Lighthouse Resources Inc. – Resource Capital Funds-Owned Coal Miner Files for Chapter 11 with $100mn-$500mn of Liabilities

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December 3, 2020 – Privately held Lighthouse Resources Inc. and 13 affiliated Debtors (“Lighthouse” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-13056. The Debtors, who own and operate thermal coal mines in and around the Powder River Basin, are represented by L. Katherine Good of Potter Anderson & Corroon LLP. Further board-authorized engagements include (i) Jackson Kelly PLLC as general bankruptcy counsel, (ii) BDO USA LLP as restructuring advisors and (iii) Stretto as claims agent. 

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($455.8mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Big Horn County Treasurere ($6.2mn government contract claim), (ii) Montana Department of Revenue ($4.5mn government contract claim) and (iii) Colorado Office of Natural Resources Revenue ($3.3mn government contract claim).

In December 2014, Australia's Ambre Energy sold all of its North American assets to Denver-based private equity firm Resource Capital Funds for a reported $18.0mn and the Debtors changed their name from Ambre Energy North America to Lighthouse Resources Inc.

Restructuring Support Agreement

On December 2, 2020, the Debtors, their prepetition secured lenders (the “Prepetition Secured Lenders”) and the "Sureties" (ie, Zurich American Insurance Company, Atlantic Specialty Insurance Company and Westchester Fire Insurance) entered into a restructuring support agreement (the “RSA,” attached to the Adlard Declaration as Exhibit 3). 

The Adlard Declaration provides: "In principal, the RSA provides that after the filing of these chapter 11 cases the Debtors will work toward a chapter 11 plan, which upon confirmation and its effective date, only LHR Coal and its subsidiaries (the 'LHR Coal Entities') will survive, and the LHR Coal Entities’ membership interests and assets will vest in a reclamation trust (the 'Trust') to satisfy the reclamation and environmental obligations at the Decker Mine.

The Trust will establish a Decker Reclamation Plan to be approved by the State of Montana. The Decker Reclamation Plan will be administered by the Trust and will be funded by a sinking fund ('Sinking Fund').

The Sinking Fund will be funded by any remaining collateral held by the Sureties ('Surety Collateral'), portions of distributions KCP receives from Black Butte, and certain proceeds from the sale of the LHR Coal Entities’ assets following plan confirmation, as set forth in the RSA.

In consideration for providing the use of their collateral to the Trust, the Prepetition Secured Lenders will receive distributions from the Trust. The general unsecured creditors of Lighthouse and the LHR Coal Entities will also receive pro rata distributions from the Trust in accordance with the RSA and, ultimately, any chapter 11 plan and Trust documents.

Any funds remaining in the Sinking Fund will be reserved to pay KCP’s share of the Black Butte reclamation costs when it ceases operation, in accordance with the RSA.

The Debtors, through their broker, Jones Lang LaSalle Americas, Inc. ('JLL'), have received a term sheet for the Millennium Facility and the Debtors intend to file a sale motion on or soon after the Petition Date to establish and begin the sale process."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filings (the “Adlard Declaration”), Darrin T Adlard, the Debtors’ Vice President of Finance and Accounting and Treasurer, detailed the events leading to Lighthouse’s Chapter 11 filing. The Adlard Declaration provides: “The Company has focused on sales to the Indo-Pacific Region where demand for thermal coal in Asia has been increasing and port access for coal from the West Coast of the United States has been limited.

Lack of port capacity from the West Coast of the United States has restricted access from the Decker Mine and other producers in the West to growing demand in Asia.

Lighthouse has been working for over eight years to permit the CET [the coal export terminal, aka the “Millennium Facility,” which has struggled to obtain required regulatory permits]. It was hoped that the CET would provide improved access for Debtors to ship their coal to Asian markets and lead to an increase in production.

In the years leading up to the Petition Date, the price for thermal coal in the United States has been impacted by decreased demand in the United States and Europe. Recent prices in Asia have been impacted by the COVID-19 global pandemic with the associated decrease in industrial and business activity due to government-imposed restrictions. Due to decreased prices in Asia connected to the COVID-19 global pandemic, Decker Coal has experienced a drastic reduction in export sales this year due to an oversupplied market.

Coal production in the United States for Q2 2020 was the lowest it has been in almost 50 years. 

All of the economic and regulatory issues in the thermal coal space, combined with those specific to the Debtors, have caused a liquidity crisis and the need for the relief sought in these Chapter 11 Cases.

On October 1, 2020, the Prepetition Secured Lenders notified the Debtors that they would no longer provide any more funding and, as noted above, gave notice to the Debtors that they deemed the Prepetition Loans due and owing as of September 30, 2020."

Prepetition Indebtedness

As of the Petition Date, the Debtors’ funded debt liabilities total approximately $455,754,717.89. The following table depicts the Debtors’ prepetition debt structure:

Debt

Approx. Balance

Prepetition Loans :

–     RCF V ($55MM Loan)

 

$56,561,388.95

–     RCF VI ($60MM Loan)

$43,089,176.70

–     RCF VI ($137MM Loan)

$131,359,240.02

–     RCF Annex ($137MM Loan)

$10,398,912.05

–     RCF VI (Letter of Credit) Prepetition Secured Lender Subtotal

$14,614,835.17

$256,023,552.89

Equipment Financing

$15,401,236.00

Holmes Mortgage

$1,923,304.00

Computer Equipment and Servers Lease

$362,891.00

Surety/Bonding

$182,043,734.003

TOTAL

$455,754,717.89

About the Debtors

According to the Debtors: “Lighthouse Resources Inc. is an infrastructure and resource management company, integrating resource assets, export channels and marketing expertise to serve domestic customers and Asian trade allies. The company owns and operates thermal coal mines in and around the Powder River Basin and is developing port export infrastructure in the US Pacific Northwest.

The company is privately held and headquartered in Salt Lake City, Utah."

The Declaration adds: "…the coal-side Debtors, LHR Coal and its subsidiaries, operate the Decker Mine in Montana, and LHR Coal subsidiary, KCP, is a fifty percent (50%) owner of the Black Butte joint venture that mines coal in Wyoming. The Debtors produce subbituminous thermal coal with low sulfur content, which they sell to domestic and foreign markets, with a foreign focus on Asia. Thermal coal is primarily consumed by electric utilities and industrial companies as fuel for electricity generation. 

The non-coal Debtors, LHR Infrastructure and its subsidiaries, also operate the Millennium Facility in Washington State."

Corporate Structure

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