The Four Star Holdings LLC subsidiary of Peabody Energy filed a June 1 complaint at its bankruptcy court against Bowie Resource Holdings LLC, saying it is owed a $20 million termination fee from a recently-failed deal for Bowie to buy three coal mines in the western U.S. from Peabody.
In November 2015, Four Star agreed to sell its New Mexico and Colorado coal assets to Bowie’s Western Megawatt Resources LLC for $358 million in cash under a Purchase and Sale Agreement dated Nov. 20, 2015. A copy of that deal is attached to the June 1 complaint. Bowie provided an absolute and unconditional guaranty of Megawatt’s obligations under the sale agreement, Four Star said.
The failed deal covered the El Segundo and Lee Ranch surface mining complexes in New Mexico and the Twentymile underground mining complex in Colorado.
At the time it entered the Sale Agreement, Megawatt needed to obtain financing to close the sale. Megawatt agreed to pay Four Star the $20 million rermination fee if it did not do so. Megawatt did not obtain the necessary financing within the time allowed under the Sale Agreement, nor the additional time, which ran until April 7. Four Star then asked Megawatt to pay the fee on April 12. Megawatt refused three days later. “Accordingly, Four Star brings this action to recover the Termination Fee, interest and certain costs (including attorneys’ fees) from Bowie under its guarantee,” said the June 1 complaint.
Attached to the complaint are various other documents, including a May 22 letter from Bowie Chairman John Siegel to Peabody citing “enormous headwinds” in the company’s efforts to secure the financing to make this mine buy. Siegel also said that Peabody’s financial problems ahead of its Chapter 11 bankruptcy filing had potential lenders “very concerned.” On April 13, Peabody and various subsidiaries filed for Chapter 11 protection at the U.S. Bankruptcy Court for the Eastern District of Missouri.