The bankruptcy court for Arch Coal is due for a Feb. 23 hearing on a Jan. 21 request by the company for approval of a financing agreement that the company hopes will get it out of Chapter 11 fairly quickly.
St. Louis-based Arch Coal, one of the nation’s largest coal producers, on Jan. 11 filed for protection at the U.S. Bankruptcy Court for the Eastern District of Missouri. It said at the time that it had a deal in place with lenders to rework its finances and get it out of Chapter 11 in a timely manner
The Jan. 21 application covers a restructuring support agreement (RSA) dated as of Jan. 10 by and among Arch Coal and its subsidiaries, and certain “Consenting Lenders.”
Said Arch: “In the weeks leading up to the Petition Date, the Debtors and an ad hoc group of lenders under the First Lien Credit Agreement, which currently holds 66.3% of the $1.9 billion secured term loan under the First Lien Credit Agreement (the ‘Ad Hoc Committee Lenders’), reached agreement on a package of three components crucial to the success of these cases: the DIP Facility, the consent of the Ad Hoc Committee Lenders to the Debtors’ continued use of cash collateral, and the principal terms of a plan of reorganization and post-reorganization capital structure as set forth in the term sheet attached as Exhibit A to the RSA and incorporated therein (as may be amended, supplemented or otherwise modified from time to time, the ‘Plan Term Sheet’).
“The negotiations culminated in the entry into the RSA by the Debtor Parties and the Ad Hoc Committee Lenders, pursuant to which the Parties have agreed, in accordance with the terms thereof, to support a Plan that provides otherwise out of the money creditors with an opportunity for recovery, and provides a viable post-emergence capital structure for the Debtors.
“Any First Lien Lender may become a party to the RSA by executing an Additional Party Joinder, and the Debtors are hopeful that they will continue to grow consensus around these cases and the Plan in the coming weeks. Because the Debtors are hopeful that wider consensus can be achieved in order to ensure a case that is expeditious and not unnecessarily litigious, the Plan Term Sheet provides an option for other creditor constituencies to receive equity value in the reorganized Debtors, as described in more detail below. However, if holders of more than $1.6125 billion in amount of Unsecured Claims do not execute a restructuring support agreement pursuant to which they agree to support the Plan within forty-five days after the Petition Date—indicating that these cases may be more litigious, protracted and costly than the Debtors hope or believe is warranted—the Debtor Parties and the Majority Consenting Lenders will have the right to withdraw this option (the ‘Withdrawal Option’).
“The RSA is the product of arm’s-length, good-faith negotiations among the Parties and an integral step toward the Debtors’ goal of expeditiously emerging from chapter 11 pursuant to a plan of reorganization. As set forth in the RSA, no later than ninety days after the Petition Date, the Debtors will file a plan of reorganization, which will provide, among other things, that, on exit, Arch Coal, Inc. will (i) enter into a new first lien term loan credit facility in a principal amount of $326.5 million and (ii) issue new common stock to holders of First Lien Secured Debt Claims. In addition, if the Withdrawal Option is not exercised and so long as the First Lien Debt Holders (on account of the First Lien Deficiency claims), Second Lien Debt Holders, Unsecured Bondholders and Other General Unsecured Creditors collectively vote as a class in favor of the Plan, the First Lien Lenders will waive their sizeable deficiency claims, and each Second Lien Debt Holder, Unsecured Bondholder and Other General Unsecured Creditor will have the option to receive either (i) its pro rata share of 4% of the new common stock multiplied by the percentage of their collective allowed claims and warrants exercisable into up to an amount of new common stock equal to 8% of the new common stock outstanding multiplied by the percentage of their collective allowed claims, provided that such creditor does not opt out of the releases of the Released Parties under the Plan or (ii) its pro rata share of the value of the unencumbered assets of the Debtors, to the extent any such value is available.
“If the Withdrawal Option is exercised or if these creditor classes do not collectively vote as a class in favor of the Plan, each creditor will receive its pro rata share of the value of the unencumbered assets of the Debtors, to the extent any such value is available.
“The consensus embodied in the RSA will lay the foundation for a comprehensive and efficient restructuring of the Debtors’ businesses in chapter 11. Without the support of the Consenting Lenders, the Debtors could face a lengthier, costlier and far more uncertain restructuring process, which could cause further harm to the Debtors’ business and these estates.”