Electricity producer Optim Energy LLC, which is effectively owned by Bill Gates, filed for bankruptcy Wednesday morning citing crippling debt and the fact that it may need to sell one of its three Texas power plants in order to repay its bank debt.
The company placed itself into Chapter 11 protection in Wilmington, Delaware today citing the fact that its cash reserves, along with its debt, no longer allow it to operate its plants “safely and effectively” according to papers filed with the U.S. Bankruptcy court.
Cascade Investment on the hook
The actual owner of Optim is Cascade Investment LLC. Cascade is, however, the investment arm of Microsoft Corporation (NASDAQ:MSFT) billionaire Bill Gates. By filing today, Optim executives will be granted access to a $115 million bankruptcy loan from Cascade. While Cascade has yet to comment, Judge Brendan Linehan Shannon granted the company the go-ahead to begin spending said loan.
What went wrong with Bill Gates investment?
Optim’s problems are essentially one-fold, and not based on mismanagement. Optim was founded in 2007 and electricity prices have been falling since. The company borrowed money to buy a 600 megawatt natural gas-powered plant in Texas and also borrowed money to build another facility when prices were $63.24 per megawatt hour in 2008.
As of the the last month in 2013, the price of electricity had fallen to roughly $38.00 per megawatt hour. Optim electricity sales had fallen 40% in the last five years according to papers filed today that were drafted by Chief Executive Officer Nick Rahn and Optim’s lawyers.
Mr. Rahn also pointed out in the filing today that this injury was further compounded by a long-term contracted that Optim entered into to fuel its 305 megawatt coal-fired plant in Robertson Country, TX. That agreement forced Optim to buy “minimum coal quantities regardless of the Twin Oaks Plant’s actual coal needs.”
In addition to its own plants, Optim Energy owns a 50% stake in the 550 megawatt natural-gas powered Cedar Bayou plant that is also located in Texas.
In a cost-cutting move that saved the company $15 million a year, Optim turned over the operation of its plants to a management company in a move that Rahn says was an “aggressive” move to save money.
Regardless, Optim cannot pay its debts which include a $713 million bank loan it took out with Wells Fargo & Co (NYSE:WFC), which was identified in court papers today.
The law firm of Bracewell & Giuliani is handling the Chapter 11 filing. The company also named Barclays Capital LLC as its financial adviser and Protiviti Inc. as its restructuring adviser.