🌑New Chapter 11 Bankruptcy Filing - Blackhawk Mining LLC🌑

Blackhawk Mining LLC

July 19, 2019

What are we averaging? Like, one coal bankruptcy a month at this point? MAGA!!

This week Blackhawk Mining LLC filed prepackaged Chapter 11 cases in the District of Delaware, the effect of which will be the elimination of approximately $650mm of debt from the company’s balance sheet. Unlike other recent bankruptcies, i.e., the absolute and utter train wreck that is the Blackjewel LLC bankruptcy, this case actually has financing and employees aren’t getting left out in the lurch. So, coal country can at least take a deep breath. Small victories!

Before we get into the mechanics of how this deleveraging will work, it’s important to note some of the company’s history. Blackhawk represents opportunism at its best. Founded in 2010 as a strategic vehicle to acquire coal reserves, active mining operations and logistical infrastructure located primarily in the Appalachian Basin, the privately-owned coal producer hit the ground running. Initially the company started with Kentucky thermal coal assets (PETITION Note: thermal coal’s end use is the production of electricity; in contrast, metallurgical coal’s prime use is for the production of steel). It then quickly moved to diversify its product offering with a variety of acquisitions. In 2014, it acquired three mining complexes in the bankruptcy of James River Coal Company (which served as the company’s entry into the production of met coal). Thereafter, in 2015, the company purchased six mining complexes in the bankruptcy of Patriot Coal Company (which has since filed for bankruptcy a second time). This acquisition lofted the company into the highest echelon of US-based met coal production (PETITION Note: met coal drives 76% of the company’s $1.09b in revenue today). The company now operates 19 active underground and 6 active surface mines at 10 active mining complexes in West Virginia and Kentucky. The company has 2,800 employees. 

Naturally, this rapid growth begs some obvious questions: what was the thesis behind all of these acquisitions and how the hell were they financed? 

The investments were a play on an improved met coal market. And, to some degree, this play has proven to be right. Per the company: 

“The Company’s strategic growth proved to be a double-edged sword. On one hand, it significantly increased the Company’s position in the metallurgical coal market at a time when asset prices were depressed relative to today’s prices. The Company continues to benefit from this position in the current market. The price of high volatile A metallurgical coal has risen from $75 per ton to an average of $188 per ton over the last two years, providing a significant tailwind for the Company. On the other hand, the pricing environment for metallurgical coal did not improve until late 2016, and the debt attendant to the Company’s acquisition strategy in 2015 placed a strain on the Company’s ability to maintain its then-existing production profile while continuing to reinvest in the business. During this time, to defer expenses, the Company permanently closed over 10 coal mines (with over 5 million tons of productive capacity), idled the Triad complex, and depleted inventories of spare equipment, parts, and components. Furthermore, once the coal markets began to improve, the Company was forced to make elevated capital expenditures and bear unanticipated increases in costs—for example, employment costs rose approximately 25% between 2016 and 2018—to remain competitive. The confluence of these factors eventually made the Company’s financial position untenable.”

Longs and shorts require the same thing: good timing. 

Alas, the answer to the second question also leads us to the very predicament the company finds itself in today. The company has $1.09b in debt split across, among other things, an ABL facility (’22 $85mm, MidCap Financial LLC), a first lien term loan facility (’22 $639mm, Cantor Fitzgerald Securities), a second lien term loan facility (’21 $318mm, Cortland Capital Markets Services LLC), and $16mm legacy unsecured note issued to a “Patriot Trust” as part of the Patriot Coal asset acquisition. More on this Trust below.

But this is not the first time the company moved to address its capital structure. In a bankruptcy-avoiding move in 2017, the company — on the heals of looming amortization and interest payments on its first and second lien debt — negotiated an out-of-court consensual restructuring with its lenders pursuant to which it kicked the can down the road on the amortization payments to its first lien lenders and deferred cash interest payments to its second lien lenders. If you’re asking yourself, why would the lenders agree to these terms, the answer is, as always, driven by money (and some hopes and prayers). For their part, the first lien lenders obtained covenant amendments, juiced interest rates and an increased principal balance owed while the second lien lenders obtained an interest rate increase. Certain first and second lien lenders also got equity units, board seats and additional voting rights. These terms — onerous in their own way — were a roll of the dice that the environment for met coal would continue to improve and the company could grow into its capital structure. Clearly, that hope proved to be misplaced. 

Indeed, this is the quintessential kick-the-can-down-the-road situation. By spring 2019, Blackhawk again faced a $16mm mandatory amortization payment and $20mm in interest payments due under the first lien term loan. 

Now the first lien lenders will swap their debt for 71% of the reorganized equity and a $225mm new term loan and the second lien lenders will get 29% of the new equity. The “will-met-coal-recover-to-such-a-point-where-the-value-of-the-company-extends-beyond-the-debt?” option play for those second lien lenders has expired. The company seeks to have its plan confirmed by the end of August. The cases will be financed by a $235mm DIP of which $50mm is new money and the remainder will rollup $100mm in first lien term loan claims and $85mm in ABL claims (and ultimately convert to a $90mm exit facility). 

Some other quick notes:

  • Kirkland & Ellis LLP represents the company after pushing Latham & Watkins LLP out in a move that would make Littlefinger proud. This is becoming an ongoing trend: as previously reported, K&E also gave das boot to Latham in Forever21. A war is brewing folks. 

  • The Patriot Trust will get $500k per a settlement baked into the plan. On a $16mm claim. The “Patriot Trust” refers to the liquidating trust that was established in connection with the Patriot Coal Corporation chapter 11 cases, previously filed in the Eastern District of Virginia. Marinate on that for a second: the creditors in that case fought long and hard to have some sort of recovery, won a $16mm claim and now have to settle for $500k. There’s nothing like getting screwed over multiple times in bankruptcy. 

  • But then there’s management: the CEO gets a nice cushy settlement that includes a $500k payment, a seat on the reorganized board of managers (and, presumably, whatever fee comes with that), and a one-year consulting contract. He waives his right to severance. If we had to venture a guess, Mr. Potter will soon find his way onto K&E’s list of “independent” directors for service in other distressed situations too. That list seems to be growing like a weed. 

  • Knighthead Capital Management LLC and Solus Alternative Asset Management LP are the primary holders of first lien paper and now, therefore, own the company. Your country’s steel production, powered by hedge funds! They will each have representation on the board of managers and the ability to jointly appoint an “independent” director. 


  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: See above.

  • Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Ross Kwasteniet, Joseph Graham, Stephen Hessler, Christopher Hayes, Derek Hunter, Barack Echols) & (local) Potter Anderson Corroon LLP (Christopher Swamis, L. Katherine Good) 

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Centerview Partners (Marc Puntus)

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Prepetition ABL & DIP ABL Agent: Midcap Funding IV Trust

      • Legal: Hogan Lovells US LLP (Deborah Staudinger)

    • Prepetition & DIP Term Agent: Cantor Fitzgerald Securities

      • Legal: Herrick Feinstein LLP (Eric Stabler, Steven Smith)

    • Second Lien Term Loan Agent: Cortland Capital Market Services LLC

      • Legal: Stroock & Stroock & Lavan LLP (Alex Cota, Gabriel Sasson)

    • Consenting Term Lenders: Knighthead Capital Management LLC, Solus Alternative Asset Management LP, Redwood Capital Management LLC

      • Davis Polk & Wardwell LLP (Brian Resnick, Dylan Consla, Daniel Meyer)

    • Ad Hoc Group of First Lien Lenders

      • Legal: Shearman & Sterling LLP (Fredric Sosnick, Ned Schodek)

🌑New Chapter 11 Bankruptcy Filing - Blackjewel LLC🌑

Blackjewel LLC

July 1, 2019

The macro environment has been largely unforgiving to coal country.

Blackjewel LLC and three affiliates are the latest in a long string of coal companies to file for bankruptcy. The debtors mine and process metallurgical, thermal and other specialty and industrial coals; they operate 32 properties and hold over 500 mining permits — “more than any other enterprise in the country.” Their operations are in the Central Appalachian Basin in Virginia, Kentucky and West Virginia and the Powder River Basin in Wyoming; they employee 1,700 people (1,100 in the east and 600 in the west).

The debtors blame the usual macro factors for their descent into bankruptcy court: (i) declining commodity prices, (ii) reduced domestic demand for met and thermal coal, (iii) compliance costs, (iv) the rise of natural gas, (v) the increased adoption of renewables, and (vi) decreased coal-fired power generation. This is a telling stat, per the debtors:

Thermal coal demand in the domestic electric power sector has declined from 935 million tons in 2011 to 636 million tons in 2018 and coal has seen its share of the domestic electricity generation market reduce from 43% in 2011 to 31% in 2017.

On a micro level, the debtors suffered from company-specific issues including (a) the termination of a major contract with Nobel Group, (b) a major roof collapse at a particular mine that shut down production, (c) changes to Kentucky’s workers’ compensation laws that increased insurance rates, (d) poorly timed hedging agreements, and (e) interestingly, bad weather. Yes, that’s right: it isn’t just retailers who blame weather for poor performance. Per the debtors:

Various flooding events across the midwest in 2019 have severely impacted rail shipments from the Debtors’ Western Division mining operations. Starting in March 2019, the Debtor started to experience a material reduction in shipments by rail due to severe damage to the rail lines used to move the Debtors’ coal. The impact from the flooding is ongoing, with an estimated $30 million in lost sales directly attributable to it.

PETITION Note: There’s no way to know whether these “flooding events” are the result of man-made global warming but, if so…well, you know where we’re going with this. Irony to the utmost!

All of these factors — and some recent mine acquisitions from previously bankrupted coal companies — combined to seriously constrain liquidity and, after a little refinancing foreplay, term lender Riverstone Credit Partners decided it wanted out and pulled the plug from discussions. The debtors had no choice but to file for bankruptcy.

We were on a brief July 4-related break at the time of the debtors’ filing but suffice it to say that the filing was a sh*tshow. The company filed with a $20mm DIP commitment from company CEO Jeff A. Hoops Sr. and Clearwater Investment Holdings LLC, at an interest rate of LIBOR + 6% per annum, but that DIP fell apart prior to the debtors’ first day hearing putting the company on the brink of liquidation. Per The Wall Street Journal:

But the company learned before its debut appearance in West Virginia bankruptcy court that his bank froze funds Mr. Hoops believed would provide the necessary credit for the proposed financing, according to Blackjewel lawyer Stephen Lerner.

“It’s frankly a disaster,” Mr. Lerner said during the hearing in the U.S. Bankruptcy Court in Charleston, W.Va.

While this surely sucked for the professionals involved, we especially feel for the 1,700 employees whose lives were altered over night — right on the eve of July 4th. Compounding matters is the fact that, apparently, the debtors cut checks to their employees prior to the filing that are not being accepted or are being dishonored by Commonwealth banks. WHAT. A. SH*TSHOW. 🙈The court held a separate hearing on this subject on Saturday, July 6.

Ultimately, Riverstone jumped in and — oddly enough considering its role in precipitating this whole bankruptcy dance to begin with — offered a lifeline. In what may be the shortest interim DIP financing order we’ve seen ever (3 pages), the bankruptcy court approved a $5mm super-priority senior secured DIP facility ($4.25mm from Riverstone, $750k from United Bank) at LIBOR + 8.5%. The use of proceeds? To ensure security measures are in place at the mines to preserve and protect property and equipment; to pay firefighting personnel needed to extinguish active fires at the mines; to fund a $500k professional fee escrow; and to pay for other essential emergency expenses. We presume the latter would include making sure employees — who, to be clear, were abruptly sent home — get paid. Other conditions of the DIP facility? Mr. Hoops got the heave-ho and FTI’s David Beckman was appointed Chief Restructuring Officer with CEO-esque authority. Savage move by Riverstone but we all know that old adage about money talking.

But why though?

Among other things coming to light, the Hoops-controlled debtors apparently floated cashier’s checks to their 600 Wyoming employees rather than follow typical direct deposit practices. Per the Gillette News Record, the bankruptcy court judge was pissed:

“I know this may be interfering with the holiday plans for some of you, but I’m sure you’d agree it’s minimal (compared) to what these employees are dealing with,” Volk scolded during an emergency hearing he called on the Fourth of July after he began hearing reports of people not being paid.

To make matters worse, in a liquidity exercise to the extreme, the debtors apparently also deducted $1.2mm of employee money from paychecks for 401(k) contributions but those amounts were never deposited into the appropriate accounts. SHEESH.

The human element of this cannot be overstated. More from the Gillette News Record (which you ought to read — it really puts this bankruptcy filing in perspective):

“I just hope these people can find jobs here and don’t have to leave,” said [Mayor Louise Carter-King], referring to the 2016 bust that saw the city’s population dip by about 2,000 as people left for work elsewhere. “That’s a big concern, but I also realize they’ve got to go where they can get jobs.”

She’s also worried for the small, local businesses and contractors that rely on performing work at the mines, especially those that might have to cut staff or shut their doors because they haven’t been paid by Blackjewel.

“Losing 600, 700 jobs has quite a trickle-down effect,” she said.

Shockingly, Fortune notes that coal mining jobs have actually “held steady under Trump”:

…per the Bureau of Labor Statistics: the number of coal workers rose from 50,500 in Nov. 2016 to 52,900 (preliminary) in May 2019. The rise has largely been attributed to demand from Europe and Asia—though overall demand has been steadily falling with exports down 7.4% in first quarter of 2019 year-over-year.

But in the long term, the trend of falling coal jobs expected to continue as the commodity comes under pressure against cheaper options such as natural gas.

“I can’t overstate the extreme competition between coal and natural gas,”  Hans Daniels, CEO of Doyle Trading Consultants said last year.

Indeed, take a look at the BLS numbers:

Screen Shot 2019-07-08 at 11.02.18 AM.png

This is, despite the fact that, per the Wall Street Journal:

Blackjewel is at least the fifth coal company to file for bankruptcy within the past 12 months and third to file chapter 11 since May. Cloud Peak Energy Inc. and Cambrian Holding Co. filed for chapter 11 protection in the previous two months. Westmoreland Coal Co. and Mission Coal Co. filed for bankruptcy last fall.

This is, despite the fact that, per the Wall Street Journal:

Blackjewel is at least the fifth coal company to file for bankruptcy within the past 12 months and third to file chapter 11 since May. Cloud Peak Energy Inc. and Cambrian Holding Co. filed for chapter 11 protection in the previous two months. Westmoreland Coal Co. and Mission Coal Co. filed for bankruptcy last fall.

Curious.

As for the Powder River Basin, generally? Things aren’t so peachy. Per E&E News, the Blackjewel bankruptcy portends more pain to come:

"To me, it's a real sign there is something fundamentally wrong with the economics of PRB coal," said Clark Williams-Derry, an analyst who tracks the coal industry at the Sightline Institute, which advocates for a transition to clean energy. "The new normal is not stasis. It is contraction and disappointment."

It wasn't always that way. In the 1970s, a newly strengthened Clean Air Act prompted a westward expansion of the U.S. coal industry. The coal found in the Powder River Basin of Montana and Wyoming does not pack as much energy as the varieties buried in Appalachia. But its low sulphur content made it popular with power companies searching for ways to comply with America's new air quality laws.

Today, the Powder River Basin accounts for roughly 40% of U.S. coal output, by far the most of any basin. Yet production there has plunged, falling from 462 million tons in 2011 to 324 million tons last year, according to federal figures.

What is the cause of this decline?

The decline has been driven by stiff competition from natural gas and renewable energy. Wind, in particular, has eroded the Powder River Basin's market in the Great Plains, a major outlet for the basin's coal.

"Wind power has caused a lot of these coal plants to be uneconomical and be shut down," said John Hanou, a coal consultant who produces an annual study on the Powder River Basin. "Then on top of that you have the cheap natural gas from fracking."

The fact that PRB coal’s primary use is electricity had largely insulated it from the coal downturn of a few years ago. The bankruptcies of Arch Coal Inc. ($ARCH), Peabody Energy ($BTU) and Alpha Natural Resources largely revolved around over-expansion and too much debt as these companies dove into met coal for purposes of steal production. Electricity-producing coal of the sort produced in the PRB wasn’t as affected. Until now.

The problem: U.S. power companies consumed 687 million tons of coal in 2018, the lowest amount since 1978.

The decline has prompted upheaval in a region that long prided itself on stability. Cloud Peak Energy Inc., which operates three mines in the region, declared bankruptcy in May….

Last month, Arch and Peabody announced plans to form a joint venture, effectively combining their mining operations in the Powder River Basin in an attempt to cut costs. 

President Trump promised to save coal.

In reality, the cancer has spread farther than it had ever before.

Pour one out for the PRB.


  • Jurisdiction: S.D. of West Virginia (Judge Folk)

  • Capital Structure: $28mm term loan (15% interest)(Riverstone Credit Partners) + $6mm from Jeff A. Hoops Sr. and Lime Rock Partners, ~$6mm RCF and TL (United Bank Inc.), $23.8mm (Caterpillar Financial Services Corporation), $25.5mm Fifth Third Bank Loan, $1.7mm Javelin Commodities Security Agreement, $4.9mm Uniper Security Agreement, $11mm Hoops’ Prepetition unsecured loans

  • Professionals:

    • Legal: Squire Patton Boggs (Stephen Lerner, Nava Hazan, Maura McIntyre, Travis McRoberts, Kyle Arendsen) & (local) Supple Law Office PLLC (Joe Supple)

    • Financial Advisor: FTI Consulting Inc. (David Beckman)

    • Investment Banker: Jefferies LLC (Robert White)

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors (Walker Machinery Company, Jennmar Corporation of Virginia, CAM Mining LLC, United Central Industrial Supply Company LLC, Kentucky River Properties LLC)

      • Legal: Whiteford Taylor & Preston LLP (Michael Roeschenthaler, Brandy Rapp, Daniel Schimizzi)

Updated 7/7/19 #88

🌑New Chapter 11 Bankruptcy Filing - Cambrian Holding Company Inc.🌑

Cambrian Holding Company Inc.

June 16, 2019

Pour one out for the fine folks of eastern Kentucky and western Virginia. They can’t seem to catch a break.

Earlier this week, Cambrian Holding Company Inc. (and its affiliate debtors) joined a long line of coal producers/processors (e.g., Cloud Peak Energy, Westmoreland Coal, Mission Coal) who have recently filed for bankruptcy. The company employees approximately 660 people, none of whom are members of a labor union (in contrast to bigger, more controversial, coal filings, i.e., Westmoreland) and most of whom must be fretting over their futures. They must really be getting tired of all of the post-election “winning” that’s going on in coal country.

The company’s problems appear to start in 2015, at the time the company acquired TECO Coal LLC and assumed $40mm of workers’ compensation and black lung liabilities that TECO had previously self-insured. The company sought to leverage its broader scale to increase production but it failed to raise the working capital it needed to live up to its obligations and sustain production at levels necessary to service the company’s balance sheet. Post-acquisition, the company doubled revenues, but it couldn’t sustain that progress and nevertheless recorded net losses from 2015 through 2018. In turn, the company triggered financial covenant and other defaults under its ABL Revolver and Term Loan.

In other words, the company has been in a state of emergency ever since the acquisition. Almost immediately, the company “undertook various efforts to return to a positive cashflow,” which, as you might expect, meant idling or closing certain mining operations, stretching the usable life of equipment, and laying off employees.* Its efforts proved fruitless. Per the company:

Notwithstanding these efforts, the Debtors have been unable to overcome the pressures placed on their profit margins from steadily declining coal prices (along with burdensome regulations and the accompanying decline in demand for coal), all of which have contributed to the Debtors’ substantial negative cashflow and inability to consummate a value-enhancing transaction.

So, what now? The company, with assistance from Jefferies LLC, will attempt to find a buyer willing to catch a falling knife: the plan is to “commence an expeditious sale and marketing process” of the company’s assets (call us crazy, but shouldn’t it be the other way around?). To fund this process, the company has a DIP commitment from affiliates of pre-petition lenders for $15mm.**

*Interestingly, it was in March 2016 when Hilary Clinton infamously stated, “Because we're going to put a lot of coal miners and coal companies out of business.” At the time, Cambrian was already struggling, laying off people in an attempt to generate positive cashflow. That message really must’ve struck a chord down in coal country. WHOOPS.

**The Term Lenders swiftly objected to the terms of the DIP and the use of cash collateral.

  • Jurisdiction: D. of Kentucky (Judge Schaaf)

  • Capital Structure: $48mm ABL Revolver (Deutsche Bank AG New York Branch), $78mm Term Loan (Deutsche Bank Trust Company Americas)

  • Professionals:

    • Legal: Frost Brown Todd LLC (Ronald Gold, Douglas Lutz, Patrica Burgess)

    • Financial Advisor: FTI Consulting Inc. (Bertrand Troiano)

    • Investment Banker: Jefferies LLC (Leon Szlezinger)

    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Term Lenders: Deutsche Bank AG, London Branch, Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC

      • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Christopher Robertson, Elliot Moskowitz) & (local) Bingham Greenbaum Doll LLP (Christopher Madden)

    • DIP & Bridge Lender: Richmond Hill Capital Partners, LP

🌑New Chapter 11 Filing - Cloud Peak Energy Inc.🌑

In what ought to come as a surprise to absolutely no one, Cloud Peak Energy Inc. ($CLD) and a slate of affiliates FINALLY filed for bankruptcy.

Let’s take a moment of silence for coal country, shall we? If this is what MAGA looks like, we’d hate to see what happens when a global downturn eventually hits. There’s gonna be blood in the water.

Sounds like hyperbole? Note that since 2016, there have been a slate of coal-related bankruptcies, i.e., Westmoreland Coal CompanyMission Coal Company LLC, and now Cloud Peak Energy Inc. Blackhawk Mining LLC appears to be waiting in the wings. We suppose it could be worse: we could be talking about oil and gas country (and we will be, we certainly will be…and SOON.).

Cloud Peak is an impressive company. Since its formation in 2008, it has become one of the largest (subbituminous thermal coal) coal producers in the US — supplying enough coal to satisfy approximately 2% of the US’ electricity demand. Its three surface mines are located in the Powder River Basin in Wyoming and Montana; it sold approximately 50mm tons of coal in 2018 to 46 domestic and foreign end users.*

In the scheme of things, Cloud Peak’s balance sheet isn’t overly complicated. We’re not talking about billions of dollars of debt here like we saw with Walter EnergyPeabody Energy, Arch Coal, Patriot Coal or Alpha Natural Resources. So, not all coal companies and coal company bankruptcies are created equal. Nevertheless, the company does have $290.4mm of ‘21 12% secured notes (Wilmington Trust NA) and $56.4mm of ‘24 6.375% unsecured notes (Wilmington Trust NA as successor trustee to Wells Fargo Bank NA) to contend with for a total of $346.8mm in funded debt liability. The company is also party to a securitization facility. And, finally, the company also has reclamation obligations related to their mines and therefore has $395mm in third-party surety bonds outstanding with various insurance companies, backed by $25.7mm in letters of credit. Coal mining is a messy business, homies.

So why bankruptcy? Why now? Per the company:

The Company’s chapter 11 filing, however, was precipitated by (i) general distress affecting the domestic U.S. thermal coal industry that produced a sustained low price environment that could not support profit margins to allow the Company to satisfy its funded debt obligations; (ii) export market price volatility that caused decreased demand from the Company’s customers in Asia; (iii) particularly challenging weather conditions in the second quarter of 2018 that caused spoil failure and significant delays in coal production through the remainder of 2018 and into 2019, which reduced cash inflows from coal sales and limited credit availability; and (iv) recent flooding in the Midwestern United States that has significantly disrupted rail service, further reducing coal sales.

To summarize, price compression caused by natural gas. Too much regulation (which, in turn, favors natural gas over coal). Too much debt. And, dare we say, global warming?!? Challenging weather and flooding must be really perplexing in coal country where global warming isn’t exactly embraced with open arms.

Now, we may be hopping to conclusions here but, these bits are telling — and are we say, mildly ironic in a tragic sort of way:

In addition to headwinds facing thermal coal producers and export market volatility, the Company’s mines suffered from unusually heavy rains affecting Wyoming and Montana in the second quarter of 2018. For perspective, the 10-year average combined rainfall for May, June, and July at the Company’s Antelope Mine is 6.79 inches. In 2018, it rained 10.2 inches during that period. While certain operational procedures put in place following heavy flooding in 2014 functioned effectively to mitigate equipment damage, the 2018 rains interrupted the Company’s mining operations considerably.

It gets worse.

The problem with rain is that the moisture therefrom causes “spoil.” Per the company:

Spoil is the term used for overburden and other waste rock removed during coal mining. The instability in the dragline pits caused wet spoil to slide into the pits that had to be removed by dragline and/or truck-shovel methods before the coal could be mined. This caused significant delays and diverted truck-shovel capacity from preliminary stripping work, which caused additional production delays at the Antelope Mine. The delays resulting from the spoil failure at the Antelope Mine caused the Company to have reduced shipments, increased costs, and delayed truck-shovel stripping in 2018. Consequently, the reduced cash inflows from coal sales limited the Company’s credit availability under the financial covenants in the Amended Credit Agreement prior to its termination, and limited access to any new forms of capital.

But, wait. There’s more:

Additionally, the severe weather affecting the Midwest region of the United States in mid-March 2019 caused, among other things, extensive flooding that damaged rail lines. One of Cloud Peak’s primary suppliers of rail transportation services – BNSF – was negatively impacted by the flooding and has been unable to provide sufficient rail transportation services to satisfy the Company’s targeted coal shipments. As of the Petition Date, BNSF’s trains have resumed operations, but are operating on a less frequent schedule because of repairs being made to rail lines damaged by the extensive flooding. As a result, the Company’s coal shipments have been materially impacted, with cash flows significantly reduced through mid-June 2019.

Riiiiiiiight. But:

More about Moore here: the tweet, as you might expect, doesn’t tell the full story.

Anywho.

The company has been burning a bit over $7mm of liquidity a month since September 2018. Accordingly, it sought strategic alternatives but was unable to find anything viable that would clear its cap stack. We gather there isn’t a whole lot of bullishness around coal mines these days.

To buy itself some time, therefore, the company engaged in a series of exchange transactions dating back to 2016. This enabled it to extinguish certain debt maturing in 2019. And thank G-d for the public markets: were it not for a February 2017 equity offering where some idiot public investors hopped in to effectively transfer their money straight into noteholder pockets, this thing probably would have filed for bankruptcy sooner. That equity offering — coupled with a preceding exchange offer — bought the company some runway to continue to explore strategic alternatives. The company engaged J.P. Morgan Securities LLC to find a partner but nothing was actionable. Ah….coal.

Thereafter, the company hired a slate of restructuring professionals to help prepare it for the inevitable. Centerview Partners took over for J.P. Morgan Securities LLC but, to date, has had no additional luck. The company filed for bankruptcy without any prospective buyers lined up.

Alas, the company filed for bankruptcy with a “sale and plan support agreement” or “SAPSA.” While this may sound like a venereal disease, what it really means is that the company has an agreement with a significant percentage of both its secured and unsecured noteholders to dual track a sale and plan process. If they can sell the debtors’ assets via a string of 363 sales, great. If they have to do a more fulsome transaction by way of a plan, sure, that also works. These consenting noteholders also settled some other disputes and support the proposed $35mm DIP financing

*Foreign customers purchased approximately 9% of ‘18 coal production.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: $290mm 12% ‘21 secured debt (Wilmington Trust NA), $56.4mm unsecured debt (BOKF NA)

  • Professionals:

    • Legal: Vinson & Elkins LLP (Paul Heath, David Meyer, Jessica Peet, Lauren Kanzer, Matthew Moran, Steven Zundell, Andrew Geppert, Matthew Pyeatt, Matthew Struble, Jeremy Reichman) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, John Knight)

    • Financial Advisor: FTI Consulting Inc. (Alan Boyko)

    • Investment Banker: Centerview Partners (Marc Puntus, Ryan Kielty, Johannes Preis)

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Major shareholders: Renaissance Technologies LLC, The Goldman Sachs Group Inc., Dimensional Fund Advisors LP, Kopernik Global Advisors, Blackrock Inc.

    • DIP Agent: Ankura Trust Company LLC

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Aryeh Ethan Falk, Christopher Robertson) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller, Paige Topper)

      • Financial Advisor: Houlihan Lokey

    • Prepetition Secured Noteholder Group (Allianz Global Investors US LLC, Arena Capital Advisors LLC, Grace Brothers LP, Nomura Corporate Research and Asset Management Inc. Nuveen Alternatives Advisors LLC, Wexford Capital LP, Wolverine Asset Management LLC)

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Aryeh Ethan Falk, Christopher Robertson) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller, Paige Topper)

    • Indenture Trustee: BOKF NA

      • Legal: Arent Fox LLP (Andrew Silfen, Jordana Renert) & (local) Womble Bond Dickinson US LLP (Matthew Ward)

    • Official Committee of Unsecured Creditors (BOKF NA, Nelson Brothers Mining Services LLC, Wyoming Machinery Company, Cummins Inc., ESCO Group LLC, Tractor & Equipment Co., Kennebec Global)

      • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Jennifer Marines, Todd Goren, Daniel Harris, Mark Lightner) & Morris James LLP (Carl Kunz III, Brya Keilson, Eric Monzo)

      • Investment Banker: Jefferies LLC (Leon Szlezinger)

Update: 7/7/19 #379

New Chapter 11 Filing - Mission Coal Company LLC

Mission Coal Company LLC

October 14, 2018

For a recap, please see here.

  • Jurisdiction: N.D. of Alabama (Judge Mitchell)

  • Capital Structure: See below

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brad Weiland, Melissa Koss, Travis Bayer, Anne Gilbert Wallace, Francis Petrie, Ciara Foster, Michael Esser) & (local) Christian & Small LLP (Daniel Sparks, Bill Bensinger)

    • CRO/Financial Advisor: Zolfo Cooper LLC (Kevin Nystrom)

    • Investment Banker: Jefferies LLC

    • Claims Agent: Omni Management Group (*click on company name above for free docket access)

  • Other Parties in Interest:

    • First Lien Lenders and DIP Lenders

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Martin Brimmage, Lisa Beckerman, Lacy Lawrence, Allison Miller, Erik Preis, Jason Rubin) & (local) Burr & Forman LLP (Michael Leo Hall, D. Christopher Carson, Heather Jamison)

      • Financial Advisor: Houlihan Lokey Capital

    • United Mine Workers of America

      • Legal: Rumberger Kirk & Caldwell PC (R. Scott Williams, Frederick Darrell Clarke III, Robert Adams)

    • The United Mine Workers of America 1974 Pension Plan and the United Mine Workers of America 1993 Benefit Plan

      • Legal: Morgan Lewis & Bockius LLP (Rachel Mauceri, John Goodchild III) & (local) Quinn Connor Weaver Davies & Rouco LLP (Glen Connor, George Davies)

Source: First Day Declaration

Source: First Day Declaration

🔥New Chapter 11 Filing - Westmoreland Coal Company🔥

Westmoreland Coal Company

October 9, 2018

In our April piece entitled "🌑Trouble Brews in Coal Country🌑," we noted how Westmoreland Coal Company ($WLB) was headed towards a bankruptcy filing. Subsequently, in May, the company obtained a small round of financing ($90mm) to bridge itself to a chapter 11 bankruptcy filing. Alas, we're upon that filing — a “Chapter 33,” of sorts, for good measure.

And it’s an…interesting…one. The company’s First Day Declaration leads with “What is Coal” and then goes on to mansplain what coal is. It’s beautiful. It’s educational. It’s…odd. Per the Declaration:

Coal is a fossil fuel that forms from the remains of vegetation as long as 400 million years ago. The plants from eons ago captured energy through photosynthesis to create compounds (carbon) in plant tissue. When those plants and trees died, they ultimately sank to the bottom of swamps and formed a dense material called peat, which progressively carbonized under the earth’s pressure and changing temperatures and eventually became a combustible sedimentary and metamorphic rock, which is referred to as coal.

There are at least four ranks of coal, depending on the carbon content: lignite; subbituminous; bituminous; and anthracite. Some estimate that 90 percent of the coal in America is bituminous (i.e., soft) coal, which is primarily used to make electricity through combustion in boilers to make steam that is used to generate power (called steam or thermal coal) and coke for the steel industry (metallurgical or coking coal). The Debtors mine lignite, subbituminous, and bituminous coal.

We are thankful for the explanation. After all, there haven’t been many opportunities over the last decade to explore the intersection of coal and bankruptcy. Oh…wait. Hang on. Right. Ok, sure, there was Peabody Energy. Ah, yeah, and Alpha Natural Resources. And Edison Mission Energy, Patriot Coal (x2), Walter Energy, Arch Coal, Xinergy, Armstrong Energy and James River Coal. To name a few. But we digress.

Anyway, THIS bankruptcy implicates Westmoreland (with affiliates, “WLB”), a thermal coal producer that sells coal to “investment grade power plants under long-term cost-protected contracts, as well as to industrial customers and barbeque charcoal manufacturers.” The company’s mines are located in Montana, North Dakota, Texas, Ohio and New Mexico, of which only 4 of a total of 23 are active. The company’s strategy generally revolves around focusing on coal markets where the company can leverage geographic proximity to power plants, some of which were specifically designed to use the company’s coal. Close proximity also permits the company to avoid onerous transportation costs, which, in turn, provides the company with flexibility to be a low(er) cost provider. There is a bit of an export business as well.

The problem is that “[t]he American coal industry is intensely competitive.” The company adds:

In addition to competition from other coal producers, the Debtors compete with producers of alternative fuels used for electrical power generation, such as nuclear energy, natural gas, hydropower, petroleum, solar, and wind. Costs and other factors such as safety, environmental, and regulatory considerations related to alternative fuels affect the overall demand for coal as a fuel. Political dynamics in the United States and Canada have additionally resulted in a reduction of the market demand for coal-based energy solutions.

Tack on a hefty chunk of debt:

And then mix in that the company is (i) subject to 7 collective bargaining agreements and, (ii) in addition to a multi-employer pension plan, that it also provides defined benefit pension plans to qualified employees — which, naturally, are underfunded by approximately $29mm and carry a termination liability of approximately $77.3mm. But wait, there’s more. The company also has, among other things, approximately (i) $1.3mm in retiree medical obligations, (ii) $18.2mm in federal regulatory Black Lung Act obligations, (iii) $334mm of “other post-employment benefit” obligations and (iv) asset retirement obligations of approximately $474.5mm. Why anyone would want to get into the coal business is beyond us. That all sounds outright depressing.

The company blames the following for its bankruptcy filing: (a) a challenging macro environment (⬇️ production and ⬇️demand); (b) a capital intensive business model; (c) the rise of natural gas as a lower cost alternative to coal (score one for the frackers!); and (d) regulation which, as you can see from the panoply of liabilities noted above, helps create a quite a heavy hitter lineup of economic obligations. Per the company:

When coupled with the external pricing pressure, increased regulation, political opposition to coal in the United States and Canada, and other costs associated with WLB’s businesses, these liabilities have hindered WLB’s ability to operate competitively in the current market environment.

And so the company has filed its chapter 11 bankruptcy with the consent of 76% of its term lenders, 57.9% of its senior secured noteholders and 79.1% of its bridge lenders to pursue a dual-track sale of its core assets to an entity to be formed on behalf of the senior secured noteholders and term lenders, subject to highest or best offers for the core assets at an auction. The sale will be consummated through a plan to, among other things, preserve tax benefits. The company will also continue to market its non-core assets. Likewise, the master limited partnership 94% owned by the company (“WMLP”) is for sale. Notably, with no prospect of a restructuring on the horizon, there is no deal in place with the unions and retirees and WLB may have to proceed on a non-consensual basis.

The company marched in to court with a commitment for a $110mm DIP. It will roll-up the bridge loan and fund the cases while the sale processes progress.

Update: In “Grocery Workers, Miners, and Who Ain’t Getting Paid (Short #MAGA),” we noted how coal miners employed by Westmoreland Coal Company were, due to a recent decision by Judge Jones in the Southern District of Texas, in for a world of hurt. Now the company has officially filed its motion seeking to reject certain collective bargaining agreements and modify certain retiree benefits pursuant to sections 1113 and 1114 of the Bankruptcy Code. #MAGA!!

Update: On January 21, 2019, the company filed a “Notice of Cancellation of Auction and Designation of Successful Bidder” after the company didn’t receive any qualified bids for its core assets other than the original stalking horse bid. The company’s Buckingham Mine, a non-core asset, did, in contrast, receive some interest and the company, therefore, will seek to sell that mine in due time.

  • Jurisdiction: S.D of Texas (Judge Jones)

  • Capital Structure: See above.

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Edward Sassower, Stephen Hessler, Michael Slade, Greg Pesce, Anna Rotman, Christopher Koenig, Gerardo Mijares-Shafai, Timothy Bow) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

    • Legal Conflicts Counsel to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Jones Day (Heather Lennox, Timothy Hoffman, Oliver Zeltner)

    • Financial Advisor to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Lazard Freres & Co. LLC (Tyler Cowan)

    • Financial Advisor: Alvarez & Marsal North America LLC (Robert Campagna)

    • Investment Banker: Centerview Partners LLC (Marc Puntus)

    • Claims Agent: Donlin Recano & Co. (*click on company name above for free docket access)

  • Other Parties in Interest:

    • WMLP Ad Hoc Group

      • Legal: Schulte Roth & Zabel LLP (David Hillman, Kristine Manoukian, Lucy Kweskin, Kelly Knight) & (local) Jones Walker LLP (Joseph Bain, Mark Mintz)

      • Financial Advisor: Houlihan Lokey Capital, Inc.

    • Administrative Agent under Bridge Loan & DIP Agreements: Wilmington Savings Fund Society FSB

      • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Benjamin Loveland) & (local) Okin Adams LLP (Matthew Okin, David Curry Jr.)

    • WMB Ad Hoc Group of Term Lenders

      • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Mayer, Stephen Zide)

    • Official Committee of Unsecured Creditors

      • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Todd Goren, Jennifer Marines, Dimitra Doufekias) & (local) Cole Schotz PC (Michael Warner, Felice Yudkin, Nicholas Brannick, Benjamin Wallen)

    • United States Trustee

      • Legal: Debevoise & Plimpton LLP (M. Natasha Labovitz, Erica Weisgerber) & (local) Zach Clement PLLC

New Chapter 11 Bankruptcy - Armstrong Energy Inc.

Armstrong Energy Inc.

  • 11/1/17 Recap: What a week or so for coal. #MAGA! While oil and gas post-reorg equities have, despite some recent upward movement, had middling results, coal has fared well. Last week Peabody Energy Inc. ($BTU) reported solid numbers and saw its stock pop above $30/share and Arch Coal Inc. ($ARCH) has also enjoyed a nice run. It's up nearly 4% today. While Contura Energy (f/k/a Alpha Natural Resources Inc.) remains in limbo with a pulled-IPO, Armstrong Energy now joins the aforementioned companies as a bankruptcy filer, with the hopes of effectuating a restructuring support agreement-based debt-for-equity transaction that will effectively turn the keys over to a joint venture comprised of the holders of the company's first lien senior secured notes and Knight Hawk Holdings LLC. More to come once the filing is complete.
  • Jurisdiction: E.D. of Missouri (Judge Surratt-States)
  • Capital Structure: $200mm 11.75% '19 first lien senior secured notes (Wells Fargo Bank NA)
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Jonathan Henes, Ross Kwasteniet, William Guerrieri, Travis Bayer, Timothy Bow) & (local) Armstrong Teasdale LLP (Richard Engel Jr., Erin Edelman, John Willard)
    • Financial Advisor: MAEVA Group LLC (Harry J. Wilson)
    • Restructuring Advisor/CRO: FTI Consulting Inc. (Alan Boyko, Brian Martin, Christopher Marshall)
    • Financial Advisor: Houlihan Lokey Capital Inc.
    • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Indenture Trustee: Wells Fargo Bank NA
      • Legal: Loeb & Loeb LLP (Walter Curchack, Vadim Rubinstein) & (local) Spencer Fane LLP (Eric Peterson, Ryan Hardy)
    • Ad Hoc Group of Senior Secured Noteholders (BlueMountain Capital Management LLC, Caspian Capital LP, GoldenTree Asset Management LP, Marathon Asset Management LP, Panning Master Fund LP, Teachers Insurance and Annuity Association of America)
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Elizabeth McColm, Diane Meyers, Adam Denhoff, Daniel Youngblut) & (local) Carmody MacDonald PC (Christopher Lawhorn, Thomas Riske)
    • Large Creditors: Thoroughbred Holdings GP LLC, Thoroughbred Resources, L.P., Western Mineral Development, LLC, and Ceralvo Holdings, LLC
      • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Debra McElligott) & (local) Husch Blackwell LLP (Marshall Turner)
    • Creditor: Kenergy Corp.
      • Legal: Jones Day (Scott Greenberg, Kyle Patrick Lane)
    • Official Committee of Unsecured Creditors
      • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Jennifer Marines, Daniel Harris, Rahman Connelly) & (local) Affinity Law Group LLC (J. Talbot Sant Jr.)

Updated 11/17/17