Energisa concludes judicial reorganization of Rede Group

Nearly three years after the acquisition, the courts have ruled that all of the obligations under the reorganization plan have been performed; operation is ranked amongst 1% of the highly successful cases in Brazil

Energisa has today announced the decision delivered by the 2nd Bankruptcy and Judicial Reorganization Court of São Paulo, which has declared the end of Rede Group‘s judicial reorganization proceeding, following the group’s acquisition in April 2014. The decision stated that Energisa has performed all the obligations established in the Judicial Reorganization Plan ratified in November 2013.

The decision marks the conclusion of one of the final chapters in the permanent restructuring of the companies undergoing reorganization. "The completion of this process is yet another step towards consolidating Energisa as one of the largest companies in Brazil’s electric sector, with a unique capacity and highly successful history of reorganizing electricity distribution companies", said Ricardo Botelho, CEO of Energisa Group.

Since their acquisition the eight distribution companies that used to belong to Rede have turned around a loss of R$ 566 million in 2013 to net income of R$ 380 million in 2015. Investment has risen by 45% in this period, rising from R$ 812 million to nearly R$ 1.2 billion in 2015.

Before the control was transferred to Energisa Group, the distribution companies belonging to Rede had debts amounting to R$ 3.9 billion. R$ 2.2 billion of this amount was owed to banks, R$ 1.0 billion consisted of sector charges and overdue purchased energy and R$ 0.7 billion in overdue financed taxes. These companies received capital contributions of roughly R$ 1.2 billion and lengthened and/or substituted debts of R$ 2.2 billion. By December 2015, the net debt had already fallen to approximately R$ 2.4 billion, a decrease of 39%.

The acquisition process of the former Rede Group is a candidate for one of the most successful cases of judicial reorganization in Brazil. According to data from Serasa Experian, just 1.1% of companies experience success in processes like this in Brazil. "The court’s decision is result of an intense, huge endeavor carried out by Energisa in recent years, with thorough planning, financial prudence and responsible asset management. In addition to having performed all the stages of Rede‘s reorganization plan, we have managed to restore normality to the companies’ operations, outlining a path towards achieving adequate service quality and profitability levels. The distribution companies have been fully reorganized and integrated into the group, and all of this took place amidst a critical situation experienced by the electric sector in the last two years, coupled with the economic crisis faced by Brazil", pointed out Botelho.

The executive also asserts that the company will remain focused on making operational improvements at the distribution companies. "We will pursue our targets through 2018, by which time these companies should be amongst the best in Brazil", he concluded.

Understand the process

The acquisition process started in July 2013 when Energisa managed to get its proposal put to a vote at the Rede Creditors Meeting. Approved by the creditors, the Judicial Reorganization Plan was ratified in November that year by the 2nd Bankruptcy Court of São Paulo, which had been assigned the proceeding. On this occasion the plan was approved by all class II creditors, amounting to total guarantees of R$ 712,519,668.30, and 66.34% of class III creditors, amounting to R$ 2,080,604,151.31. The plan was ultimately approved by creditors accounting for 74.93% of the credits.

In December, Aneel approved the Transgression and Failure Correction and Recovery Plan for Rede, submitted by Energisa two months earlier. In January the regulatory agency consented to the transfer of share control, the final stage before completion of the acquisition. Energisa undertook to make immediate contributions of R$ 1.1 billion to the distribution companies acquired (it ultimately contributed more), in order to rectify the transgressions and improve the economic and financial situation of the concession operators acquired. This amount was made in addition to Rede‘s commitments undertaken by Energisa under the judicial reorganization plan, which amounted to R$ 1.95 billion to be disbursed to the creditors.

The acquisition of Rede Group has made Energisa - one of the oldest companies in the electric sector and in business for 111 years - the sixth largest electricity distribution group in Brazil in terms of clients, with approximately 6.5 million consumers. The group‘s five distribution companies in Brazil - located in Paraíba, Sergipe and upstate Minas Gerais and Rio de Janeiro - have joined a further eight electricity concession operators located in Mato Grosso, Mato Grosso do Sul, Tocantins and upstate São Paulo. As a result Energisa is now operating in nine states and all of Brazil‘s regions.

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