October 30, 2020 – The Debtors filed a Plan of Reorganization and a related Disclosure Statement [Docket Nos. 226 and 227, respectively]; and further filed a motion requesting Court approval of (i) the adequacy of the Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed schedule with dates (other than a November 30, 2020 voting record date) still left to be determined [Docket No. 228].

Plan Overview

The Plan includes two voting classes: (i) Class 3 (“Credit Agreement Secured Claims”) holders in respect of which will receive pro rata shares of a new amended and restated credit agreement (the "A&R Credit Agreement) amongst the emerged Debtors and prepetition secured lenders to be entered into on the Plan effective date (projected recovery 46.67%) and (ii) Class 4 (“General Unsecured Claims”) holders in respect of which will share a $225k recovery pool and receive a 2% recovery.

The following is 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. Estimated Recovery is 100%.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated Recovery is 100%.
• Class 3 (“Credit Agreement Secured Claims”) is impaired and entitled to vote on the Plan. Estimated Recovery is 46.67%. On the Effective Date, Holders of Credit Agreement Secured Claims will become bound by the A&R Credit Documents and receive their Pro Rata share of each of the A&R Term Loans. On the Effective Date, except as set forth in Article IV.F hereof, the Credit Agreement shall be deemed replaced by the A&R Credit Agreement, without the need for any Holder of a Credit Agreement Secured Claim that does not vote for the Plan or votes to reject the Plan to execute the A&R Credit Documents, and each Lien and security interest that secures obligations arising under the Credit Agreement shall be reaffirmed, ratified and deemed granted by each Reorganized Debtor to secure all obligations of the Reorganized Debtors arising under the A&R Credit Agreement.
  • Principal payments on the Lenders’ A Loan (and, on a pro rata basis to the Lenders’ B Loan if the underlying letter of credit is drawn) shall be made quarterly in an amount equal to 75% of an excess cash flow formula reasonably acceptable to the Reorganized Debtors and Lenders. Principal payments on the Lenders’ C loan shall not be payable until repayment in full of the Lenders’ A Loan and the Lenders’ B Loan and shall be based upon a sharing mechanism reasonably acceptable to the Reorganized Debtors and Lenders.
  • The Lenders’ A Loan shall accrue interest at the rate of seven percent (7%) per annum, which shall be payable monthly. The Lenders’ B Loan shall not accrue interest unless the underlying letter of credit is drawn, in which case the Lenders’ B Loan shall accrue interest at the rate of seven percent (7%) per annum, which shall be payable monthly. The Lenders’ C Loan shall accrue interest at the rate of seven percent (7%) per annum, which interest shall be payable on the maturity date.
  • The Lenders’ A Loan, Lenders’ B Loan and Lenders’ C Loan shall mature on December 31, 2022.
• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Estimated Recovery is 2%. Each Holder of a General Unsecured Claim not otherwise paid during the pendency of the Chapter 11 Cases (other than any Holder of a Credit Agreement Deficiency Claim) shall receive its Pro Rata share of the General Unsecured Creditor Distribution (ie $225k).
• Class 5 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated Recovery is 0%.
• Class 6 (“Intercompany Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated Recovery is 100%.
• Class 7 (“FM Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated Recovery is 0%.

The Disclosure Statement [Docket No. 227] attached the following exhibits:

• Exhibit A: Plan (Filed Separately at Docket No. 226)
• Exhibit B: Solicitation Procedures Order (without exhibits)
• Exhibit C: The Debtors’ Liquidation Analysis (To be filed)
• Exhibit D: The Debtors’ Financial Projections (To be filed)
• Exhibit E: FM Coal, LLC’s Corporate Organizational Structure

Proposed Key Dates

• Voting Record Date: November 30, 2020

In a declaration in support of the Chapter 11 filing (the “Declaration”), the Debtors detailed the events leading to FM Coal’s need for bankruptcy protection. For these Debtors, the slide into bankruptcy began shortly after their formation in July 2017, when they funded acquisitions with a new $70.0mn credit facility that they have from the outset struggled to service. Their precarious liquidity position has since worsened as their equipment fleet aged, requiring higher maintenance and negatively impacting operational efficiency to the point where this equipment crisis “threatens basic operations.” 

The Declaration [Docket No. 22] provides: “The single greatest challenge faced by the Debtors is the state of their equipment fleet. Since the Acquisition [see 'About the Debtors,' below], the amount of investment in the Debtors’ equipment has lagged behind the needed capital expenditures in light of the Debtors’ continued operations. The current average age of the thirty-five highest value items of equipment is 10 years, and FM Coal has been unable to acquire the needed amount of new equipment since the Acquisition. Further, with FM Coal’s limited liquidity (as discussed below), FM Coal has been limited in its ability to finance critical capitalized repairs such as engine and undercarriage replacements. FM Coal’s current estimate of deferred capital expenditures exceeds $12 million and has reached a state where it threatens basic operations, including meeting the allocations of Alabama Coal Cooperative…the deferred capital equipment purchases and repairs has caused less efficient operations and lost sales.

…repairs and maintenance as a percent of revenue increased from 14.7% in 2016 to 20% for 2019. Further, increased repairs have resulted in field labor inefficiencies and downtime, unscheduled equipment movement and other factors. This is evidenced by increased mining payroll costs, as a percent of revenue (from 13.5% in 2016 to 19.4% in 2019), as well as increased costs of goods sold as a percent of revenue (from 80% in 2016 to 101% in 2019).

Since the Acquisition, the Debtors’ liquidity and working capital have decreased significantly. From the closing of the Acquisition on September 1, 2017 through December 31, 2019, the Debtors made debt service payments on the Credit Facility totaling approximately $26.7 million, which were partially funded by $6 million of new borrowing on the Revolver. From September 1, 2017 to April 30, 2020, accounts receivable decreased by $7.8 million and accounts payable increased by $6.3 million. As of April 30, 2020, accounts payable was $15.1 million, with $7 million (or 46.4%) aged over 90 days. Most critical vendors currently require cash on delivery or cash in advance. On September 1, 2017, FM Coal had a net working capital of $3 million. As of July 31, 2020, however, FM Coal’s net working capital was at an $11.7 million deficit….In light of the above-described challenges, a reorganization through these chapter 11 cases is necessary for the Debtors to have the ability to service the Credit Facility.” 

Prepetition Indebtedness

As of the Petition date, FM Coal had approximately $56.0mn in total aggregate principal amount of funded debt obligations. 

The Debtors are party to a September 2017, credit agreement (the “Credit Agreement”) with Key Bank National Association serving as agent.

The Credit Agreement provides for loans in the form of a term loan in the maximum principal amount of $70.0mn (the “Term Loan”) and a revolving loan in the maximum principal amount of $10.0mn (the “Revolver”). As of the Petition Date, the principal balance under the Term Loan was $50.0mn and the principal balance under the Revolver was $6.0mn. Additionally, FM Coal has $4.0mn securing an unfunded Letter of Credit (in support of reclamation surety bonds) issued under the Revolver. No additional financing is available under the Credit Facility. 

FM Coal used the proceeds of the Loans (i) to finance a portion of the consideration paid to the Sellers as part of the Acquisition, (ii) to finance the payment of fees and expenses incurred in connection with the Acquisition, (iii) to refinance and replace certain indebtedness of the Debtors and, (iv) with respect to the Revolver, to fund $6.0mn of the $20.0mn of principal payments made on the Term Loan.

The Debtors’ Declaration makes no mention of what appears to be in excess of $11.0mn of trade claims [see Docket No. 2 for 40 largest unsecured claims].

About the Debtors

According to the Declaration: “The Debtors are engaged in the business of extracting, processing and marketing metallurgical coal and thermal coal from surface mines. The Debtors’ customers include steel and coke producers, industrial customers and electric utilities. The Debtors have four mines that are currently operational, two of which are located in Jefferson County, Alabama (the Flat Top Mine and the Sloan Mountain 3 Mine). The operational mines in Jefferson County account for 71% of the Debtors’ total revenue and 59% of the total tons of coal produced by the Debtors.

In addition to the four operational mines, the Debtors own or lease sixteen mines that are non-operational — twelve mines at which reclamation is in process and four mines at which the Debtors have never begun mining activities. Those assets are located in Jefferson, Walker, Marion, Winston and Cullman Counties respectively. The Debtors also own or lease two coal washing plants which are currently in use: the North Pratt Washer in Jefferson County; and the Choctaw Washer in Walker County.”

As to corporate history and “the Acquisition,” the Declaration provides: “FM Coal was formed on July 28, 2017. Shortly thereafter, on September 1, 2017, FM Coal acquired (the ‘Acquisition’) from Otis R. ‘Randy’ Robinson and Kendall ‘Kenny’ Robinson (collectively, the ‘Sellers’) the shares and/or membership interests in the other Debtors. As part of the Acquisition, the Sellers also transferred certain equipment to FM Coal, and FM Coal assumed certain liabilities. The Acquisition was funded by new senior secured financing totaling $70 million, which also included the refinancing of certain existing debt, transaction related expenses and FM Coal’s acquisition of additional equipment.”

Corporate Structure Chart (See Exhibit E to Disclosure Statement [Docket No. 227])

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