Arch Coal‘s bankruptcy court is due at a Feb. 23 hearing to hear arguments for a Feb. 9 motion by the company to be allowed to sell idled coal mining operations in and around Knott County, Ky., to Quest Energy, which has mining operations in the same state.
Arch on Jan. 11 petitioned for Chapter 11 protection at the U.S. Bankruptcy Court for the Eastern District of Missouri. It had prior to that worked out a debt restructuring deal with lenders and says it plans to emerge from bankruptcy largely intact.
Said the Feb. 9 sale motion: “During the months leading up to the Petition Date, the Selling Debtors engaged in discussions and negotiations with the Purchaser, as well as other prospective purchasers, to sell the Knott County Assets. The Knott County Assets include Debtor ICG, Inc.’s 100% membership interest in Debtor ICG Knott County, LLC (the ‘Sold Debtor’), a Delaware limited liability company that holds certain property and idled operations generally located in Knott, Letcher, Breathitt, Pike, Floyd, Leslie and Perry Counties in Kentucky.
“The Debtors also expect in the near term to secure all releases and other modifications required to consummate the Knott County Sale under the Prepetition Credit Agreement, the DIP Credit Agreement and the Prepetition Notes Indenture…. The Debtors have consulted with their lenders under the DIP Credit Agreement and with the official committee for unsecured creditors appointed in these cases.
“The Knott County Sale involves substantial liabilities being assumed by the Purchaser at relatively little or no cost and to the net benefit of the Selling Debtors, their estates and their creditors, as described more fully below. The mining operations at these properties have been idled for several years and are not part of the Debtors’ future mining plans. There are significant remaining reclamation obligations associated with the properties that the Purchaser has agreed to assume. The Knott County Sale was substantially finalized before the Petition Date, pending certain regulatory approvals.”
Arch said that Quest has already submitted applications for change-in-control permit transfers to the Kentucky Department for Natural Resources and has continued to pursue the permit transfer process. Because of Quest’s assumption of reclamation liabilities in the Knott County Transaction, Arch anticipates that the sale will save it approximately $6.8 million (net present value) in cash reclamation expenses through 2026, as well as approximately $2.4 million per year in budgeted annual cash operating costs. The debtors estimate that they will realize a net book value gain of approximately $10.8 million by consummating the Knott County Sale.
The company added: “The Selling Debtors negotiated with Quest and one other potential buyer, and Quest was the only potential buyer that was able to put forward an actionable proposal to purchase the assets. Quest maintains active mining operations in Kentucky, and also has experience providing surety bonds against mining obligations in the Commonwealth.”
The asset sale deal, attached to the Feb. 9 motion, is signed by Mark Jensen as the CEO of Quest Energy.