Murray Energy Holding Co. – Agent for Debtors’ 2015 Term Loans Cries Foul; Asks Court for Judgment Declaring 2018 Refinancing Invalid

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November 20, 2019 – Black Diamond Commercial Finance ("BDCF"), as Administrative Agent for the Debtors' 2015 term loans (the "Term Loans," $51.0mn outstanding as at Petition date), filed a complaint against the Debtors alleging that the credit agreement in respect of the Term Loans is subject to "multiple defaults" which render invalid a 2018 refinancing transaction in respect of the Term Loans [Docket No. 245]. BDCF is asking the Court to declare that refinancing invalid and rewind the clock such that priority rights awarded and taken away by that refinancing are returned to where they stood before it happened. The crux of BDCF's argument is that the Debtors' "textbook" refinancing was predicated on a bogus characterization of that refinancing as a ‘modified Dutch auction’ which allowed the Debtors' to circumvent provisions under the credit agreement which had the effect of rendering a refinancing impossible.

The complaint states, “In 2018, the Company wanted to extend the maturities on its Term Loans by 2.5 years. But it knew that many of the lenders would not agree to an extension without an inducement. And it also knew that, even if it offered such an inducement, certain lenders would not agree to an extension. That put the Company in a bind. Under the Credit Agreement, the Company could not refinance or extend the Term Loans by providing inducements — priority, more collateral, or new guarantors — that the Company did not likewise give to lenders that declined to refinance or extend their Term Loans. Moreover, the Company could not even amend the Credit Agreement, under some circumstances, without the unanimous consent of the lenders.

Knowing that not all lenders would agree and that consent would not be unanimous, the Company attempted to circumvent the restrictions in the Credit Agreement altogether. It did so by falsely characterizing a textbook refinancing as a ‘modified Dutch auction’ under the Credit Agreement — even as it openly touted the transaction as a refinancing in its public statements (and has continued to do so in its statements to the Bankruptcy Court).

Had this refinancing truly been a ‘modified Dutch auction,’ MEC would have been allowed, under a separate provision of the Credit Agreement, to purchase the Term Loans on a non-pro rata basis. By inappropriately invoking the ‘modified Dutch auction’ provision, Murray Energy entered into an ‘exchange’ with certain lenders in which these exchanging lenders received new loans with longer maturities, but were also granted greater priority, additional collateral, and new guarantees, none of which was given to the existing loans.

This ‘exchange’ was nothing like a ‘modified Dutch auction’ as that term is uniformly understood in the industry. For this reason and others catalogued below, the exchange triggered multiple Defaults or Events of Default under the Credit Agreement. These Defaults and Events of Default rendered invalid the very agreement by which the refinancing transaction was effected and, therefore, the refinancing itself.

This Action is brought by the Agent on behalf of the non-consenting lenders to this transaction continuing to hold Term Loans under the Credit Agreement, seeking, among other things, a declaratory judgment that the refinancing transaction is invalid, including (but not limited to) the creation of priority rights granted to the so-called ‘Superpriority’ loans. Plaintiffs also ask this Court to declare that the Term Loan lenders are the true senior and first lien lenders with respect to collateral securing the Term Loans.”

Further Background

Pre-Petition Secured Indebtedness

  • Superpriority Term Loan. The Debtors have a Superpriority Credit and Guaranty Agreement, dated as of June 29, 2018, among Holdings, Murray Energy Corporation, as Borrower, the guarantors from time to time party thereto, the various lenders from time to time party thereto (the “Superpriority Lenders”), and GLAS Trust Company LLC, as administrative agent. As at the Petition date, approximately $1.73bn (including unpaid interest and fees) was outstanding under this facility.
  • Prepetition ABL Facility. The Debtors have an Amended and Restated Revolving Credit Agreement, originally dated as of December 5, 2013, as amended and restated as of June 29, 2018 (as amended, restated, modified, or supplemented from time to time prior to the date hereof, the “Prepetition ABL Facility”) among Holdings, Murray Energy Corporation, as Borrower, the guarantors from time to time party thereto, the various lenders from time to time party thereto, and Goldman Sachs USA. As at the Petition date, approximately $60.7mn (excluding unpaid interest and fees) was outstanding under this facility.
  • Prepetition ABL FILO Facility. The Debtors have $90.0mn outstanding in FILO obligations (including unpaid interest) under the Prepetition ABL Facility; 
  • Term Loan. The Debtors have a Credit and Guaranty Agreement, dated as of April 16, 2015, among Holdings, Murray Energy Corporation, as Borrower, the guarantors from time to time party thereto, the various lenders from time to time party thereto (the “Term Loan Lenders”) and Black Diamond Commercial Finance, L.L.C., as successor administrative agent to GLAS Trust Company LLC and Deutsche Bank AG New York Branch. As at the Petition date, approximately $51.1mn (including unpaid interest and fees) was outstanding under this facility.
  • 1.5L Notes. Further to an indenture, dated June 29, 2018, by and among Murray Energy Corporation, as Issuer, the guarantors from time to time party thereto, The Bank of New York Mellon Trust, the Debtors issued approximately $490.mn (including unpaid interest) in 12.00% Senior Secured Notes.
  • Stub 2L Notes. Further to an indenture, dated May 8, 2014, by and among Murray Energy Corporation, as Issuer, the guarantors from time to time party thereto, The Bank of New York Mellon Trust Company, N.A., as Indenture Trustee, and U.S. Bank National Association, as Collateral Trustee, the Debtors issued $1.9mn (including unpaid interest) in 9.5% Senior Secured Notes.
  • 2L Notes. Further to an indenture, dated April 16, 2015, by and among Murray Energy Corporation, as Issuer, the guarantors from time to time party thereto, The Bank of New York Mellon Trust Company, N.A., as Indenture Trustee, and U.S. Bank National Association, as Collateral Trustee, the Debtors issued approximately $298.9mn in obligations (including unpaid interest) in 11.25% Senior Secured Notes.

Secured Debt

Maturity

Outstanding Principal Amount (as of October 16, 2019)

 Prepetition ABL Facility

 February 12, 2021

$60.7mn (ABL), $90.0mn (FILO)

Superpriority Term Loan Facility

October 17, 2022

$1,727.0mn

Term Loan Facility

April 17, 2020

$51.0mn

1.5L Notes

April 15, 2024

$491.0mn

2L Notes due 2020

December 5, 2020

$2.0mn

2L Notes due 2021

April 15, 2021

$295.0mn

Total Secured Debt

$2.7bn

Unsecured Debt

Unsecured Murray South America Note

February 14, 2022

$20.0mn

Unsecured Murray Met. Note

April 30, 2024

$25.0mn

Total Unsecured Debt

$45.0mn

About the Debtors

Murray is the largest privately-owned coal company in the United States, producing about 53 million tons of high quality bituminous coal in 2018, and employing nearly 5,500 people, including approximately 2,400 active union members.

Headquartered in St. Clairsville, Ohio, Murray owns and operates 13 active mines across the Northern, Central, and Southern Appalachia Basins (located in Ohio, West Virginia, eastern Kentucky, and Alabama), the Illinois Basin (located in Illinois and western Kentucky), the Uintah Basin (located in Utah), and Colombia, South America. Murray also manages and operates five additional mines in the Illinois Basin through its partnership with non-debtor affiliate, Foresight Energy LP. 

Excluding Foresight-related operations, Murray’s operations generated approximately $2.5 billion in revenue related to coal sales and $542.3 million of EBITDA in 2018.

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