Register, or Login to view the article
October 2, 2019 – The Debtors filed a First Amended Chapter 11 Plan and a related blackline showing changes from the version of the Plan filed on August 26th and subsequently confirmed by the Court on August 28th [Docket Nos. 278 and 279]. The amendment reflects changes to the treatment of Classes 3 and 4, reflecting a re-allocation of the emerged Debtors' equity after the Debtors determined that they would have to increase their new money debtor-in-possession ("DIP") financing headroom by $35.0mn. The debtors state that this extra cash is necessitated by the longer than expected stay in Chapter 11 and coal market headwinds.
In a declaration in support of amendments to the Plan and DIP financing arrangements [Docket No. 282], an advisor to the Debtors states: "When the Debtors initially entered into the DIP Facilities, the Debtors and their advisors sized their financing needs based on an expected emergence from bankruptcy by the end of August 2019. Due to, among other things, the additional time required to procure necessary regulatory approvals as a prerequisite to emergence, this initial emergence timeline has expanded…Specifically, unforeseen changes in coal market conditions, including a substantial drop in metallurgical and thermal coal prices and a significant reduction in purchaser demand for metallurgical and thermal coal on the spot market, led to a shortfall of operating cash receipts for the period from the filing date to September 27, 2019, compared to the original DIP budget of $24.0 million. In addition, the Debtors’ current forecast of cash receipts from September 28, 2019, to October 11, 2019, reflects an additional shortfall of $22.6 million during the same period in the original DIP budget."
A further declaration picks up the story [Docket No. 283]: "By mid-September 2019…it had become clear the Debtors would not be able to emerge under the current plan and incremental financing would be required to bridge to emergence and fund go-forward operations. As a result, the Debtors and their advisors engaged with their first and second lien term loan lenders to modify the existing chapter 11 plan to further reduce the Debtors’ go-forward leverage and obtain incremental DIP financing to fund these cases and provide incremental liquidity upon emergence…On October 2, 2019, the term DIP lenders and the Debtors agreed to the DIP Term Amendment, which provides an additional $35 million in DIP term loans.
Contemporaneously herewith, the Debtors also have filed a motion to approve certain modifications to the Plan. The amended Plan structure makes certain adjustments to the Debtors’ go-forward capital structure that meaningfully reduce funded indebtedness and will better enable the Debtors to implement their near- and long-term business strategies."
Under the old Plan, each Holder of an Allowed First Lien Term Loan Claim (Class 3) was to receive its pro rata share of 71% of the New Common Stock and $225 million of the New First Lien Loan and each Holder of an Allowed Second Lien Term Loan Claim (Class 4) was to receive its pro rata share of 29% of the New Common Stock.
Under the amended Plan, and reflecting the additional $35.0mn of new money DIP financing: (i) Class 3 will receive 68.5% of the New Common Stock and will no longer split the New First Lien Loan, (ii) Class 4 will get 10% of the New Common Stock and (iii) holders of $100.0mn worth of "Roll-Up DIP claims" will receive 21.5% of the New Common Stock.
Below is a revised summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement)
- Below is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement)
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
- Class 3 (“First Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. Estimated allowed claims are $539.0mn. Each holder of an Allowed First Lien Term Loan Claim shall receive its pro rata share of 68.5% of the New Common Stock in Reorganized Blackhawk, provided that solely for any Non-Participating Lender, such distribution will be subject to reallocation on account of the DIP Backstop Equity.
- Class 4 (“Second Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. Estimated allowed claims are $318.3mn. Each holder of an Allowed First Lien Term Loan Claim shall receive its pro rata share of 10% of the New Common Stock in Reorganized Blackhawk.
- Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
- Class 6 (“Debtor Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 100%/0 %.
- Class 7 (“Non-Debtor Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 100%/0 %.
- Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.
- Class 9 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 100%/0 %.
- Class 10A (“Class A Blackhawk Interests”) is impaired and entitled to vote on the Plan. Expected recovery is 0%.
- Class 10B (“Class B Blackhawk Interests”) is impaired and entitled to vote on the Plan. Expected recovery is 0%.
- Class 10C (“Class C Blackhawk Interests”) is impaired and entitled to vote on the Plan. Expected recovery is 0%.
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides the following overview as to the events leading to Blackhawk’s Chapter 11 filing: "[The] Company pursued a strategic acquisition strategy starting around 2014 to acquire various metallurgical assets, including those out of large coal bankruptcies, anticipating that the pricing environment in the metallurgical coal market would improve starting in late 2015. In part to effectuate these transactions, the Debtors took on certain debt, and ultimately entered into the First Lien Term Loan Agreement and the Second Lien Term Loan Agreement.
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."
About the Debtors
The Debtors are a privately-owned coal producer headquartered in Lexington, Kentucky and operating in the Central Appalachian Basin of the United States. Since its founding in 2010, the Debtors have steadily grown from a single mining complex producing thermal coal to ten active mining complexes in West Virginia and Kentucky producing metallurgical coal, thermal coal, pulverized coal injection, and stoker coal, which the Debtors sell domestically and abroad to a diverse set of end markets. The Debtors control 1.37bn tons of proven and probable reserves, with an additional 0.8bn tons of resources. Over 55%, or 0.7bn tons, of the Debtors' reserves are associated with its metallurgical coal segment.
In 2018, the Debtors produced approximately 8.8mn tons of metallurgical coal and 4.6mn tons of thermal coal, generating approximately $1.09bn in revenue; 76% attributable to its metallurgical segment and 24% attributable to its thermal segment. The Debtors employ approximately 2,800 employees, consisting of approximately 50 employees located at its corporate headquarters and 2,749 employees located at the Debtors' ten active mining complexes.
Read more Bankruptcy News