Arch Coal, one of the nation’s biggest coal producers, announced July 8 that the U.S. Bankruptcy Court for the Eastern District of Missouri has approved the Disclosure Statement filed in connection with the company’s proposed Plan of Reorganization.
With this approval, Arch can begin to solicit approval of the plan from its creditors. A hearing to consider confirmation of the plan by the bankruptcy court is scheduled to commence on Sept. 13.
The plan incorporates and implements the terms of the global settlement that Arch reached with certain of its senior secured lenders that hold more than 75% of its first lien term loan and the Official Committee of Unsecured Creditors.
“With the Court’s approval of our Disclosure Statement, a consensual proposed Plan of Reorganization in place and a Plan confirmation hearing scheduled, Arch has established a clear path for emerging from this restructuring process as a strong, well-positioned competitor,” said John W. Eaves, Arch chairman and CEO. “We have worked diligently to achieve significant support for our Plan and we intend to complete the restructuring process in a highly expeditious manner. As we move forward, we will continue our sharp focus on operational excellence while maintaining an unwavering commitment to mine safety and environmental stewardship.”
Arch will begin the process of soliciting votes for the plan from eligible stakeholders immediately. The court has set a voting deadline of Aug. 31 for eligible stakeholders. The plan is subject to confirmation by the court.
St. Louis-based Arch Coal is a top coal producer for the global steel and power generation industries. Its network of large-scale, low-cost mining complexes is the most diversified in the United States, spanning every major coal supply basin. Its biggest coal mine, which is the second biggest in the U.S., is the Black Thunder surface operation in the Wyoming end of the Powder River Basin.
Arch is one of several top coal producers, including Peabody Energy and Alpha Natural Resources, that has in recent months needed to seek Chapter 11 bankruptcy protection due to an unprecedented downturn in coal markets.
Said the amended disclosure statement that credtiors will be voting on: “Arch benefits from a highly competitive metallurgical franchise in Appalachia, a leading thermal position in the Powder River Basin and complementary thermal bituminous assets in the Western Bituminous and Illinois Basin regions. The Company is bolstered by its experienced, highly skilled and well-trained workforce; its established asset base of large, modern and efficient mining complexes; and its lengthy and proven track record of industry leadership in both mine safety and environmental stewardship. These qualities have enabled Arch to move efficiently through the Chapter 11 Cases and will enable a reorganized Arch to operate successfully upon emergence from bankruptcy. Arch is confident that, upon emergence, it will be poised to prosper and grow in the quickly evolving coal marketplace.”
Last-minute deals done on plan details
Said the disclosure statement about the final deal (called a Restructuring Support Agreement) that led to the bankruptcy court approval: “The Amended and Restated RSA includes the agreement of the parties to support the global settlement of certain potential claims against certain of the First Lien Lenders for actions taken in connection with the Debtors’ prepetition exchange offers and certain of the Debtors’ employees. As described further in this Amended Disclosure Statement and the Amended Plan, the consideration for such settlement will be provided by the holders of First Lien Credit Facility Claims and by the Debtors’ senior management.
“Holders of First Lien Credit Facility Claims have agreed, pursuant to the Plan and contingent upon its effectiveness, and notwithstanding (a) a potential argument that the Knight Hawk Interest is encumbered under the First Lien Credit Facility and (b) the Prepetition Lender Adequate Protection Claim in respect of any diminution in the value of the First Lien Lenders’ collateral, to the distributions to general unsecured creditors provided in the Plan. As part of the settlement of each of these issues, holders of unsecured claims will receive a combination of 6% of the common stock of Reorganized Arch Coal, warrants for up to 12% of the common stock of Reorganized Arch Coal (subject to a cashout option, as discussed below), and $30 million in cash. Unsecured creditors also agreed to an allocation of such recoveries among unsecured creditor constituencies.
“To facilitate this settlement, although the Debtors and the Consenting Lenders believe the claims against the Debtors’ employees to be without merit and that their pursuit would not be in the Debtors’ best interests, the Debtors’ senior management has agreed to waive $6 million in incentive compensation that it would otherwise expect to receive. The global settlement will, among other things, help expedite the path to confirmation for the benefit of all the Debtors’ stakeholders.”
“Knight Hawk” refers to an Illinois coal producer. Said the disclosure statement: “Debtor Prairie Holdings, Inc. (‘Prairie Holdings’) is the 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 competitively to 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.
“There is a potential 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 likely constitute the Debtors’ most valuable unencumbered asset.”