Adds details on filing
Arch Coal has filed for Chapter 11 bankruptcy protection after months of trying to restructure loans.
The US thermal and coking coal producer filed a petition with the US Bankruptcy Court for the Eastern District of Missouri today as part of a restructuring agreement with lenders holding $1.9bn in first lien financing. A group of lenders holding more than 50pc of the company's first lien debt has agreed to provide $275mn in debtor-in-possession financing.
"After carefully evaluating our options, we determined that implementing these agreements through a court-supervised process represents the best way to solidify our financial position and strengthen our balance sheet," chief executive John Eaves said.
Arch is the biggest US coal company to file for Chapter 11 protection over the last year. As of this month, it was the second-largest holder of coal reserves in the country, behind Peabody Energy and ahead of Alpha Natural Resources, which entered court-supervised restructuring proceedings in August.
"Over the past several years, a confluence of economic challenges and regulatory hurdles has hobbled the coal industry," Arch chief financial officer John Drexler said in a filing today. "Preliminary discussions with domestic customers indicate that 2016 pricing will remain weaker than previously anticipated. Arch's sales commitments remain well behind the pace of prior years."
The agreement with lenders will eliminate more than $4.5bn in debt from the company's balance sheet. Arch is proposing exchanging debt held by the lending group for cash, new debt and equity, including the option of receiving around 4pc of the common stock of the restructured company.
Today's filing followed a more than six-month effort by the company to avoid entering bankruptcy proceedings. In late October, it abandoned attempts to refinance $2.875bn in debt after a group of senior lenders declined to participate.
Just under 50pc of Arch's debt had been tendered. But "as coal prices continued to decline, it became increasingly clear to the company that revenues from operations would not be able to support the company's existing capital structure," Drexler said.
As of 8 January, Arch's unsecured notes were trading at less than one cent per dollar and its obligations of its term loan were being exchanged at 43.5¢/$1. The company's second lien notes were trading at less than 5¢ on the dollar, Drexler said.
Last month Arch opened a 30-day grace period on making $90mn in interest payments as it continued debt-restructuring discussions with creditors.
Arch had $6.45bn in liabilities and $5.85bn in assets on 30 September, according to its court filing today. Its biggest unsecured creditors are UMB Bank, which holds $2.83bn in company bonds, and US Bank, which has $510.1mn.
Unlike many of its competitors, Arch does not have any union employees. But the company may have to make outstanding payments to retirees of mines that were spun off into a separate entity called Magnum Coal, which was bought by Patriot Coal.
Arch has proposed setting aside $75mn of its debtor-in-possession financing for super-priority claims related to its reclamation obligations.
The Wyoming Department of Environmental Quality said today it is reviewing Arch's filing and will have no additional comment until company bankruptcy protection proceedings conclude.
In 2014, 84pc of Arch's production and sales were from the Powder River basin. The Appalachias accounted for 10pc of company sales and output, and Colorado and Illinois made up the rest.
Arch has filed a number of motions with the court to continue payments and operations through the reorganization process. The company had more than $600mn in cash and short-term investments available as of today. It also expects securitization financing providers will continue the company's $200mn trade accounts receivable securitization facility.
