proposal that should avoid that. However, there is still a risk that creditors could reject the proposal in mid-September which would send the company into liquidation.”

Over the past two years, the company’s directors, management, banks and the Government have restructured Solid Energy’s finances and operations. This has included taxpayer support worth over $250 million.

In October 2013 the Government negotiated a financial restructure package that saw Solid Energy’s banks contribute $75 million in equity to the company.  The Crown also contributed $25 million in equity and options for $130 million in low-risk, secured loans for the company to use if needed (these have not been drawn down).

In September 2014 a further $103 million in equity was provided by the Crown.

“The international coal price has fallen from over $320 USD per tonne in 2011 to around $85 USD per tonne now. Forecast recoveries in the price have repeatedly failed to eventuate. This means there is no prospect of Solid being in a position to repay or refinance its bank debt, or invest for the future,” Mr English says.

“The Government was prepared to provide further support for the company if there was a reasonable chance it could be made viable. We have worked intensively with the company and its banks on a number of options for the company to continue operating in its current form, but unfortunately none of these proved feasible.”

Background notes for media

What is being announced today?

The falling international coal price means there is no prospect of Solid Energy being in a position to repay or refinance its bank debt.

Solid Energy’s Board have therefore placed the company into temporary voluntary administration. KordaMentha partners, Brendon Gibson and Grant Graham have been appointed as administrators.

It is proposed that certain non-trade creditors to ‘freeze’ a majority of their debts for the following two and a half years. Frozen debt would no longer bear interest. Creditors will vote on this proposal in mid-September.

Should creditors agree to this proposal, Solid Energy will immediately exit voluntary administration and the Board will undertake an asset sales process over the following two and a half years.

Participating creditors will be repaid to the extent possible from the proceeds of asset sales.

During the sales process, employees and trade creditors will continue to be paid in a business as usual manner, and customers will still have access to coal.

What does this mean for employees?

During the temporary voluntary administration period, no jobs will be disestablished or reinstated (i.e. existing redundancies currently serving out notice will not be reinstated).

If proposal to creditors is accepted, the business will continue trading while the asset sale process takes place. ‘Business as usual’ will resume, including regular assessment of each site and operation’s viability.

When an asset is sold, employees will either transfer to the new owner [on substantially similar terms and conditions] or, if their services are not required by the new owner, will be made redundant on the basis of their existing entitlements.

If during the two-and-a-half year sales period an operation or asset is unable to be sold, it will be put into a safe and secure state, all employee entitlements will be fully met, and the asset will be closed.

What happens to creditors and other lenders?

Trade creditors will continue to be fully paid both during and after the temporary voluntary administration.

If the proposal is agreed to, it would see certain non-trade creditors ‘freeze’ a majority of their debts so that they will not bear interest for the following two and a half years.

What will happen to customers?

Solid Energy will continue to operate in a business as usual manner during the sales process and customers will therefore continue to be supplied coal.

What happens in the event that parts of the business cannot be sold?

If any assets cannot reasonably be sold, operations will cease, assets will be made safe and secure and then be transferred to the Crown at the end of the process.

What’s the cost to taxpayers of this process?

No new taxpayer funds are required under the proposal.

Existing Crown indemnities for site rehabilitation costs are being restructured to assist the asset sale process and to provide certainty for affected local authorities.

What happens to Pike River?

There is not expected to be any impact on plans at Pike River, which are funded by the Crown.

What has happened to the coal price in recent years?

The international coal price has fallen from over $320 USD per tonne in 2011 to around $85 USD per tonne now.