December 22, 2020 – The Debtors filed a motion requesting Court approval of (i) their Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed schedule culminating in a February 23rd Plan confirmation hearing [Docket No. 107].

On December 11, 2020, the Debtors filed a first iteration of their Chapter 11 Plan of Reorganization and a related Disclosure Statement [Docket Nos. 63 and 64, respectively].

On December 3rd, the privately held owner/operator of thermal coal mines in and around the Powder River Basin, filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($455.8mn of funded debt). At filing, the Debtors, controlled by private equity house Resource Capital Funds, cited the need to seek bankruptcy shelter on their inability to obtain permits necessary to develop a West coast port facility that was critical to serving the Asian thermal coal market. 

On December 8th, the Debtors filed a bidding procedures motion detailing their efforts to find a buyer for that undeveloped port facility (the "Millenium Facility") and underscoring the urgency of that effort in their insistence that failure to find a stalking horse by December 16th would likely necessitate conversion or dismissal of their Chapter 11 cases.

Notwithstanding the Debtors' insistence on urgency, they have now (suddenly) delayed a scheduled December 22nd hearing on the bidding procedures motion until January 5th and, far from seeking dismissal, have asked for approval of the Disclosure Statement, with that motion (as well as the Disclosure Statement) clearly still contemplating a sale of the Millenium Facility. Perhaps these developments are indicative of substantial movement on the sale front.

Plan Overview

The Disclosure Statement [Docket No. 64] reads: “The Plan and this Disclosure Statement are the result of extensive negotiations among the Debtors and the Senior Secured Lenders, which collectively hold approximately $256,023,552.89 in prepetition secured debt, and the Sureties, which hold approximately $182,043,734.00 in surety/bonding obligations. 

…the Plan contemplates that the Debtors’ assets will be transferred to the Reclamation Trust Entity that will be responsible for reclaiming the Decker Mine in accordance with a reclamation plan agreed to by the Debtors, Senior Secured Lenders, and the Sureties, and for which all applicable regulatory and/or third-party approvals have been obtained (including, without limitation, any approval of the State of Montana), and performing the reclamation obligations at the Black Butte Mine associated with the ownership interest in the Black Butte JV, and otherwise monetizing the assets of the Debtors’ business and operations in a value-maximizing, controlled and efficient manner. Upon consummation of the Plan, Debtor Lighthouse will be wholly owned by the Reclamation Trust Entity. On the Effective Date, the Reclamation Trust Entity will be funded with the Initial Wind Down Funding Amount and will be governed by the Reclamation Trust Entity Board pursuant to the terms of the Reclamation Trust Entity Agreement.

Under the terms of the Restructuring Support Agreement and Plan, holders of Allowed Administrative Claims, Allowed Priority Tax Claims, and Allowed Priority Non-Tax Claims and will be paid in full in Cash on the Effective Date, unless a holder of such Claims agrees to different treatment. Certain Reserves will be established upon consummation of the Plan in an amount sufficient to satisfy any such Claims that have not already been paid or are otherwise disputed as of the Effective Date.

To summarize, the Plan provides that:

• All Allowed Administrative Claims, Allowed Fee Claims, Allowed Priority Tax Claims, and Allowed Priority Non-Tax Claims will be paid in full in Cash;
• Allowed Other Secured Claims shall receive, at the option of the Debtors and with the consent of the Consenting Stakeholders (which shall not be unreasonably withheld) (i) payment in full in Cash, (ii) reinstatement pursuant to Bankruptcy Code section 1124, or (iii) such other recovery as may be necessary to satisfy Bankruptcy Code section 1129;
• Holders of Allowed Senior Secured Claims shall receive, except to the extent that a holder of an Allowed Senior Secured Claim and the Debtors agree in writing to less favorable treatment, in full and final satisfaction, settlement, and release, and in exchange for, each Senior Secured Claim, on or as soon as practicable after the Effective Date, the Class A Reclamation Trust Entity Interests and payments in an amount equal to and authorized and provided for in the Reclamation Trust Entity Agreement and the Reclamation Trust Entity Budget;
• Holders of Allowed Surety Claims shall receive, except to the extent that a holder of an Allowed Surety Claim and the Debtors agree in writing to less favorable treatment, in full and final satisfaction, settlement, and release, and in exchange for, each Allowed Surety Claim, on or as soon as practicable after the Effective Date, (i) the Reclamation Trust Entity Bonding Agreement which includes reinstatement of certain rights pursuant to Bankruptcy Code section 1124; (ii) the obligations of the Reclamation Trust Entity to complete the Reclamation Plans; and (iii) contributions to the Reclamation Sinking Fund by Coal Side Debtor Subsidiary KCP for the use in completing the Reclamation Plans in conjunction with the collateral contributed by the Sureties to the Reclamation Sinking Fund, decreasing the Sureties’ exposure for potential liability for Reclamation Claims;
• Holders of Allowed General Unsecured Claims shall receive, in full and final satisfaction, settlement, and release, and in exchange for, each Allowed General Unsecured Claim, to the extent such holder’s Claim has not been previously paid in the ordinary course of business pursuant to an order of the Court, or otherwise, a pro rata Class B Reclamation Trust Entity Interest. Any payment of a General Unsecured Claim is subject to the rights of the Debtors and, after the Effective Date, the Reclamation Trust Entity to dispute such Claim, in the case of a General Unsecured Claim as to which no proof of Claim has been filed, as if the Chapter 11 Cases had not been commenced in accordance with applicable nonbankruptcy law, and, in the case of a General Unsecured Claim as to which a proof of Claim has been filed, in accordance with applicable law, including Bankruptcy Code section 502;
• Holders of Allowed Reclamation Claims shall be, in full and final satisfaction, settlement, and release, and in exchange for, each Allowed Reclamation Claim, on the Effective Date, satisfied by reinstatement against the applicable Reorganized Coal Side Debtors pursuant to Bankruptcy Code section 1124; and
• Holders of Allowed Lighthouse Equity Interests shall be cancelled and of no further force and effect on the Effective Date.” 

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement)

• Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is 100%.
• Class 3 (“Senior Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0– and expected recovery is [●]%. Each holder of an Allowed Senior Secured Claim shall receive the Class A Reclamation Trust Entity Interests.
• Class 4 (“Surety Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is [●]%. Each holder of an Allowed Surety Claim shall receive (i) the Reclamation Trust Entity Bonding Agreement which includes reinstatement of certain rights pursuant to Bankruptcy Code section 1124; (ii) the obligations of the Reclamation Trust Entity to complete the Reclamation Plans; and (iii) contributions to the Reclamation Sinking Fund by Coal Side Debtor Subsidiary KCP, Inc. for the use in completing the Reclamation Plans in conjunction with the collateral contributed by the Sureties to the Reclamation Sinking Fund, decreasing the Sureties’ exposure for potential liability obligations related to for Reclamation Claims. The Sureties shall also have rights to the Initial Wind Down Funding Amount, or proceeds thereof, and the Reclamation Sinking Fund as set forth in the Reclamation Trust Entity Agreement as necessary to reclaim the right to such funds in the event of a bond forfeiture or other adverse action by the Reclamation Claimants.
• Class 5 (“Reclamation Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is 100%.
• Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is [●]%. Each Allowed General Unsecured Claim, the Class B Reclamation Trust Entity Interests Agent, on behalf of each holder of an Allowed General Unsecured Claim shall, to the extent such holder’s Claim has not been previously paid in the ordinary course of business pursuant to an order of the Court, or otherwise, receive a pro rata share of Class B Reclamation Trust Entity Interests. 
• Class 7 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is 0%.
• Class 8 (“Lighthouse Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $– and expected recovery is 0%.

Exhibits attached to the Disclosure Statement [Docket No. 64]:

• Exhibit A: Chapter 11 Plan (Filed Separately at [Docket No. 63])
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Organizational Structure
• Exhibit D: Liquidation Analysis (To Be Filed)
• Exhibit E: Recovery Analysis (To Be Filed)

Proposed Key Dates

• Voting Record Date: January 15, 2021
• Deadline to File Plan Supplement: February 9, 2021
• Objection Deadline: February 16, 2021
• Voting Deadline: February 16, 2021
• Confirmation Hearing: February 23, 2021

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."

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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