A proposed order was filed Aug. 8 with the bankruptcy court for Central Appalachia producer Trinity Coal for the hiring of Ritchie Bros. Auctioneers (America) Inc. to sell much of the mine equipment held by the company.
The judge in the U.S. Bankruptcy Court for the Eastern District of Kentucky is likely, based on past court precedent, to sign the proposed order within the new few days.
Trinity Coal and various subsidiaries, including main producing subsidiary Frasure Creek Mining LLC, have been in Chapter 11 protection since earlier this year. They are moving toward a broader sale of mining assets, with the equipment auction a separate but interrelated part of that process.
The Debtors’ operations are organized into six coal mining complexes. Three are in eastern Kentucky and are referred to as Prater Branch Resources, Little Elk Mining, and Levisa Fork. The Kentucky operations produced compliance and low-sulfur steam coal. The other three complexes are located in southern West Virginia and are referred to as Deep Water Resources, North Springs Resources and Falcon. The West Virginia operations produce compliance, low-sulfur steam coal and mid- to high-vol metallurgical coal.
In 2010, the companies were bought by India’s Essar Minerals in a $600m deal. Since then, however, coal has experienced a precipitous decline in demand due to cheaper alternative sources of energy, including natural gas, and other factors. This has adversely impacted the entire coal industry, including the Debtors’ business operations and financial condition, which have been in steady decline since 2011. Consequently, the companies have closed five out of their six coal mining complexes. They are currently operating and mining coal only on Deep Water and related operations in West Virginia.
Notable is that, depending on what any buyers of mining properties need, Trinity can withdraw some of the equipment set for auction and turn it over to property buyers.
“The Debtors, in the exercise of their reasonable business judgment, believe that the engagement of the Auctioneer will further the interests of the Debtors and their estates and creditors in achieving the highest possible price for the Equipment than if the Debtors were to conduct such sales themselves,” the companies told the court in their July 19 petition to hire the auctioneer. The auction is to be held in Charleston, W.Va.
Essar may have reorganization plan that would short-circuit mine sales
Also, on Aug. 2, Trinity filed a notice with the court that an Aug. 6 auction for certain assets had been postponed to an unspecified time.
The companies, under a court-approved debtor in possession (DIP) Credit Agreement, are required to conduct an orderly sale of all assets to maximize value for the Debtors’ estates for the benefit of their creditors within a specific time frame with closing of such sales to occur on or before Aug. 28.
The sales process has included soliciting interest from potential buyers and entering into non-disclosure agreements (NDAs) with parties who expressed initial interest in acquiring some or all of the Debtors’ assets. More than 60 potential buyers were solicited, including competitors as well as other strategic and financial investors. More than 30 potential purchasers thereafter entered into NDAs and conducted various degrees of due diligence, including management presentations and site visits with respect to the various mining complexes.
In an Aug. 2 filing with the court, Trinity said there had been negotiations with Essar Global Fund Limited concerning the terms and conditions of a potential Chapter 11 plan (called the “Contemplated Plan”), which has caused an auction delay from the original July 30 auction date. As for adjourning the most recent Aug. 6 auction date, Trinity said: “This final adjournment was intended to provide an opportunity for the parties to pursue the Contemplated Plan while also preserving for the Debtors’ estates the opportunity to revert to the Auction at a future date in the event the Contemplated Plan was to become non-viable at any point for any reason.”
Trinity added about temporarily extending the term of its DIP financing agreement: “The Debtors, in consultation with their counsel and financial advisors, believe that the relief requested herein is in the best interests of creditors because doing so would continue to move these Chapter 11 Cases toward a successful reorganization of the Debtors which would preserve the value of the Debtors as a going concern for the benefit of a broad array of constituents, including the unsecured creditors, vendors, certain unexpired lease counterparties, employees, the lenders, and the states of Kentucky and West Virginia in which the Debtors have assets and operations. If the Contemplated Plan does not bear fruit, the estates will not be harmed because Essar is providing incremental funding for this process, as more specifically set forth in the Escrow Motion, and the Debtors would promptly conduct the Asset Sales and other transactions for the disposition of their remaining assets.”
A filing of minutes for a court hearing held on the morning of Aug. 8 indicates that the judge sustained the DIP extension request.