Arch Coal, which sought Chapter 11 bankruptcy protection on Jan. 11, filed a first-day motion with its bankruptcy court asking the judge to let it get rid of several mostly transportation-related contracts.
The St. Louis-based company has said it has worked out a debt restructuring with certain lenders and that this bankruptcy proceeding is needed under that deal to allow the company to remain viable moving forward. Its case is pending at the U.S. Bankruptcy Court for the Eastern District of Missouri.
Prior to the bankruptcy petition, Arch and its subsidiaries engaged in a review of their executory contracts, and as a result of their review to date, they have have found that these agreement are not necessary to their ongoing business operations or restructuring efforts. They are:
- The Kinder Morgan Terminal Services Agreements – Arch Coal Sales is party to an agreement with Kinder Morgan Operating LP “C”, dated January 2013, which Kinder Morgan provides terminal services to Arch Coal Sales. Arch Coal has guaranteed all of Arch Coal Sales’s obligations under the Kinder Morgan Contract. The cost of the Kinder Morgan Contract far exceeds the benefit it provides to the debtors’ chapter 11 estates. The debtors seek to reject the Kinder Morgan Contract to save several hundred million dollars.
- Ridley Terminals Contract – Arch Coal Sales is party to an agreement with Ridley Terminals dated December 2010 under which Ridley agreed to provide certain coal unloading and vessel loading services at coal terminal facilities owned by Ridley on Ridley Island in British Columbia, Canada, for the term of the contract, which expires on Jan. 1, 2019. Ridley is an export point for coal out of the western U.S. Under the terms of the Ridley Contract, Arch Coal Sales is obligated to pay annual shortfall fees if shipments fall below a certain minimum for the Ridley Terminal. The debtors anticipate that, given the continued weakness in demand for international seaborne coal, the shortfall fees in future periods would continue to be substantial. The debtors seek to reject the Ridley Contract to save several million dollars.
- The Rail Transportation Contracts – Arch Coal Sales is party to agreements for shipment of coal: an agreement with Union Pacific Railroad, dated January 2012; an agreement with BNSF Railway and Kansas City Southern Railway, dated as of July 2012; and an agreement with CSX Transportation, effective as of January 2013. Due to the continued weakness in coal markets and other factors, the debtors anticipate that the level of future services provided under these rail contracts would result in significant shortfall fees. Getting rid of them would save several million dollars.
- Fairmont Mine Supply Strategic Alliance Agreement – Arch Coal is party to an agreement with Fairmont Supply Co., dated July 2004, pursuant to which Fairmont serves as the preferred vendor of industrial and mining supplies at all of Arch Coal’s business locations. Absent rejection, the Fairmont Contract will remain in effect until Dec. 31, 2016. The debtors either no longer need or are able to obtain similar industrial and mining supplies on more favorable economic terms than the terms of the Fairmont Contract. Rejecting this deal will save approximately $813,000 in total.