Arctas professionals have experience in bankruptcy, distressed and turn-around transactions. Each of the founders clerked for bankruptcy specialist law firms early in their careers, and Mr. Haug spent considerable time in energy workouts and restructurings.
Arctas was established in 2002 at the start of the “energy merchant” crisis following the downfall of Enron. The firm’s initial activity was a result of a concept originally proposed by one of its founders to El Paso to create a distressed energy investment firm.
Since that time, Arctas has gravitated towards and sought out “special” or “opportunistic” situations, both in and outside of bankruptcy court. Rather than avoiding the complexity or challenges of distressed cases, the principals have embraced the advantages that can be afforded to those who understand both the nuanced rules and leverage points.
Within the bankruptcy context, it is critical for creditors and stakeholders to be sensitive to the fact that energy assets and development require skilled management oversight and attention so value of their security does not degrade during the bankruptcy process. In some cases, the smaller non-core or less developed assets can be neglected; a quick and knowledgeable evaluation to identify such assets and decision to keep or dispose of them can be the prudent course of action for optimizing total value.
Examples of Arctas participation:
- In the post-Enron energy crash in the early 2000s, many companies decided quickly to raise cash to shore up balance sheets by disposing of non-core assets:
- Arctas advised Reservoir Capital in its bid for certain US petroleum terminals and asphalt businesses of El Paso Corp.
- Arctas and Chanin Capital were requested to provide a fairness opinion in the sale of certain assets by Williams.
- Shortly thereafter, the US utilities with unregulated Independent Power Producer divisions were broadly advised by Wall Street investment banks to dispose of their international assets:
- Arctas and DRKW were jointly engaged to sell PSEG’s 50% controlling interest in Meiya Power Company, one of the largest IPPs in Asia at that time (over 10,000 MW of gross capacity).
- Arctas was runner-up in attempt to acquire El Paso’s Central American IPP portfolio, losing to Actis’ power subsidiary Globeleq.
- An Arctas controlled affiliate negotiated a Sale and Purchase Agreement with the Enron bankruptcy estate and became the “stalking horse” for the purchase of the 357-mile Centragas natural gas pipeline in Colombia. Ultimately, Arctas prevailed through 3 separate bidding rounds to acquire Centragas.
- In addition, within the Enron bankruptcy, Arctas teamed with a large US private equity firm and served as “stalking horse” bidder on two other auctions for Enron power assets located in New York, but withdrew after a number of rounds when the ultimate auction price exceeded what we believed was a reasonable valuation.
- In most bankruptcies, equity is completely wiped out and it is unusual to even establish a committee to serve as a voice for equity in bankruptcy. In the case of the Mirant bankruptcy, Arctas spotted an opportunity and purchased shares of the bankrupt company, becoming one of the largest non-institutional holders of Mirant equity. Subsequently, Arctas helped establish the Mirant Equity Committee, and continued to provide tactical and valuation-related advice throughout the process. Within a few years after emerging from bankruptcy, the value of the new package of securities issued to the former equity holders increased more than 10x from the price Arctas paid for its shares.
- After forming the Mirant equity committee and disposing of its shares, Arctas and Chanin were co-advisers to $1.2 billion of bond holders in MIRMA, the Mirant subsidiary with a portfolio of power generation assets in the USA.
- Outside of formal bankruptcy, Arctas has been successful in originating profitable development opportunities when the original developer has either reached a limit on its financial resources and/or skills to complete its project or has materially altered its focus. Relevant examples include the Texas wind project and each of its three wind projects in Nicaragua.