‘You couldn’t make it up’ – a bit of a cliché in recent years – is a perfect description of the story of an Essex council’s investment in the UK’s biggest solar portfolio. But all’s well that ends well, as Jason Sinclair discovers.
Mr Bates vs The Post Office became more than a successful piece of broadcasting for ITV. The drama helped kick-start a full-scale investigation of the Post Office scandal and compensation for many. Now, there could be another story for the scriptwriters – that of a financially troubled council, a solar energy company and a larger-than-life businessman who has since decamped to Dubai.
Thurrock Council, just like many other local authorities over the past decade, decided to ‘innovatively’ address its central funding issues by taking cheap government borrowing and investing it in the environmental, social and governance-friendly, potentially lucrative, solar farm sector – specifically Toucan Energy, run by Liam Kavanagh.
However, as the council invested in a green future, court documents lodged with the High Court in August by the council claiming ‘fraudulent misrepresentation’ allege that Kavanagh diverted £150m of council funds, spending £13.7m on a yacht, £9.1m on a private Bombardier jet and £20.8m on a vast country estate in Hampshire.
Two years ago Toucan went into administration, but the 14-month process kept Toucan going and showed that its underlying assets were solid and marketable. It ended in January 2024 with the £700m sale to a consortium led by Schroders Greencoat – and Thurrock, together with other creditors, got most (not all) of their money back.
In November 2022, Interpath Advisory was appointed Toucan’s administrators. And for Interpath managing director Jim Tucker, the major task was to prove that Toucan’s administration had nothing to do with the quality of its underlying assets.
The time taken before bringing the assets to market was unusually but deliberately long, he confirms: “We wanted to take some time and bring in a diligence package to show the world that what we were saying on day one of the administration was actually true, because everyone just sees the word ‘administration’ and reads ‘fire sale’.
“We wanted to be talking to the very leading players in that part of the infrastructure universe,” Tucker adds, “and make it the least distressed administration sale anyone could ever conceive of.”
Interpath spent four months carrying out technical, legal, financial and tax diligence. The work it undertook was to make sure Toucan’s assets were in the best position to command the best price, Tucker explains. It commissioned market surveys from Cornwall Insights and other infrastructure and energy specialists “to present the assets in the most favourable light possible, and get that backed up with professional diligence that made those points extremely clear”.
Tucker’s colleague, Interpath director Gareth Slater, adds: “During the administration period, we needed to make sure that there was stability at the operating level. We undertook a fair amount of work with the management team in the business to make sure that operations continued effectively, especially with all the noise around the wider administration.”
Another way
Significant work was required to prove the level of debt the business could take on and how the business could be structured in the most tax-efficient manner. “We identified a number of opportunities to maximise value to the creditors of the topco,” Slater says. “There was a huge amount of work beyond just the normal due diligence as well.”
Tucker says: “We spoke a lot about proving a ‘clear, clean transaction perimeter’ – it was really important for us to be showing there was another way. Don’t worry about the creditors at the topco level. Don’t worry about the noise surrounding the case. Here’s the transaction perimeter for the shares you are buying.”
This was where KPMG came in. A team led by Gavin Quantock and Adrian Scholtz, co-heads of the firm’s UK energy M&A team, provided corporate finance advice to Interpath and ran the auction. The KPMG team included Trent Dewar, Rob Dix, Purvesh Kapadia and Tom Johnson. As always with such an assignment, as well as managing the sale process, the aim was to maximise value for creditors.
There was a great deal of press coverage about the events leading up to the administration. While it was the topco that entered administration, the underlying assets and solar farms were performing well. Ultimately, the topco was balance-sheet insolvent, which led to administrators being appointed.
With taxpayers’ money at stake and all the press interest, there was more noise than usual around the transaction. The concerns of the potential buyers had to be addressed before any could proceed. Acquirers had to be reassured up front of the quality of the solar farms and that they were operationally profitable.
Toucan history
Toucan Energy was founded in 2015 and focused on the acquisition and financing of solar farms across the UK. Businessman Liam Kavanagh took over the company’s management in 2017. Between 2016 and 2018 the business acquired 53 solar farms under four separate transactions.
In 2018, Toucan refinanced its transaction debt under a ‘green bond’ issue; £145m was raised from Thurrock Council. Rockfire Capital, also owned by Liam Kavanagh, has been widely reported as receiving a £5m commission on that deal.
Between 2017 and 2022, Thurrock Council invested £655m in companies controlled by Kavanagh. One £138m loan was approved in 2018 on the basis of a report that stated the portfolio had substantially increased in value; the additional funding was needed to invest in improving the performance of the solar farms. However, it was later discovered that none of this money was invested in the portfolio and remained unaccounted for.
At this time, Thurrock Council also borrowed more than £1bn from 150 other councils as a part of a wider investment strategy, with £815m set aside for “long-term investments” in the renewable energy sector. Around 80% of the money went to companies controlled by Kavanagh.
In early 2022, Thurrock Council engaged Camdor Global Advisors to value its 513MW solar farm portfolio. In November that year, Toucan Energy went into administration, with Interpath Advisory appointed to oversee the subsequent sale process.
At the time of sale, Toucan Energy carried £200m in project finance debt in addition to £655m owed to Thurrock Council. Proceeds from the £700m sale to Schroders Greencoat paid off the project finance debt, leaving around £500m for other creditors, including Thurrock Council.
The good news was that the assets were high-quality solar farms. This had to be clearly communicated. To do so, the preparation period for the 53 solar farms took about five months – significantly longer than is typical for such a process. A comprehensive set of advisers was brought in to assist with preparation of an extensive sell-side due diligence package and materials.
More than 200 parties were approached as part of a wide-reaching global marketing process. And given the scale and quality of the assets, there was significant, wide-ranging interest from strategic parties in the UK and internationally. Financial investors, including private equity infrastructure funds, also showed strong interest. It led to a competitive two-stage auction process involving multiple binding offers being received.
Thurrock’s new cabinet minister for finance, Graham Snell, says: “The sale marks an extremely important step in our financial recovery. The sale of these assets, and the income we will receive as a result, will allow us to pay down a significant proportion of our debt.” The council will receive just over £510m.
Sunny outlook
So what about the buyers? Schroders Greencoat has acquired an asset that, with a change in UK government to one that may reboot renewables investing, could be very canny indeed. Lee Moscovitch, a partner at the firm, says: “This is the largest operating ground-mount solar portfolio ever transacted in the UK, making it a significant and highly valued addition to our portfolio.
“Positive policy support for renewables is great for the sector, strengthening the UK’s commitments to net-zero targets. Existing projects, including the Toucan portfolio, may benefit from the proposed streamlined planning regulations for, say, expansions or upgrades to projects, including commitments by government to improve grid infrastructure in the UK.”
So a happy ending to the drama, with the council getting (most of) its money back, and other councils’ pension funds benefitting from the growth in renewables? Schroders Greencoat will be hoping its credibility as investors ensures that no scriptwriters need to pick up the story.
Schroders Greencoat
Greencoat Capital, founded in 2009, was one of Europe’s largest investment managers dedicated to renewable infrastructure. In 2022 Schroders acquired a 75% stake in Greencoat – at the time with £6.8bn assets under management – in a £358m transaction. Greencoat became part of Schroders’ private markets division, Schroders Capital.
Most of Toucan’s portfolio was acquired through Schroders Greencoat-managed funds including Greencoat Solar II and Greencoat Renewable Income.
Part of the investment went through Schroders Wessex Gardens, set up in 2022 with £330m of commitments from six local government pension schemes.
Schroders Greencoat partner Lee Moscovitch says: “Our extensive track record will benefit the Toucan portfolio with a focus on supporting the long-term financial stability of the assets and the reliable generation of clean electricity.”
