Arch Coal, one of a handful of top U.S. coal producers in bankruptcy protection, on June 15 announced that it has filed an amended Plan of Reorganization and a related Disclosure Statement with the U.S. Bankruptcy Court for the Eastern District of Missouri.
The plan is supported by certain of the company’s senior secured lenders that hold more than 66 2/3% of its first lien term loan. Arch Coal sought Chapter 11 protection on Jan. 11.
“The filing of this amended Plan moves Arch another significant step closer to a successful completion of our financial restructuring,” said John W. Eaves, Arch’s chairman and CEO. “We are pleased to submit a plan that will strengthen our balance sheet and enable us to continue our operations and reclamation activities, as we further advance our efforts to position Arch for long-term success. With low-cost production in strategic market segments and the most advantaged coal supply regions, Arch is well-equipped to emerge as a strong competitor. We are confident that, upon emergence, Arch will be poised to prosper in the quickly evolving coal marketplace.”
Eaves added: “We appreciate the support of Arch’s lenders and other stakeholders, and we are especially grateful for the continued focus and commitment of Arch’s dedicated employees during this process. Thanks to our employees’ efforts, we are continuing to provide exceptional service to our customers, while maintaining our position as an industry leader in safety and environmental stewardship.”
A hearing to consider approval of the Disclosure Statement is scheduled for June 22. Following approval of the Disclosure Statement, the company intends to seek confirmation of the plan consistent with the milestones outlined in the restructuring support agreement.
Certain legal matters addressing intercreditor and distributional issues among the company’s secured and unsecured creditors will need to be resolved by the court unless previously settled. The company said it will continue its diligent efforts towards a consensual resolution of these issues.
U.S.-based Arch Coal is a top coal producer for the global steel and power generation industries, reliably serving customers worldwide. Its network of large-scale, low-cost mining complexes is the most diversified in the U.S., spanning every major coal supply basin. It operates the second biggest coal mine in the U.S., the massive Black Thunder surface mine complex in the Wyoming end of the Powder River Basin.
Arch’s Knight Hawk Coal stake: encumbered or unencumbered?
Arch said in the Disclosure Statement about progress made since the May 5 filing of the original plan and statement: “Since that time, the Debtors have continued to seek to obtain support for a plan that would provide holders of General Unsecured Claims with enhanced distributions and would also be supported by more than 80% of the Consenting Lenders, in accordance with the [Restructuring Support Agreement]. However, the Debtors, the Ad Hoc Committee Lenders and the Creditors’ Committee have been unable to reach consensus regarding plan distributions to General Unsecured Creditors. Accordingly, the Plan that the Debtors have filed provides that holders of General Unsecured Claims will receive their pro rata share of the Debtors’ unencumbered assets in the form of (i) cash, subject to reductions for certain fees and, potentially, adequate protection claims and (ii) shares of Prairie Holdings, Inc., which is the Debtor that owns a 49% interest in Knight Hawk Holdings, LLC, but only if it is judicially determined that Prairie Holdings’ interests in Knight Hawk Holdings, LLC are unencumbered.”
Knight Hawk is a major producer of coal in Illinois, with Arch a few years ago acquiring its stake in the company through the contribution to it of certain coal reserves it owned in the state.
The disclosure statement later added: “The Plan contemplates the possibility that interests in Debtor Prairie Holdings, Inc. (‘Prairie Holdings’) may be distributed to holders of Prairie Holdings GUC Claims. Prairie Holdings is the sole owner of a 49% membership interest in Knight Hawk Holdings, LLC (‘Knight Hawk’), a joint venture with CBR Investments, LLC (‘CBR’), which owns the remaining 51% membership interest. Knight Hawk operates coal mining operations in southern Illinois. CBR is controlled by the families of its founding partners—Steve Carter, F.D. Robertson, James Bunn and James Bunn, Jr.—with the Carter family owning 50% of CBR’s membership interest in Knight Hawk and the Bunn and Robertson families owning the remaining 50%.
“One of Knight Hawk’s competitive advantages is its dock, Lone Eagle, on the Mississippi River, from which 80% of the coal produced by Knight Hawk is shipped. Access to the Mississippi River allows Knight Hawk to competitively access markets throughout the Midwest and Southeast United States, as well as international opportunities through the Gulf Coast. In support of Lone Eagle Dock, Knight Hawk contracts an independent truck fleet as well as the ability to load rail cars on the Canadian National in a limited fashion. At present, Knight Hawk has the capacity to produce and deliver up to 6.5 million tons of Illinois Basin coal per year and its proven reserves provide for a mining life of more than 25 years.
“As discussed below, there is a dispute as to whether Prairie Holdings’ 49% membership interest in Knight Hawk (the ‘Knight Hawk Interest’) is encumbered under the First Lien Credit Facility. If the Knight Hawk Interest is unencumbered, it would constitute the Debtors’ most valuable unencumbered asset. The treatment of Claims against Prairie Holdings under the Plan varies based on the judicial determination regarding such encumbrance.”
“As discussed above, there is a dispute as to whether the Knight Hawk Interest is encumbered under the First Lien Credit Facility. The Plan requires that there be a judicial determination regarding such encumbrance prior to the Effective Date and provides that the treatment of Claims against Prairie Holdings under the Plan will differ based on such judicial determination. Specifically, if a Final Order is entered determining that Prairie Holdings’ 49% membership interest in Knight Hawk Holdings, LLC is encumbered under the First Lien Credit Facility, holders of Prairie Holdings GUC Claims will receive no distribution on account of such Claims, and holders of First Lien Credit Facility Claims will receive the economic value of the Knight Hawk Interest through their receipt of New Common Stock of Arch Coal. Alternatively, if a Final Order is entered determining that Prairie Holdings’ 49% membership interest is not encumbered, holders of Allowed Prairie Holdings GUC Claims will receive their recoveries on a non-consolidated basis in the form of New Prairie Holdings Stock, provided that holders of First Lien Credit Facility Claims will be deemed to contribute any such stock they receive to Reorganized Arch Coal and certain smaller holders of Prairie Holdings GUC Claims may have the option to receive cash in lieu of New Prairie Holdings Stock.”