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UK arm of Sungard Availability Services goes into administration

Cloud and data centre provider's liquidity hit by pandemic, energy costs, intransigent landlords

The British division of global cloud and data centre services provider Sungard Availability Services was forced into administration amid a hike in energy bills and after failing to renegotiate landlord rental rates.

The UK wing called in Benjamin Dymant and Ian Wormleighton of Teneo Financial Advisory on 25 March, according to a letter sent to customers that was seen by The Register. The duo are understood to have secured interim funding to keep the business trading while a buyer is sought.

In the letter, joint administrator Dymant says Sungard had contacted customers in December to "recover increased electricity costs" related to colocation kit or other services in its UK facilities. Some customers reimbursed Sungard AS for this but others disputed the amounts.

In January, Sungard may have only passed a portion of the higher electricity prices onto clients, and the administrators will now look to make "full recovery of those costs previously incurred and paid on your behalf as a result of services you have used."

Going forward, customers will be invoiced the full amount of the increased costs, the letter adds.

"The company has not been successful in passing on incremental electricity price rises to all customers and it is no longer able to continue to absorb the significant increase in energy costs and resulting losses."

Energy prices are currently five times higher in the UK than they were last year. Sungard AS runs 75 data centres worldwide, including 16 in the UK that are listed here.

Additionally, Sungard AS tried to "negotiate rental concessions with certain landlords to mitigate cash flow pressures during this challenging period," said Dymant.

He adds in the letter: "These landlords remained unwilling to agree to concessions, further exacerbating the ongoing liquidity issues."

Due to these factors, the directors at the cloud and data centre biz realized they "did not have a reasonable prospect of avoiding insolvency" and called in Teneo.

Customers in the UK include the Home Office and JP Morgan.

Services are currently being provisioned as normal while the administrators review operations to "maximize value" to company creditors. The administrators will continue to invoice and collect monies owed until the "cessation of trading."

The letter adds: "In order to continue providing services to you, we require your support and agreement to pay for all charges as they fall due and any incremental costs associated with services provided to you, without set-off, deduction or counterclaim.

"For any payments that have been made in advance, we will continue to provide the services whilst we continue to trade. However, prepaid amounts cannot be set-off against future costs invoiced or other amounts due. Any payments in advance received during the administration will be held 'on trust' and repaid as an expense of the administration if the services are ultimately not provided due to a cessation of trading."

The company, Sungard AS UK Ltd – the legal entity in administration – was already suffering due to the pandemic, with profit and loss accounts for the year ended 31 December 2020 showing a 10 percent decline in revenue to £139.4m and a net loss of £17.8m versus a net profit of £1.2m the year before. The accounts were filed last month.

Sungard AS UK is believed to employ 300 staff. Teneo told us there were "no day one redundancies".

One source at a Sungard AS UK client told us the company was "good at what they do" but expensive in a business environment that is "trying to reduce costs."

In a statement sent to The Reg, Dymant said Sunguard was "struggling in the face of rising power costs and the impact of COVID on its Work Area Recovery business. These factors have made many sites unprofitable and the company has been unable to pass rising costs through to customers, resulting in a near term funding issue."

He said Teneo had secured funding that "provides a platform to advance the company's discussions with landlords to optimize cost and space, and with customers, to pass through increased power costs.

"The ability for the business to continue to trade in the medium term 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." ®

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