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November 23, 2020 – The Debtors filed a First Amended Plan of Liquidation and a related Disclosure Statement [Docket Nos. 529 and 530, respectively]; and separately filed redlined versions of each showing changes to the version filed on November 9, 2020 [Docket No. 531]. The lightly amended Plan documents do not contain material changes to classes and claims, otherwise summarized below.
The Disclosure Statement notes, “The Plan is a plan of liquidation and will be funded by the ‘Liquidating Trust Assets’ consisting of, (a) the Cash held by the Estates after taking into account Distributions made on the Effective Date; (b) all Causes of Action; (c) all Privileged Documents and communications of the Debtors; (d) all other assets of the Debtors or of the Estates existing on the Effective Date after giving effect to all Distributions required to be made as of or prior to the Effective Date, including but not limited to all books, records and files of the Debtors and of the Estates, in all forms, including electronic and hard copy. The Plan also creates a Liquidating Trust, which will be the mechanism through which Claims will be adjudicated and distributions will be made as set forth in the Plan.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement):
- Class 1 (“Priority Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $500k and the estimated recovery is 100%. Treatment: Holders shall receive payment in full, in Cash, through quarterly installment payments made by the Liquidating Trustee beginning on June 30, 2021 and ending on the earlier of (i) payment in full of Other Priority Claims and (ii) five years after the date of the order for relief under section 301, 302 or 303 of the Bankruptcy Code.
- Class 2 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 3 (“DIP Lender Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,365,500 and the estimated recovery is 100% of the Lender's share of the Lender Settlement Contribution Amount as set forth in the Lender Settlement Agreement.
- Class 4 (“Prepetition Lender Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $18,118,585.10 and the estimated recovery is 100% of the Lender's share of the Lender Settlement Contribution Amount as set forth in the Lender Settlement Agreement. Holders shall receive the Lender Settlement Participation in full satisfaction of the Prepetition Lender Claims. The portion of the Lender Settlement Participation payable to the Holders of Prepetition Lender Claims or their designees shall be equal to the amount of the Lender Settlement Contribution Amount paid by the Holders of Prepetition Lender Claims or their designees.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $30.0mn – $45.0mn and the estimated recovery is 1% – 50%, subject to the outcome of litigation brought by the Liquidating Trustee. Holders shall receive a Pro Rata Share of any remaining Liquidating Trust Assets after providing for the payment in full of all Secured Claims, Administrative Claims, Priority Tax Claims and Other Priority Claims; provided that the Holders of Class 3 Claims and Class 4 Claims shall receive 50% of all distributions to Holders of Class 5 Claims until the Lender Settlement Contribution Amount is paid in full.
- Class 6 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is 0% and the estimated recovery is N/A.
As of the Petition date, the Debtors had approximately $162.1mn of liabilities, of which approximately $39.8mn is secured debt owed in respect of a senior credit facility with Cortland Capital Market Services LLC, as Collateral Agent and Administrative agent, CB Agent Services LLC, as Origination Agent and the parties identified as lenders therein (collectively, the “Lenders”).
The Plan incorporates a settlement agreement (the "Settlement Agreement') amongst the Debtors, the Debtors' Official Committee of Unsecured Creditors (the "Committee'), prepetition lenders and DIP lenders. The Settlement Agreement, which was approved by the Court on November 2, 2020 in a "Lender Settlement Order" [Docket No. 504], requires the Prepetition Lenders to make a $400k initial cash payment no later than three days after the settlement order was entered and, only if the Plan containing the terms of the Lender Settlement is confirmed, a second $100k cash payment on the Plan Effective Date.
Also under the Lender Settlement, the Prepetition Lenders are slated to receive 50% of all net recoveries payable to Holders of General Unsecured Claims until the Prepetition Lenders recover the entire amount of the Settlement Payment, whether under a chapter 11 Plan or a chapter 7 case.
According to the Disclosure Statement, "The Committee’s notice of 'Initial Challenges' asserted the following against the Prepetition Secured Parties:
- Challenges to the Alleged Liens – The Committee asserted that the Prepetition Secured Parties failed to properly perfect their alleged security interests in certain of the Debtors’ assets, including motor vehicles; certain real properties; certain cash in bank accounts; and certain commercial tort claims, thereby making such alleged security interests unperfected and avoidable pursuant to 11 U.S.C. § 544(a).
- Challenges to Claims – The Committee challenged the allowability of certain components of the Prepetition Secured Parties’ claims, including unused line fees, make whole claims, origination fees, exit fees and consent fees totaling at least $7,122,981.67 plus interest.
After the Committee notified the Prepetition Lenders of its Initial Challenges, the Committee and the Prepetition Lenders engaged in substantial negotiations regarding the merits of the Committee’s challenges, the Debtors’ proposed Sale of a substantial portion of their assets to the Stalking Horse Bidder, which was comprised of the Prepetition Secured Parties and the DIP Secured Parties (or their assignees and designees), the consideration that the Debtors’ estates would receive in connection with the Sales and various related matters. Those negotiations resulted in the First UCC-Lender Settlement between the Committee, the Prepetition Secured Parties and the DIP Secured Parties….
The Committee had until October 9, 2020 to bring any 'Second Period Challenges' against the Prepetition Secured Parties (e.g., fraudulent conveyance or equitable subordination claims)…Through its investigation, the Committee identified several claims and challenges that, absent a settlement, it intended to file against the Prepetition Secured Parties. Rather than litigate the matter and expend fees that these estates cannot easily bear, the Committee, the Prepetition Secured Parties, the DIP Secured Parties and the Debtors engaged in extensive negotiations to seek a resolution of the Committee’s claims." The Disclosure Statement says those negotiations resulted in the Settlement that is incorporated into the Plan."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Boone Declaration”), Rick Boone, the Debtors’ Chief Executive Officer, detailed the events leading to Rhino’s Chapter 11 filing. The Boone Declaration provides: “The North American coal industry is intensely competitive and over the past several years, market forces in the industry have affected a number of coal companies, many of which have filed for chapter 11.
While the metallurgical coal market has been favorable until approximately the third quarter of 2019, the market has declined substantially since the fourth quarter of 2019, resulting in a sustained low-price environment. In addition, coal mining requires a high level of capital expenditure to sustain production and to maintain safety requirements.
The Debtors have experienced declines in coal production, coal sales, and coal revenues over the previous three years. For example, in 2017, the Debtors produced 4.25 million tons of coal and sold 4.18 million tons of coal, resulting in coal revenue of $216 million. By 2019, the Debtors produced 4.0 million tons of coal and sold 3.87 million tons of coal, resulting in coal revenues of $213.9 million. During this time, the Debtors divested their Sands Hill thermal coal surface mine operation in Ohio and their Pennyrile mining complex in the Illinois Basin.
For the year ended December 31, 2018, the Debtors recorded a net loss of $16 million, and for the year ended December 31, 2019, the Debtors recorded a net loss of $99 million. The Debtors’ adjusted EBITDA for the year ended December 31, 2019 was negative $5.7 million. With production and related costs significantly higher than expected and coal prices significantly lower than expected leading to a liquidity crunch, the Debtors have triggered financial covenant and other defaults under the Financing Agreement. The Debtors are unable to service the Financing Agreement.”
Proposed Key Dates:
- Voting Deadline: December 30, 2020
- Objection Deadline: January 5, 2021
- Plan Confirmation Hearing: January 15, 2021
About the Debtors
According to the Debtors: “Rhino Resource Partners LP is a diversified energy limited partnership that is focused on coal and energy related assets and activities, including energy infrastructure investments. Rhino produces metallurgical and steam coal in a variety of basins throughout the United States.”
Corporate Structure Chart
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