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Validus Power CEO securing funds to stave off takeover bid

Financing company aims to acquire all of Validus power plants in Northern and Eastern Ontario now in receivership
Validus Power's North Bay plant (Company photo)

Todd Shortt, the embattled CEO of insolvent Validus Power, claims he has secured financing to repay a loan from an international financing company.

Shortt's statement in court documents came a day before his company's five power plants in northeastern Ontario and eastern Ontario were placed in receivership by an Ontario Superior Court of Justice this week. The company had been placed in interim receivership last week.

Macquarie Equipment Finance, a global financial services company, wants repayment on a loan agreement signed in 2022. They allege mismanagement by Toronto-based Validus and are making a bid to acquire all the power company’s plants in Iroquois Falls, Kapuskasing, North Bay and Kingston.

The court placed the assets, properties, funds and business affairs of Validus Power under the appointed control of KSV Restructuring of Toronto on Aug. 10.

Some former Validus employees have come forward with serious allegations of misappropriation of funds by company management and other claims, including not paying into an employee group benefits plan, according to documents filed in the last two weeks. 

Macquarie claims in its application to the court last week that it’s owed $55.6 million stemming from a complicated sale and leaseback transaction with Validus finalized in the spring of 2022.

According to the terms of the transaction, Macquarie owns the turbines, plant and equipment at the 120-megawatt Iroquois Falls Plant. Those assets are leased back to a Validus subsidiary company to make monthly rent payments.

In stating its lack of confidence with Validus management, Macquarie claims Validus has no viable plan to repay the loan, no plan to fund the business in the short term, or meet payroll or pay insurance. Macquarie believes the business is at risk.

In an Aug. 9 affidavit, Shortt answered he's been successful in obtaining a financing commitment for $55 million over a five-year term from Dominion Lending Centres at an interest rate of 18 per cent.

But Shortt is disputing Macquarie's claims of repayment. He contends the Australian lender only advanced him $36 million last year to acquire a natural gas power plant in Iroquois Falls from Northland Power and another power plant in Kingston.

After receiving a breakdown of his debt from Macquarie's lawyers, Shortt maintains he's being overcharged by $9 million. 

A factum from Macquarie stated it’s owed $9.6 million in missed rent payments by Validus.

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In January, when Validus’ Iroquois Falls subsidiary company failed to make rent, Macquarie and Validus entered into a forbearance agreement, which involved a four-month rent holiday.

Part of that agreement involved hiring a marketing advisor to put the Iroquois Falls plant up for sale.

That sales process failed, court documents said, because a prospective bidder cited “reputational damages with suppliers/employees and the liens” as the reason not to pursue a bid.

As part of that process, Macquarie was given access to the plant’s books and other records, and discovered issues with the company’s finances, operations, and contracts, including $5.8 million owed in HST to Canada Revenue Agency (CRA). The CRA placed a lien on the plant for unpaid taxes.

There was also a suspicious $550,000 wire transfer between its Kingston power plant subsidiary and the Validus parent company, along with $109,727 in unpaid municipal taxes to the Town of Iroquois Falls, the City of Kapuskasing and the Loyalist Township (Kingston).

Joshua Hamilton Stevens, identified as a Macquarie employee, stated in a July 31 affidavit that Validus' recordkeeping was "deficient,” in reflecting on the unpaid federal and municipal taxes, failure to provide group benefits and RRSP contributions to its unionized workforce as required under a collective agreement.

There’s also an alleged breach of a power purchase agreement with a key customer, Hut 8 Mining, a cryptocurrency company.

Beside CRA, other known secured creditors include Toronto-Dominion and Mercedes-Benz Financial Services, both of which have registered security interests in the Ontario PPSA (Personal Property Security Act) registry.

KSV, in its first report to update the court, said it has retained Ryan Forget, the former manager of power generation of Validus, as a consultant to provide guidance on the operations of the plants. They have access to the company bank accounts, computers and have convened meetings with managers and staff from each power plant.

During the question-and-answer sessions of these meetings, KSV said several employees expressed "lack of confidence in management," concern if management remains in control of the business, and frustration regarding benefits and RRSP amounts withdrawn from their payroll and not remitted.

KSV is of the belief that "mass resignation" of the workforce is "a risk." 

In a factum, Macquarie claims Validus is more than $1.9 million behind on its payroll obligations, including $1.1 million on account or unremitted source deductions.

In emphasizing its lack of confidence with the current Validus management, Macquarie said they will be submitting a stalking horse bid to acquire of all of Validus’ assets as part of a sales process that will preserve the business.