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Rising energy costs blamed as UK arm of colocation firm Sungard AS enters administration

Financial difficulties caused by downturn in demand for its services during the pandemic, coupled with ‘unprecedented’ energy price rises, force Sungard AS into administration in the UK

The UK arm of US-based colocation giant Sungard Availability Services has entered administration after falling into financial difficulties caused by spiralling energy costs.

The process is being overseen by insolvency consultancy Teneo Restructuring, which confirmed that the company had been “struggling in the face of rising power costs”, coupled with the financial fallout from the Covid-19 coronavirus pandemic, in a statement to Computer Weekly. 

The company operates 16 sites across the UK, which include some standalone datacentres as well as server farms that are paired with office space that are designed for use by companies during times of crisis so they can continue to function. The latter sites are known as Workplace Recovery Centres.

The Sungard AS’s most recent set of UK financial results were filed in February 2020 and cover the 12 months to 31 December 2020, and paint a picture of a company whose fortunes had been negatively affected by the Covid-19 pandemic prompting some clients to cut their IT spending.

“This has resulted in certain datacentre and workplace facilities becoming unprofitable, with fixed lease and energy costs no longer being offset by customer revenue,” its accounts stated.

“The company has taken several actions to mitigate these impacts, including the commencement of negotiations with landlords and invoicing customers for additional costs incurred on their behalf.”

The document then goes on to reference the toll the rise in energy costs “to unprecedented levels” during the second half of 2021 has taken on its business.

“While the company had hedges in place to partially mitigate these price increases, the magnitude of the energy cost increase has put additional pressure on the business, including on a look-forward basis.”

To help it weather the fallout from the pandemic and the uptick in energy costs, the document confirmed the company had sought additional financial support from its investors to the tune of $20.5m, which was due for repayment by 31 May 2023.

In addition to this, the Teneo statement confirmed the company had engaged with its landlords, customers and its parent company to seek a “consensual restructuring, [but] despite the board’s best efforts, these discussions have not been productive”, it said. “The board therefore concluded that, without the requisite customer and landlord support, there was not viable turnaround plan available.”

This in turn led to the appointment of Benjamin Dymant and Ian Wormleighton from Teneo as joint administrators, the statement added.

Since their appointment, the pair have succeeded in securing a limited amount of funding to enable Sungard AS to keep trading while discussions with its landlords and customers continue, as well as giving it time for the administrators to find a possible buyer for the business.

“This funding provides a platform to advance the company’s discussions with landlords, to optimise cost and space, and with customers, to pass through increased power costs. The ability for the business to continue to trade in the medium to long term, either to enable a rescue of the business as a going concern or to deliver individual asset sales, will be reliant upon burden sharing from both customers and landlords alike,” said Dymant, in a statement.

“We will be working with the shareholder and other stakeholders to further consider the ability for the company to continue trading on a day to day basis. Any changes will be communicated directly with customers, employees and suppliers.”

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