James River Coal files for Chapter 11 bankruptcy reorganization

In a long-rumored move, James River Coal (NASDAQ: JRCC) announced April 7 that the company and its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Virginia.

James River said it intends to use the Chapter 11 process to continue implementing a comprehensive turnaround plan aimed at addressing its challenges in the changing coal mining industry. James River expects its mining operations and customer shipments to continue in the ordinary course throughout the restructuring process.

This follows another major restructuring, concluded in December 2013, of Patriot Coal, which like James River Coal is a major Central Appalachia producer and a significant presence in the Illinois Basin.

In conjunction with its restructuring, James River will enter into a $110m debtor-in-possession (DIP) financing facility with several large financial funds. Upon approval by the Bankruptcy Court, the new financing and cash generated from James River’s ongoing operations will be used to support the business during restructuring.

Peter Socha, company Chairman and CEO, commented: “The coal markets in the U.S. have changed dramatically during the past several years. Some of these changes are cyclical due to continued weakness in the real economy. Other of the changes are more permanent like changes in government environmental regulations, improved methods to produce natural gas, and switching between coal basins by domestic power utilities. We have made a number of large and significant changes to our mine operations and administrative overhead in response to the changes in the coal markets. Now we need to adjust our balance sheet and debt structure to align ourselves to the new industry.

“We took this action to restructure under Chapter 11 because it will allow us to adjust the balance sheet and improve our liquidity in a controlled and definitive manner,” Socha added. “We will also continue to explore and evaluate potential strategic alternatives for the Company, such as a capital investment through a plan of reorganization or a sale of one or more portions of the Company.”

James River filed various motions with the court in order to ensure the continuation of normal operations, including requesting authorization to continue paying employee wages and providing health care and other benefits. James River has also asked for authority to continue existing customer programs and intends to pay suppliers in full under normal terms for goods and services provided after the filing date of April 7.

Efforts to sell assets began recently

One first-day motion was for approval of an asset auction procedure. “The Debtors filed these chapter 11 cases in order to pursue a flexible, dual-track restructuring process with the goal of maximizing the recovery for their estates and creditors,” the motion said. “Specifically, the Debtors are seeking to either consummate a sale of some or all of their businesses to a third party or to raise debt or equity capital for a standalone restructuring. The Debtors’ postpetition restructuring efforts continue an ongoing marketing process that began in earnest prepetition, and are designed to solicit and secure the highest and best offers to maximize recoveries for the stakeholders of these estates.”

In February and March, the debtors, with the assistance of Deutsche Bank Securities, initiated a formal marketing process seeking potential purchasers and/or investors. In February and March, Deutsche Bank contacted over forty parties (including existing stakeholders and financial and strategic buyers and investors) to gauge interest in a potential transaction. Approximately half of those parties entered into confidentiality agreements and received confidential information. Discussions with several of these parties remain ongoing, and certain of these parties are in the process of conducting significant due diligence, including on-site visits and meetings with management, said the auction motion.

Under the auction motion, James River is seeking a bid deadline of June 30, a July 8 auction and a July 11 sale hearing where the judge will look at the bid results.

Davis Polk and Wardwell LLP and Hunton & Williams LLP are serving as the company’s legal advisors, Perella Weinberg is serving as restructuring financial advisor, and Deutsche Bank Securities is serving as investment banker and mergers and acquisitions advisor.

James River Coal is one of the leading coal producers in Central Appalachia and the Illinois Basin (in Indiana). The company sells metallurgical, bituminous steam and industrial-grade coal to electric utility companies and industrial customers both domestically and internationally. The company’s operations are managed through operating subsidiaries located throughout eastern Kentucky, southern West Virginia and southern Indiana.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.