Summary of key findings in technical, financial and legal due diligence of Aligera Holding AB (publ), its parent and its subsidiaries
As announced in the press releases dated 9 November 2017, 16 January 2018 and 23 January 2018, Aligera AB’s (publ) wholly owned subsidiary, Aligera Holding AB (publ) (the “Company”), and a group of the larger holders (the “Bondholder Committee”) of the Company’s SEK 500,000,000 senior secured bonds (ISIN SE0005933231) (the “Bonds”) has for a period of time discussed a potential agreement on an out of court restructuring of the Bond. As part of this process, several consultancy firms have been engaged to perform a technical, financial and legal due diligence review of the Company, its subsidiaries and its direct parent company Aligera Vind AB as well as of the turbines owned wholly or partially by the subsidiaries. Aligera AB (publ), the top parent company of the Aligera group, and its subsidiaries are below referred to as the “Group”.
A selected numbers of key findings concerning the Group and the turbines that have been identified during the due diligence process is summarised below.
The Group is an onshore wind power electricity producer. The wind turbine portfolio of the Group comprises 16 wholly or partially owned wind turbines all located in Sweden.
The Group focuses solely on the production and sale of electricity (through wind power) and electricity certificates. The produced electricity is sold on the NordPool Spot market.
Greenextreme AB (“Greenextreme”) is a related company to the Group. A part of the shares and votes in Greenextreme are indirectly controlled by Jörgen Bender (CEO and shareholder of Aligera AB (publ) and CEO of the Company), through a holding company that is controlled by Jörgen Bender and partially owned by Kristoffer Exander (Chairman of the board of directors and shareholder of Aligera Holding AB (publ) and Chairman of the board of directors of the Company). Further, Greenextreme and Aligera AB (publ) also has other joint shareholders.
Greenextreme performs the service, maintenance and administrative services of the Group’s wind turbines under a maintenance and service agreement entered into with the Company.
In addition, Greenextreme has provided the Group with a price guarantee (under a price guarantee agreement entered into with the Company) and a production guarantee (under the maintenance and service agreement entered into with the Company). The guaranteed price of SEK 0.65 per KWh produced is significantly higher than current spot prices (all-in price of approximately SEK 0.35 per KWh in December 2017). Since June 2016, Greenextreme has not fulfilled its obligations to the Group under the price and production guarantees. The missing cash inflows from the price and production guarantees during the financial year 2017 are the main reasons why the Company resolved to cancel its interest payment falling due on 7 November 2017 under the Bond.
As of 30 September 2017, the accumulated receivables due from Greenextreme relating to the price and production guarantees amounted to approximately MSEK 67.2. Considering Greenextreme’s financial situation, it does not appear to be likely that Greenextreme will pay these outstanding amounts nor does it appear to be likely that Greenextreme will pay any future obligations under the price and production guarantees.
For further relations between Greenextreme and the Group, see below under Legal aspects.
The main conclusion of the technical due diligence performed is that Greenextreme’s maintenance on 11 of the 16 turbines inspected has been neglected over the past years. The respective site visits and inspections indicated that maintenance of these turbines was insufficient as extensive contaminations, leakages and rust have been determined on the turbines. However, the Company does not share these views and maintains that the maintenance has been carried out in a prudent manner.
Several of the turbines have serious deficiencies that require immediate attention to avoid further damage to the turbines and potential standstills. The cost for the urgent catch-up maintenance and repair work amounts to approximately MSEK 1. The Group has ordered such maintenance and repair work and has paid 50 percent of the costs in advance. The time to complete the work is estimated to seven weeks.
Further, there is an additional need for maintenance and repair work on the turbines, which has to be carried out in the near future in order to avoid additional damage to the turbines and secure the turbines continued operational capability. The cost for this necessary maintenance and repair work amounts to approximately MSEK 3.5. However, one of the identified repair needs pertains to a rotor blade crack and the aforementioned maintenance and repair amount, assumes that the rotor blade crack can be repaired. In the event a repair is not possible, the rotor blade set on the affected turbine has to be exchanged. In the event such exchange is necessary, the total amount for the additional necessary maintenance and repair is estimated to approximately MSEK 10.5.
Lastly, there are other ongoing issues that will potentially cause more investment need in the near future (e.g., software updates and compliance with CE marking requirements). The capital expenditure needs related to these additional issues are estimated to approximately MSEK 11.4.
Financials 2016 and 2017
Several non-recurring items have been identified that affected the Group’s profit and loss statement. In the financial year 2016 the reported EBITDA of MSEK 39.6 included MSEK 5.1 due to bond related consultancy expenses. Furthermore, the EBITDA without revenue from the price and production guarantees amounting to MSEK 33.2 had been, on a pro-forma basis, EBITDA of MEUR 11.6 in financial year 2016. Similarly, the (pro forma) adjustments for the financial year as of September 2017 reduced reported EBITDA of MSEK 10.5 to a pro-forma adjusted EBITDA of MSEK -8.3. A working capital analysis on monthly level showed an increasing level of working capital mainly due to the accumulated unpaid receivables due from Greenextreme.
Overall, the consolidated cash balance experienced a negative trend during the last 24 months with high volatility in the financial year 2016 driven by significant cash transactions with related companies outside the Group. Although, the cash amounts transferred between the legal entities were significant, there are only limited information on the nature of these cash flows available. In March 207, the related party Nostrorum AB (previously Aligera Fastigheter AB) paid back a contribution of MSEK 5.1 made in the prior year. In June 2017 and July 2017, the investment in Slitevind was completely divested for MSEK 18.7 through a sale at the stock exchange (at book value). The sales proceeds were approximately MSEK 6.1 lower than the initial purchase price. The most significant cash outflows refer to the quarterly bond interest payments of MSEK 6.3 in February 2017, May 2017 and August 2017 and payments made to Greeenextreme (total of MSEK 12 only considering transactions with the Company and Aligera Vind Två AB). During December 2017, the cash balance of the Group decreased below MSEK 1.0. Due to low liquidity throughout the year 2017, it appears that remaining cash outflows have been limited to cover the most critical maintenance and technical upkeep issues only.
The Company has, as part of a presentation dated 14 November 2017, provided a cash flow forecast to the Bondholder Committee which showed sales and EBITDA of MSEK 28.0 and MSEK 12.7, respectively for 2018, and a yearly run-rate of sales and EBITDA of MSEK 28.7 and MSEK 13.4, respectively in the years 2019-2022. According to the presentation, this forecast was based on a gradual increase to an annualized production of 82 GWh via a capex programme of MSEK 7.5 in 2018, and an annual capex outlay of MSEK 5.0 p.a. thereafter. The Company has further assumed annual operating cost incl. maintenance, leasehold, insurance and personnel of MSEK 15.3 p.a.
A 13-week cash forecast starting at 25 December 2017 and ending at 25 March 2018 and a mid-term financial forecast covering financial year 2018 to 2020 have been established as part of the financial due diligence.
The 13-week forecast concludes in summary the following. Without the necessary catch-up maintenance and repair work and extra capital expenditure needs (maximum of MSEK 22.9, see above under Technical aspects), the forecast shows a low but positive liquidity level. Those capital expenditures are assumed to be incurred at the beginning of February 2018 turning the cash balance negative (peak of MSEK -21.8 in March 2018). It seems that it is not possible to fund the identified capex requirements from operating cash flows, resulting in further substantial financing needs.
As part of the mid-term financial forecast, four alternative scenarios of cash forecast for the years 2018-2020 were established. The first scenario uses assumptions which lead to a production of 65GWh based on adjusted historical data. Scenarios 1 and 2 use fixed prices of 350 SEK / MWh and availability of 95 percent (scenario 1) and 85 percent (scenario 2). Scenarios 3 and 4 use market forward rates for electricity and certificate prices, deriving an overall price of c. SEK342 / MWh for 2018, SEK 321 / MWh for 2019 and SEK 306 / MWh for 2020 as well as availability rates of 95 percent (scenario 3) and 85 percent (scenario 4). All 4 scenarios assume a capital expenditure of MSEK 22.9 including catch up maintenance and extra capital expenditure needs to be expensed in February 2018, in order to maximise availability and production yields of the turbines, and assumed that any unexpected large parts defects or faults not covered by the insurance will have to be covered by free cash flow after interest as well as by new cash funded into the business under the proposed restructuring. Depending on the scenario, revenue ranges between MSEK 19.8 and MSEK 22.6 in 2018, between MSEK 18.4 and MSEK 22.4 in 2019 and between MSEK 17.3 and MSEK 22.0 in 2020 while EBITDA ranges are MSEK -8.9 to MSEK -6.4 in 2018, MSEK 7.5 to MSEK 11.2 in 2019, in 2020 MSEK 6.5 to MSEK 10.8.
The mid-term financial forecast is consistent with the 13-week cash forecast, also indicating that without additional funding, no sufficient funds will be available to pay the quarterly bond interest and to cover all the necessary catch-up maintenance and repair work and extra capital expenditure needs.
Unqualified audit opinions
For the fiscal year 2016, the auditor issued a qualified opinion for the Company and its subsidiaries as the consolidated financial statements do not present a fair view due to the potential going concern risks as Greenextreme might not be able to fulfill its payment obligations to the Group. Other key identified but unadjusted misstatements related to the depreciation of wind turbines and the set-up of an allowance for accounts receivable due from Greenextreme.
For the fiscal year ended in June 2016, Greenextreme’s auditor issued an unqualified opinion with the comment that the liquidity situation may be a threat to the going concern assumption and that the filling of the financial statements did not happen timely.
This is a brief summary of the key findings in the legal due diligence.
Receivables against shareholder
The Company has a receivable against Aligera Vind AB in an amount of approximately MSEK 64 as at 30 September 2017. According to the Company, MSEK 58 of the receivable has arisen as a result of non-cash capital contributions (Sw. aktieägartillskott) made in the form of undertakings by Aligera Vind AB to pay certain amounts to the Company. The remaining MSEK 6 pertains to cash transfers that has been booked as claims that relates to administration costs, insurance, auditing, marketing, web pages for the Group, etc. that to a large extent should have been borne by the Company and its subsidiaries. The provider of the legal due diligence report is of the opinion that correctness and reason for these dispositions can be questioned. Further, since the only assets of Aligera Vind AB is the Company and its subsidiaries, the receivable against Aligera Vind AB probably has no or little value. It is to be considered how this receivable is to be accounted for in the books of the Company.
Partially owned turbines
The Group has ownership interests in four turbines that are not wholly owned by the Group. Since the turbines have multiple owners and the owners do not seem to have opted out of the Act on Joint Ownership Rights (Sw. lag (1904:48 s. 1) om samäganderätt), the other co-owners may be able to apply for a forced dissolution of the joint ownership and a forced sale of the affected turbines.
Numerous breaches against the terms and conditions of the Bonds
The Company is in breach of a number of provisions of the terms and conditions of the Bonds which would entitle the holders of the Bonds to declare the Bonds immediately due for payment, i.e., accelerate the Bonds.
The breaches include breaches to the following clauses of the terms and conditions of the Bonds: clause 16.4 (a) (Insolvency), since the Company has commenced negotiations with its creditors with a view of rescheduling its Financial Indebtedness (as defined in the terms and conditions); clause 16.1 (Non-Payment), since the Company has not made the interest payment falling due on 7 November 2017; and clause 16.2 (Other Obligations) in relation to breaches of the following covenants: 14.2 (a) (Minimum-Cash); 15.8 (Loans Out), which concerns a loan the Company has provided to Aligera Vind; and 15.14 (a) (Acquisition of New Wind Turbines), since new turbines have been acquired by the Group to be owned by a subsidiary in the Group but such shares have not been pledged to the holders of the Bonds upon the acquisition.
Relationship with the related party Greenextreme
The Group has a number of relations with the related party Greenextreme, including purchases of turbines. In addition to the price guarantee agreement and the maintenance and service agreement entered into between Greenextreme and the Company mentioned above (see General), the following relations can be mentioned.
The Group has purchased almost all of its turbines from Greenextreme. The turbines purchased from Greenextreme have many defects and some of the turbines were as it seems impaired by a great number of errors already on delivery. The Group does not seem to have asserted any clear claim towards Greenextreme on the basis of these defects, despite that Greenextreme is in a dispute with a manufacturer of turbines, Sinovel, from whom Greenextreme purchased 5.5 of the turbines sold to the Group. However, according to the Company, Greenextreme has spent considerable resources bringing the turbines into working conditions and to correct defects. Greenextreme has withheld MSEK 65 from the price payable to Sinovel due to the defects and Greenextreme has in turn had costs in the amount of MSEK 61 to repair and bring the turbines sold to Aligera into working condition. The Company, has also stated that some defects has caused standstill and/or decrease of production for turbines, which have resulted in claims under the price and production guarantees.
With respect to the turbines that the Group has purchased from Greenextreme, which in turn has purchased them from the manufacturer Sinovel, Sinovel has claimed against Greenextreme that the ownership of the turbines have not passed to Greenextreme as, inter alia, the turbines, according to Sinovel, have not been paid in full. Greenextreme claims that this description of the parties’ agreement is erroneous and that the ownership passes at delivery to the site on which the turbines are to be erected, which actions have been completed. Due to lack of information and insight in the dispute between Sinovel and Greenextreme, the conclusion made in the legal due diligence review is that it is difficult to form any view with respect to the risks the dispute between Greenextreme and Sinovel poses to the Group. However, according to the Company, any dispute in relation to the agreement between Greenextreme and Sinovel is subject to arbitration and Sinovel has not filed any request for arbitration against Greenextreme at this point.
Greenextreme claims that it has a claim of approximately MSEK 8.8 against the Company’s operating subsidiary Aligera Vind Ett AB.
Other related party transactions
Several other related party transactions have occurred during the years 2014-2016. Individuals that are board members in the ultimate parents, members of the management of the Group and/or active consultants in the Group have directly or through their companies purchased and subsequently sold three companies to Aligera Vind AB (note that all these persons have not participated in all the transactions but in one or more of the transactions). Due to lack of information, it has not been able to confirm in the legal due diligence review that these transactions have been made at arm’s length terms and conditions. However, the Company is of the firm view that these transactions have been made at arm’s length terms and conditions at market value and would also like to emphasise that Aligera Vind AB is not part of the group that is subject to the restrictions on acquisitions and disposals of assets under the terms and conditions of the Bonds.
The Group has two outstanding pending claims on insurance companies that both amount to substantial amounts, MSEK 2 and MSEK 12.3 respectively. According to the Company, these claims have been, at least partially accounted for in the books of the Group.
Further, the manufacturer warranty period for the turbines have expired and the main components of the turbines are not insured. According to the Company, it is more or less impossible to insure the main components of the turbines without a high yearly premium. Some companies on the market allocate parts of its proceeds for future damages on these components. The Group does not.
The Group has an ongoing dispute in relation to a building permit on land in Torsås where turbines are erected. The disputes affects four wholly owned Sinovel turbines. In addition, concerning the same turbines, the company is involved in a dispute concerning precautionary measures. The Land and Environment Court (Sw. mark- och miljödomstolen) has ruled in favour of the Group in both these cases and following appeal by the complainants, the cases are pending in the Land and Environment Court of Appeal (Sw. mark- och miljööverdomstolen). The Company believes, although it cannot be certain of the outcome, that the Land and Environment Court of Appeal will judge in favour of the Group. However, in a worst-case scenario, the Group risks losing the building permit and hence could be forced to disassemble the turbines erected on the property.
The Group is involved in three additional disputes, with claims against the Group of in total approximately MSEK 4, and one potential dispute, with a potential claim against the Group of approximately MSEK 0.3.
The legal due diligence report does not purport to evaluate the chances of the Group winning or losing the disputes.
The full financial and technical due diligence reports are, subject to entry into certain non-reliance / release letters with the Company available to holders of Bonds (after proof of holdings has been submitted). The same applies to the legal due diligence report, which is available via the Agent for the Bonds, Nordic Trustee & Agency AB (publ) (+46 (0) 8 783 7900, firstname.lastname@example.org). These due diligence reports may not be transferred or transmitted to third parties without the Company’s consent or the Agent’s consent, as applicable.
For information, please contact:
Jörgen Bender, CEO
Tel: +46 (0) 722 372020
This information is information that Aligera Holding AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, on 26 January 2018, at 12:00 CET.
About Aligera Holding
Aligera Holding AB (publ) is an investment company with exclusive focus on renewable energy. The company operates, owns and invests solely in commercial wind turbines.
Aligera Holding AB, Grev Turegatan 18 , 114 46 Stockholm org.nr 556909-1704
FNCA Sweden AB is appointed Certified Advisor.
The information in this press release is not, and shall not be construed as, constituting investment advice and should not be relied upon by anyone in the context of purchasing and/or selling financial instruments issued by, relating to, or associated with the Group. The due diligence reports that the summary in this press release is based on have been exclusively addressed to and intended for Aligera Holding AB (publ) and/or the Agent under the Bonds for and on behalf of the holders of Bonds in the context of the potential restructuring and may not be relied upon by anyone else or in any other context.