Deal analysis - Toucan Energy sale

7 February, 2024

The administrators behind the recent sale of Toucan Energy appear to be quite pleased with the outcome, but the same, unfortunately, cannot be said with other parties involved with the company.

A consortium led by Schroders Greencoat acquired the 53-strong portfolio for a total consideration of £700 million (£821m $884m), a figure industry insiders assert is in line with the market value of the assets, but the company, at the time of sale, carried £855 million in debt.

A certain local council in Essex, which heavily lent to Toucan Energy, is looking at a loss of at least £155 million in taxpayer money, and the company's founder remains under investigation by the administrators for alleged misappropriation of funds, but is currently not facing any legal action, according to sources familiar with the matter.

Looks good on paper

Toucan Energy is a UK-based company focusing on acquisition and financing of solar PV assets located across England, Wales and Northern Ireland. It was founded in 2015, and businessman Liam Kavanaugh took over the company's management in 2017.

Between 2016 and 2018 the company acquired 53 mostly operational solar farms under four separate transactions:

19 projects in February 2017
32 projects in December 2017
one solar farm in an unspecified time between 2016 and 2018
another solar farm also in an unspecified time between 2016 and 2018

Dispute with Wirsol Energy

At the beginning of 2017, Toucan Energy agreed to acquire 19 operational solar farms from Wirsol Energy.

The portfolio included solar farms at: Balcombe, Five Oaks, Mill Farm, Newton, Outwood, Shuttleworth, Trowle, Upper Wick, Wrea Green, Carrowdore, Cranham, Eckland Lodge, Home Farm, Lisburn, Moor House, Otherton, Widehurst, Wilbees and Woodhouse.

Wirsol saw the projects through the permitting phase and later took on EPC and O&M responsibilities for 15 of the 19 projects. The remaining four were delivered by Abakus Byes Solar under a contract with Wirsol.

Wirsol used debt to finance the construction of the 15 projects. The facility was arranged by Bayerische Landesbank (BayernLB) and was disbursed under two lots:

£36 million arranged on 10 June 2016
£46.3 million arranged on 20 January 2017

Toucan Energy paid a total of £53,718,054.46 for 19 solar farms along with an agreement for further milestone payments under an ALE contract.

Toucan Energy, in 2018, went on to refinance the debt on the solar portfolio through a "green bond" issue made available exclusively to local authority investors.

The bond issue resulted in Toucan Energy raising £145 million from Thurrock Council. The deal was facilitated by Rockfire Capital, a company controlled by Toucan Energy owner Liam Kavanagh.

Wirsol later issued Toucan an ALE Invoice of £6.5 million which was not stetted with the latter in turn filing a legal claim seeking £30 million in damages arising from "operational issues" with the solar farms.

Wirsol filed a counter claim seeking payment of the £6.5 million ALE Invoice.

The matter went to trial in 2020 resulting in the judge – Honourable MR Justice Henshaw – mostly dismissing Toucan Energy's claims and awarding Wirsol a total of £6.25 million.

Rockfire Capital commission

Liam Kavanagh came under fire in 2020 when it emerged that Rockfire Capital netted around £5 million in commission for facilitating the "green bond" deal with Thurrock council.

The council in Essex invested £145 million in bonds backed by 19 operational solar projects.

The revelations came during a court case with Wirsol Energy which sold the solar park portfolio to Toucan Energy.

It also emerged that Rockfire Capital's commission was not disclosed in the bond prospectus send to Thurrock council. Some industry insiders assert that the commission was "excessive".

Liam Kavanaugh's ties with Thurrock Council

Thurrock Council, between 2017 and 2022, invested a total of £655 million in companies controlled by Liam Kavanaugh. All the investments are understood to have been facilitated and approved by the Tory-led council's finance director Sean Clark as evidenced by a deep dive by The Bureau of Investigative Journalism.

Most of Thurrock's investments were facilitated by Kavanaugh's financial advisory firm Rockfire Capital, which also marketed the "green bonds" used to refinance debt on the 19 solar farms Toucan Energy acquired from Wirsol.

Scrutiny of the bonds during Toucan's court battle with Wirsol appears to suggest higher than usual risk profile associated with the investment, but the council maintains that all necessary due diligence steps were taken.

Matters came to a head when the council fronted Toucan Energy an additional £138 million against the 32 solar park portfolio acquired by Toucan at the end of 2017.

The loan was approved off the back of a report in 2018, allegedly marketed by Rockfire Capital, which claimed that the portfolio had substantially increased in value and that the additional funding was needed to carry to works to further improve the performance of the solar farms.

It later came to light that none of the £138 million was invested in the portfolio and the entirety of the loan remains unaccounted for.

During this period, Thurrock Council borrowed over £1 billion from 150 other councils as a part of a wider investment strategy. Up to £815 million from this strategy was set aside for "long term investments" in the renewable energy sector, 80% of which was directed to companies controlled by Kavanaugh.

The revelations about the extent of Thurrock's involvement with Kavanaugh's companies resulted in the council's Conservative leader Rob Gledhill stepping down from his post in September 2022. This was followed by the council's finance director Sean Clark resigning in January 2023.

Administration and subsequent sale

In 2022, Thurrock Council retained Camdor Global Advisors to value the entire 513MW solar farm portfolio. Shortly after, in November of the same year, Toucan Energy went into administration with Interpath Advisory appointed to oversee the sale process.

Sources close to the process insist that the holdco which sits two to three steps removed from the 53 separate SPVs was put into administration and that this is not a testament to the value or the performance of the underlying assets.

Interpath Advisory's Jim Tucker reiterated the point adding: "Last year alone these assets generated cash in excess of £100 million. We wanted to harness the profitability of the portfolio and make it clear to interested buyers that this is not a distressed sale."

The flyers for the sale, which inspiratia understands consisted of a "very thick folder with hundreds of documents with detailed due diligence and other information", were circulated to "a few dozen" interested parties.

Interpath Advisory progressed three bidders to the binding bids phase in November 2023 with the consortium of Schroders Greencoat and Tokyo Century believed to be in pole position. The other two bidders were GLIL Infrastructure and CK Infrastructure.

Schroders consortium was announced as the buyer on 25 January [2024]. The consortium acquired the portfolio for circa £700 million.

Commenting on the sale price Tucker adds: "After extensive legal, financial, tex, commercial and technical due diligence, we concluded that the portfolio is worth upwards of £700 million and ultimately that's the number we sold the assets for. It is not only a testament to the quality of the underlying assets but also the results of months of work by the administrators and our advisers ahead of the sale launch."

Schroders Greencoat is understood to be the majority equity owner in the consortium that acquired Toucan Energy and will participate in the deal through Greencoat Solar II, Greencoat Renewable Income and Schroders Greencoat Wessex Gardens.

Tokyo Century is a "substantial minority" owner in the partnership, a source familiar with the matter told inspiratia.

Interpath Advsiory is currently in the final stages of transferring ownership of the assets to the Schroders consortium, with the process set to be wrapped up "on or before 20 February" [2024].

It wasn't a happy ending for all

At the time of sale Toucan Energy carried £200 million in project finance debt in addition to the £655 million owed to Thurrock Council. Proceeds from the sale were used to retire the project finance debt in its entirety leaving around £500 million to settle commitments owed to the remaining creditors.

This leaves Thurrock council at least £155 million out of pocket.

Thurrock Council declined to answer follow up questions regarding the sale of Toucan Energy, instead redirecting inspiratia to a press release which claimed that the sale will "reduce the council's debt".

Interpath Advisory will continue to investigate Liam Kavanaugh's role leading up to Toucan Energy going into administration, but no legal consequences are expected to be brought forward at this stage.

Advisers

Advisers to Schroders Greencoat: