Mission Coal agreement sets $145M floor for met coal bankruptcy auction

Source: Market Intelligence 

Mission Coal Co. LLC is seeking approval to enter into a stalking horse purchase agreement featuring a $145 million credit bid for the metallurgical coal company’s assets.

The company’s debtor-in-possession lenders agreed to provide a stalking horse bid in the form of credit and set a floor price for auctioning the company’s Maple Eagle and Oak Grove metallurgical coal mining facilities, according to a Dec. 5 court filing. Through its Chapter 11 bankruptcy reorganization, Mission is seeking to facilitate the sale of substantially all of its assets.

“Time is of the essence,” Mission wrote in a U.S. Bankruptcy Court for the Northern District of Alabama motion seeking approval of the bidding process. The company faces milestones under its financing facility that, without extension, could lead to a need to refinance at a higher cost or shut down operations.

“The sale would resolve these Chapter 11 cases, cut off the expense of bankruptcy, and permit the debtors to distribute the value generated by the sale of assets to their stakeholders,” the filing states. “The debtors hope and expect to continue discussions with creditors regarding their sale and restructuring efforts and obtain substantial consensus regarding the Chapter 11 process quickly.”

Mission Coal was formed in early 2018 by consolidating operations acquired by ERP Environmental Fund Inc. through distressed asset buys in 2015 and 2016. The company picked up mines relatively cheaply from Cleveland-Cliffs Inc. as that company exited the U.S. coal sector and acquired assets from Walter Energy Inc. in exchange for assuming the liabilities associated with the mines when Walter went through its own bankruptcy reorganization. The top assets of Walter Energy emerged from bankruptcy under the control of Warrior Met Coal Inc., which is now expressing some interest in Mission’s bankruptcy sale.

“We’ve always talked about the fact that those assets … are right in our backyard, and they would be a good fit for us. That has nothing to do with where we’re sitting on liquidity right now,” Warrior CEO Walter Scheller said on an Oct. 31 earnings call. “But we’re surely going to be paying close attention to what’s going on.”

The stalking horse purchase includes the acquisition of certain assets of the company’s Pinnacle coal mine, which was recently closed. Under the agreement, a buyer would have the right between signing and closing to determine what assets of Pinnacle and the company’s Seminole Alabama Mining Complex LLC it would like to acquire, according to the court motion.

The buyer of the assets would also be taking on potential expenses related to reclamation, assumed contracts, various taxes and other liabilities. However, under the plan, the buyer would not be assuming some other liabilities associated with workers compensation and certain other employee-related liabilities including obligations stemming from the Black Lung Act and a collective bargaining agreement with the company’s unionized workforce. However, the asset purchase agreement is contingent on either the United Mine Workers of America waiving the successor clause in its agreement or the bankruptcy court approving rejection of the agreement.

The proposed stalking horse agreement does not include a breakup fee or expense reimbursement and is expected to allow Mission to maximize the value of its assets by market-testing the stalking horse bid through an auction process in which the highest bidder can take on the assets. Mission Coal has proposed a bid deadline of Jan. 21, 2019. An auction would be held, if necessary, Feb. 27, 2019, under the proposal.