Arch Coal (NYSE: ACI), one of the largest U.S. coal producers, on Oct. 27 announced the termination of its previously announced private offer to exchange higher-priced debt for lower-price debt.
The exchange offers expired pursuant to their terms at 12:00 midnight, New York City time, on Oct. 26. Furthermore, the previously announced support agreement that Arch had entered into on July 1 with holders of approximately 56.9% in aggregate principal amount of the 2020 Notes expired by its terms on Oct. 26. The support agreement has not been extended by the parties.
Prior to the expiration of the exchange offers, certain term loan lenders under Arch’s Amended and Restated Credit Agreement dated as of June 14, 2011 (called the “Directing Lenders”) delivered a letter to the term loan administrative agent directing it to refrain from executing any documentation relating to the exchange offers. Following receipt of the direction letter, the term loan administrative agent tendered its resignation. Arch said it believes that the successor administrative agent appointed by the Directing Lenders would not execute the documents required for the exchange offers, absent direction from a majority of the term loan lenders, which had not been received prior to the expiration of the exchange offers.
On Sept. 16, GSO Special Situations Master Fund LP (GSO), which represents that it holds certain of Arch’s unsecured notes and term loans, filed a complaint in the Commercial Division of the Supreme Court of the State of New York against the Directing Lenders and the administrative agent, seeking a declaratory judgment that the exchange offers are permissible under the Credit Agreement and do not require the consent of the Directing Lenders, and also seeking a preliminary and permanent injunctions barring the Directing Lenders from instructing the administrative agent not to execute the documents required to close the exchange offers. On Oct. 16, the court issued an order denying GSO’s motion for a temporary restraining order and preliminary injunction. On Oct. 21, GSO appealed that ruling.
Absent resolution of the litigation in favor of the plaintiff, Arch said it believes that the administrative agent is highly unlikely to execute the documentation required to consummate the exchange offers on their current terms. As a result of the position of the Directing Lenders, the status of the pending litigation, current market conditions and various other factors, Arch has concluded that the conditions to the exchange offers have not and will not be satisfied, and that the offers will not be consummated. Accordingly, Arch has elected to terminate the exchange offers.
Arch said it is currently in active dialogue with various creditors with respect to a restructuring of its balance sheet. It added that the company’s mining operations and customer shipments are continuing as normal.
Fitch Ratings said Sept. 30 that it believes Arch’s current capital structure is unsustainable and that restructuring is necessary. “Failure to execute a restructuring outside of court would likely result in bankruptcy,” Fitch said.
St. Louis-based Arch Coal is one of the world’s top coal producers for the global steel and power generation industries, serving customers on five continents. Its network of mining complexes is the most diversified in the United States, spanning every major coal basin in the nation. Arch controls more than 5 billion tons of high-quality metallurgical and thermal coal reserves, with access to major railroads, inland waterways and a growing number of seaborne trade channels.