Mission Coal Company – Files First Amended Plan and Disclosure Statement, DIP Facility Claims Now Impaired, $127.2mn in Second Lien Claims and $1.25bn in Labor Claims Face Wipeout

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February 5, 2019 – The Debtors filed a First Amended Joint Plan of and a related Disclosure Statement [Docket Nos. 681 and 682] and also filed redlines of the two documents showing changes from versions filed on January 2, 2019.

The documents are substantially amended and include further disclosure as to several problematic areas for the Debtors including (i) “crippling” potential liabilities under existing labor and pension agreements (these treated as general unsecured claims)) and (ii) deep unhappiness amongst the Debtors’ second lien secured claims holders (who are also set to recover nothing). The revised documents now also note that debtor-in-possession (“DIP”) facility claims are designated as “impaired” (95% expected recovery), although given the apparent absence of any other potential impaired class to vote in favor of the Plan and satisfy 1129(b) cramdown rules, other impaired classes may view this designation with some scepticism.

Revised Plan Summary

The Disclosure Statement provides the following revised summary which incorporates the now impaired status of DIP claims and the revised waterfall. The Disclosure Statement states, “Generally speaking, the Plan

  • provides for 100 percent recoveries for Allowed Administrative Claims, Priority Tax Claims, Estate Retained Professional Fee Claims, Other Priority Claims and Other Secured Claims 
  • provides for up to 95 percent recoveries for Holders of DIP Facility Claims, which impairment has been agreed to pursuant to the DIP Lenders and Committee Stipulation; 
  • provides for distribution from the Sale Transaction Proceeds to Holders of Allowed Second Lien Secured Claims, to the extent Allowed DIP Facility Claims are satisfied in full in cash or the holders of the Allowed DIP Facility Claims accept different treatment or less than payment in full; 
  • provides for distribution from the Sale Transaction Proceeds to Holders of Allowed General Unsecured Claims, to the extent Allowed DIP Facility Claims and Allowed Second Lien Secured Claims are satisfied in full in cash;  
  • provides for the distribution of the General Unsecured Claims Amount to Holders of Allowed General Unsecured Claims;  provides for consummation of the Sale Transaction; and 
  • designates a Plan Administrator to (i) wind down the Debtors’ businesses and affairs; and (ii) pay and reconcile Claims as provided therein; and (iii) administer the Plan in an effective and efficient manner. The Debtors believe that Confirmation of the Plan will avoid the lengthy delay and significant cost of liquidation under chapter 7 of the Bankruptcy Code. 
The Plan classifies Holders of Claims and Interests according to the type of the Holder’s Claim or Interest, as more fully described below. Holders of Claims in Class 3 (DIP Facility Claims), Class 4 (Second Lien Secured Claims) and Class 5 (General Unsecured Claims) are entitled to vote to accept or reject the Plan.”

Legacy Labor Liabilities

The Disclosure Statement states, “The reduction of the Debtors’ legacy labor liabilities remains a crucial and necessary step towards the Debtors’ successful emergence from these chapter 11 cases. The Debtors are signatories to two collective bargaining agreements (the ‘CBAs’) with the United Mine Workers of America (the ‘UMWA’). The CBAs include crippling financial obligations and liabilities with respect to UMWA-represented employees and retirees. Although the UMWA has been unwilling to modify the CBAs on the terms presented by the Debtors and has not presented a counterproposal including modifications to which it could agree, the Debtors are willing to continue to engage in negotiations with the UMWA in the hopes of coming to a consensual arrangement that would reduce the crippling financial burden of the Debtors’ CBAs. 

 
As of the Commencement Date, the Debtors estimate the present value of their retiree medical obligations to be approximately $61.1 million….If [subsidiaries] Oak Grove and Pinnacle Mining were to withdraw from the 1974 Pension Plan, they would incur statutory ‘withdrawal liability’ obligations, for which each of the Debtors would be jointly and severally liable under applicable law. If the Debtors were authorized by the Bankruptcy Court to fully withdraw from the 1974 Pension Plan, the Debtors would owe the 1974 Pension Plan liability in excess of $1.19 billion, which the Debtors believe would be a general unsecured claim under the plan.

Second Lien Secured Claims

The Disclosure Statement notes, “Second Lien Credit Agreement (b) As of the Commencement Date, the Debtors have approximately $71,691,874 outstanding [holders assert aggregate claims of $127.2mn on these 20% PIK notes] under the Amended and Restated Secured Loan Agreement, dated as of January 31, 2018…. Pursuant to the Plan, the Second Lien Lenders will have a deficiency claim for the unsecured portion of any Second Lien Claim to the extent that the value of the collateral securing such Second Lien Claim is less than the amount of the interest of suchSecond Lien Claim in such collateral (the “Second Lien Deficiency Claims”). In the aggregate, the Second Lien Deficiency Claims shall be calculated as the allowed amount of the Second Lien Claims minus theallowed amount of the Second Lien Secured Claims. Second Lien Deficiency Claims if any, shall be General Unsecured Claims.

The Holders of the Second Lien Secured Claims object to the payment of claims held by creditors or lien holders that are junior in priority to the Second Lien Secured Claims, if such payments are made from sale proceeds of collateral that secures the Second Lien Secured Claims, unless the Second Lien Secured Claims are paid in full.”

The following is an Amended summary of classes, claims, voting rights and projected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
 
  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%. Each Holder of an Allowed Other Priority Claim shall receive payment in full in cash or other treatment rendering such claim unimpaired.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is N/A. 
  • Class 3 (“DIP Facility Claims”) is impaired (NB: the summary claims table lists the class as impaired/unimpaired) and entitled to vote on the Plan. The estimated aggregate amount of claims is $209.2mn. Expected recovery of 69%-95%.
  • Class 4 (“Second Lien Secured Claims”) is impaired and entitled to vote on the Plan. Each holder of an Allowed Second Lien Secured Claim will receive its pro rata share, based on the Allowed amount of its Second Lien Secured Claim, of the Sale Transaction Proceeds, solely to the extent the DIP Facility Claims are paid in full in cash. The estimated aggregate amount of claims is $71.7mn – $127.2mn. Expected recovery of 0%.
  • Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $87.7mn – $1,414.0mn and expected recovery is 0%. Each holder of an Allowed General Unsecured Claim will receive (i) its pro rata share of the General Unsecured Claims Amount as provided in Article IVE (if any), and (ii) the Sale Transaction Proceeds, to the extent the DIP Facility Claims and the Second Lien Secured Claims are paid in full in cash. NB: The low range of the General Unsecured Claims estimate is representative of a Successful Bidder assuming the Debtors’ CBAs and retiree obligations, ie, quite unlikely. 
  • Class 6 (“Intercompany Claims”) is impaired/unimpaired, deemed to accept or reject the Plan and not entitled to vote on the Plan. The estimated aggregate amount of claims is $401.8mn. and expected recovery is N/A. Each Intercompany Claim will, at the election of the Debtors be reinstated; or canceled, released, and extinguished as of the Plan Effective Date, and will be of no further force or effect. Unimpaired, in which case the Holders of Allowed Intercompany Claims in Class 6 are conclusively presumed to have accepted the Plan or Impaired, and not receiving any distribution under the Plan, in which case the Holders of Allowed Intercompany Claims in Class 6 are deemed to have rejected the Plan. 
  • Class 7 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept or reject the Plan and not entitled to vote on the Plan. Each Intercompany Claim will, at the election of the Debtors be reinstated; or canceled, released, and extinguished as of the Plan Effective Date, and will be of no further force or effect. Unimpaired, in which case the Holders of Allowed Intercompany Claims in Class 7 are conclusively presumed to have accepted the Plan or Impaired, and not receiving any distribution under the Plan, in which case the Holders of Allowed Intercompany Claims in Class 7 are deemed to have rejected the Plan.
  • Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 9 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

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