Licking River Resources and related coal producers, which went into Chapter 11 protection earlier this year at the U.S. Bankruptcy Court for the Eastern District of Kentucky, have lately been fighting for approval of a key executive retention plan.
The companies in bankruptcy are Licking River Resources, Licking River Mining, S. M. & J. Inc., J.A.D. Coal Co. Inc., Fox Knob Coal Co. Inc. and U.S. Coal Corp.
The companies on Oct. 20 filed with the court their answer to an objection from the U.S. Trustee to the incentive plan, aimed particularly at CFO Michael Windisch. The companies said they believe it is imperative to incentivize Windisch to obtain the best results possible for the debtors’ estates.
These bankruptcy cases were commenced by the filing of involuntary petitions in May and June. The companies then consented to bankruptcy protection and potential reorganization.
U.S. Coal, the parent of each of the debtors, was formed in 2006 for the purpose of acquiring and consolidating several smaller coal operations and taking advantage of perceived arbitrage opportunities between private and public market valuations through an anticipated initial public offering. U.S. Coal operates through two divisions (previously independently owned and operated). In January 2007, U.S. Coal acquired Licking River Resources, Licking River Mining, SM&J, and Oak Hill Coal Inc. (a non-debtor). These entities collectively are referred to as the “Licking River Division.”
In April 2008, U.S. Coal acquired JAD, Fox Knob, and Sandlick Coal Co. LLC (another non-debtor). These entities, collectively, are commonly referred to as the “JAD Division.”
U.S. Coal’s operations are located in Central Appalachia in eastern Kentucky. Between the two divisions, U.S. Coal controls approximately 80,000 acres, the majority of which is leased. Licking River Resources has approximately 26.3 million tons of surface reserves under lease, and JAD has approximately 24.4 million tons of surface reserves comprised of both leased and owned real property. At present, U.S. Coal has three surface mines in operation between its two divisions and associated highwall miner operations at each location, said an Oct. 1 filing by the companies with the court.
“Immediately prior to the Commencement Dates, the Debtors faced severe liquidity restrictions and had a general inability to readily access a line of credit,” the companies said in the Oct. 1 filing. “In addition, unfavorable coal production in the fourth quarter of 2013 and first quarter of 2014 severely hampered the Debtors’ profitability. As a result, immediately prior to the Commencement Dates, the Debtors were unable to satisfy their debts to vendors as they became due in the ordinary course of business. Vendors responded to the Debtors’ inability to pay their debts by restricting their credit terms to the Debtors and ultimately commencing the Debtors’ Chapter 11 cases.”
They added about the CFO: “The Debtors are highly dependent on the efforts of their Chief Financial Officer Michael Windisch (‘Mr. Windisch’), who does not hold an equity interest in any of the Debtors. Mr. Windisch has extensive knowledge of the Debtors’ long-term and day-to-day financial obligations, and is very familiar with the Debtors’ tax and other governmentally-mandated reporting requirements. Mr. Windisch also implemented systems to help ensure that the fiscal side of the Debtors’ business operates as accurately and efficiently as possible.”