Arch Coal (NYSE: ACI) announced Jan. 11 that it has reached an agreement with a majority of the lenders under its $1.9 billion first lien financing facility to significantly restructure the company’s debt load.
Arch has entered into a restructuring support agreement with the members of an ad hoc group of lenders that hold more than 50% of the company’s first lien debt. Under the agreement, the lenders have agreed to support a restructuring transaction that will eliminate more than $4.5 billion in debt from Arch’s balance sheet and position the company for long-term success.
In order to facilitate this financial restructuring, Arch and substantially all of its wholly-owned domestic subsidiaries on Jan. 11 filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Missouri. The company and the ad hoc group have agreed to the principal terms of a Chapter 11 plan of reorganization, which will be subject to approval by the bankruptcy court.
Arch expects its mining operations and customer shipments to continue uninterrupted throughout the reorganization process.
“Today’s announcement represents another significant step in our ongoing efforts to position the company for long-term success,” said John W. Eaves, Arch’s chairman and CEO. “After carefully evaluating our options, we determined that implementing these agreements through a court-supervised process represents the best way to solidify our financial position and strengthen our balance sheet. We are confident that this comprehensive financial restructuring will further enhance Arch’s position as a large-scale, low-cost operator.”
Eaves added: “Since the market downturn, we have taken many steps to enhance the efficiency of our operations and to strengthen our asset base. As a result, all of our operating segments were cash flow positive during the first three quarters of 2015. We will continue to provide our customers with exceptional service as we move through this process, while maintaining and further reinforcing our position as an industry leader in safety, environmental stewardship and productivity.”
The company believes it has sufficient liquidity to continue its normal mining activities and to meet its obligations in the ordinary course of business. Arch had more than $600 million in cash and short-term investments as of Jan. 11, 2016, and expects to receive $275 million in debtor-in-possession (DIP) financing from members of the ad hoc group of lenders on terms and conditions set forth in the DIP term sheet and DIP credit agreement filed with the bankruptcy vourt and contemplated by the restructuring support agreement among the company and the lenders.
In addition, Arch expects that its securitization financing providers will continue the company’s $200 million trade accounts receivable securitization facility, subject to customary conditions, which supports Arch’s letters of credit program. Upon approval by the bankruptcy court and satisfaction of customary conditions, these financings, as well as the company’s existing liquidity and cash generated from ongoing operations, will be used to support the business during the restructuring process.
Arch Coal has filed various motions with the court in support of its reorganization. The company intends to continue to pay employee wages and provide healthcare and other benefits without interruption in the ordinary course of business and to pay suppliers and vendors in full under normal terms for goods and services provided on or after the Chapter 11 filing date. The company expects to receive court approval for these requests.
Davis Polk & Wardwell LLP is serving as legal advisor to Arch Coal, and PJT Partners is serving as financial advisor.
St. Louis-based Arch Coal, Inc. is one of the world’s top coal producers for the global steel and power generation industries, serving customers on five continents. The company controls more than 5 billion tons of high-quality metallurgical and thermal coal reserves, with access to all major railroads, inland waterways and a growing number of seaborne trade channels. It has one of the largest U.S. coal mines, the Black Thunder surface operation in the Powder River Basin of Wyoming.