Westmoreland Coal Company – Seeks Approval of $300.0mn Credit Bid Sale of Kemmerer Mining Assets to Senior Lenders After Western Coal Deal Falls Through

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May 23, 2019 – The Debtors requested Court authority to (i) enter into an asset purchase agreement (the "Credit Bid APA") with Kemmerer Operators, LLC (the "Credit Bid Purchaser") further to which the Credit Bid Purchaser would acquire the Debtors' Wyoming-based Kemmerer mining assets for a $300.0mn credit bid  (the "Kemmerer Assets" and "Sale," respectively) and (ii) consummate the Sale [Docket No. 1863]. The Credit Bid Purchaser is an entity set up by the Debtors' pre-petition senior lenders (the "MLP Secured Lenders") to purchase the Kemmerer Assets following the collapse of the previously approved sale to Western Coal Acquisition Partners, LLC ("Western Coal," a subsidiary of Tom Clarke's Clarke Investments) due to an inability of Western Coal to secure a necessary reclamation bond. 

The Credit Bid Purchaser has an agreement in principle with an affiliate of North American Construction Group Ltd. to operate the Kemmerer mine and the related assets and is in discussions with various sureties to obtain replacement bonding in connection with the permanent transfer of operating permits from the Debtors to the Credit Bid Purchaser.

The sale motion states, “Following the WMLP Debtors' six-month marketing process, the Court approved the sale of the Kemmerer Assets to Western Coal Acquisition Partners, LLC (‘Western Coal’). At that time, Western Coal was the only viable buyer for the Kemmerer Assets. While the WMLP Debtors' secured term loan lenders (the ‘MLP Secured Lenders’) had submitted a bid by the bid deadline, the bid was contingent upon the WMLP Debtors' failing to close on the sale of the Kemmerer mine to Western Coal.

As the parties approached the closing of the Western Coal sale transaction, it became apparent that Western Coal likely would not secure bonding to replace the bonds that Zurich American Insurance Company (‘Zurich’) had issued with respect to the Kemmerer mine until after the closing. However, the Prior Sale Order provided a mechanism whereby the sale could close before mining permits were transferred and replacement bonding was obtained. At the time, the closing of the sale of the Kemmerer Assets to Western Coal was likely the only alternative to liquidation, an outcome that would have negative consequences for the WMLP Debtors' estates, the hundreds of individuals who work at the Kemmerer mine, the WLB Purchaser and the reclamation of the Kemmerer mine. Based upon those factors, the WMLP Debtors considered closing the sale of the Kemmerer Assets to Western Coal before Western Coal secured replacement bonds, consistent with the Prior Sale Order. Subsequent events, however, caused the WMLP Debtors to pivot to the Credit Bid sale. Specifically, on March 20, 2019, the WLB Purchaser asserted for the first time that closing the sale of the Kemmerer Assets to Western Coal without a commitment for replacement bonds would be inconsistent with the Prior Sale Order and filed an adversary proceeding shortly thereafter seeking interim injunctive relief to prevent the closing the sale of the Kemmerer Assets to Western Coal.

While the testimony given in connection with the Adversary Proceeding did not alter the WMLP Debtors' views that closing the Western Coal transaction would not have violated the Prior Sale Order, subsequent positions taken by Zurich and other things caused the WMLP Debtors and the MLP Secured Lenders to reassess potential options with respect to the sale and transfer of the Kemmerer Assets. While the MLP Secured Lenders performed their due diligence on potential alternative transaction structures for the Purchased Assets, the deadline for the Western Coal transaction to close passed, and the Prior APA was terminated.

Accordingly, the WMLP Debtors determined to pursue the Credit Bid sale. ”

Key Terms of the Credit Bid APA:

  • Purchase Price: A credit bid of a portion of the MLP Secured Obligations ($326.9mn at Petition date) and Adequate Protection Obligations in the amount of not less than $300,000,000 and the assumption of enumerated liabilities.
  • Deposit Amount: Deposit Amount of $2,500,000 of secured obligations.

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