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April 13, 2020 – The Court hearing the Murray Metallurgical Coal Holdings case issued an order approving (i) proposed bidding procedures for sale (the “Sale”) of Murray Oak Grove Coal, LLC (“Oak Grove Assets”), including bidder protections, and (ii) an auction/sale timetable, culminating in an April 29th auction and a May 7th sale hearing [Docket No. 395]. The order authorizes the Debtors to "designate the credit bid contemplated by the RSA and to be memorialized in the Stalking Horse Purchase Agreement as the Stalking Horse Bid for the Oak Grove Assets." The bidding procedures have been significantly amended to lower the minimum bid threshold (by $169.0mn of prepetition loan obligations) required of competing bidders. The stalking horse will still be allowed to credit bid that debt in an auction, potentially putting the Debtors in a position of having to assess the value of prepetition credit being bid by the stalking horse against cash in a competing bid.
The executed stalking horse APA has yet to be filed with the Court; details as to the proposed "form of" APA, which will have been revised following objections (as were the now approved bidding procedures), are found below.
The order notes that several objections have been resolved including the April 7th objection of the Debtors' Official Committee of Unsecured Creditors (the "Committee") [Docket No. 349] which had strenuously objected to bid chilling aspects of the bidding procedures as proposed, including, inter alia, the inclusion of the "Take-Back Facility (which was under-water in Mission Coal and remained unpaid by these Debtors pre- and post-petition) should not be included as part of the Stalking Horse Bidder’s credit bid."
In a Declaration in support of the bidding procedures, the Debtors provided the following on concessions made after discussions with the Committee [Docket No. 381]: "Significantly, the Revised Bidding Procedures reduced the Minimum Initial Overbid such that, to submit a Qualified Bid and to participate in the Auction, potential bidders only need to provide cash consideration exceeding the amount of the Debtors’ DIP Facilities (approximately $69 million) plus $250,000. Previously, the Minimum Initial Overbid had also included the Debtors’ Prepetition Term Loan Obligations, which I understand are valued at approximately $169 million. Under the Stalking Horse APA, the Stalking Horse Bidder retains the ability to credit bid the Prepetition Term Loan Obligations. No potential bidders have indicated that the Stalking Horse Bidder’s ability to credit bid has discouraged them from bidding. In addition, the Revised Bidding Procedures now require that every Qualified Bidder, including the Stalking Horse Bidder, must participate in every round of bidding, and that failing to submit a bid in any round will result in the withdrawal of that party from the Auction. Together, these changes (i) make the Bidding Procedures more inviting by lowering the minimum cash price that must be offered to become a Qualified Bidder and (ii) make the Bidding Procedures more value enhancing by ensuring that bidding at any Auction will be active and that no Qualified Bidder, including the Stalking Horse Bidder, will be permitted to remain passive while others drive value."
- Bid Deadline: April 24, 2020
- Sale Objection Deadline: April 24, 2020
- Auction, if necessary: April 29, 2020
- Sale Hearing: May 7, 2020
On April 3rd, the Debtors filed a "form of" stalking horse asset purchase agreement (the “APA”) to be entered into with Hatfield Metallurgical Holdings, LLC, ("Hatfield") in respect of the proposed sale of the Oak Grove Assets [Docket No. 338]. Hatfield is a new entity formed by Murray Energy Corporation and MC Southwork, LLC and is referred to as “NewCo” or the “Stalking Horse Bidder” in the Debtors' Disclosure Statement and bidding procedures order. The sale of the Oak Grove assets is one of "three fundamental elements" of the Debtors' restructuring; the other two being (i) the now Court-approved sale of the Debtors' Maple Eagle assets to Panther Creek, a subsidiary of Blackhawk Mining LLC and (ii) the assumption by Murray Energy of certain reclamation liabilities of Murray Alabama Minerals, LLC.
The Debtors' Disclosure Statement provides the following overview of the proposed sale: "The RSA and the Plan contemplate the sale of substantially all of the assets of Oak Grove (the 'Sale Transaction') in accordance with the terms and conditions set forth in the Sale Transaction Documentation, by and among the Debtors and the Winning Bidder. The Debtors, with the assistance of their advisors, have undertaken a robust postpetition marketing process in support of the Sale Transaction.
Prior to the entry of the order approving the Bidding Procedures (the 'Bidding Procedures Order'), the Debtors, with their advisors, began canvassing the marketplace to identify potential financial or strategic purchasers for Oak Grove. To that end, the Debtors’ investment banker, Evercore Group LLC (“Evercore”), contacted a number of potential purchasers for the Oak Grove assets. Upon its entry, a copy of the Bidding Procedures Order was distributed to all potential purchasers that remained active in the sale process. Nondisclosure agreements have been entered into with potential purchasers who have been given access to an electronic data room containing diligence materials related to the Debtors’ assets. Generally, the Sale Transaction contemplates that there will be a Stalking Horse Purchase Agreement, and an auction at which qualified bidders may submit higher, or otherwise better, offers for the Oak Grove assets to compete with the Staking Horse Bid. A summary of the Stalking Horse Bid is set forth below
Summary of the Stalking Horse Purchase Agreement (per Disclosure Statement)
- Parties to the Stalking Horse Purchase Agreement: In connection with the Oak Grove Sale, Murray Oak Grove Coal, LLC, on the one hand, and a new joint venture formed between Murray Energy and MC Southwork (“NewCo”), on the other hand, shall enter into the Stalking Horse Purchase Agreement.
- Assets Purchased by the Stalking Horse Bidder: Oak Grove shall sell to NewCo and NewCo shall acquire from Oak Grove, all or substantially all of Oak Grove’s assets.
- Stalking Horse Bid Consideration:
(i) NewCo shall credit bid (a) up to $14.7mn of its Junior DIP Obligations, and (b) up to $3.0mn of its Prepetition Term Loan Obligations (as defined in the RSA);
(ii) NewCo shall provide additional consideration in the form of:
New First Lien Term Loans – up to an aggregate principal sum of $50,258,333 will be issued in satisfaction of Senior DIP Facility Claims;
New Second Lien Term Loans – up to an aggregate principal sum of $120,759,358.54 which, together with New Preferred Equity, will be issued in satisfaction of Prepetition Last Out Term Loan Claims;
New Preferred Equity – up to an aggregate principal sum of $45,000,000 which, together with New Second Lien Term Loans, will be issued in satisfaction of Prepetition Last Out Term Loan Claims;
a promissory note issued by NewCo in the aggregate principal amount of $[●], which will be issued in satisfaction of the Bay Point Secured Claim; and
(iii) the Debtors shall assume and assign to NewCo or its designee certain of the Debtors’ executory contracts and unexpired leases, including the Post-petition Javelin Global Agreements and the Management Services Agreement (as modified in a manner consistent with the Restructuring Term Sheet, dated as of February 11, 2020).
(iv) NewCo or its designee shall assume all environmental and reclamation liabilities pertaining to Oak Grove.
The form of asset purchase agreement adds the following less-detailed summary as to purchase price:
"The aggregate consideration (the ‘Purchase Price’) for the purchase, sale, assignment and conveyance of Seller’s right, title and interest in, to and under the Acquired Assets shall consist of (a) a credit bid pursuant to 11 U.S.C. § 363(k) of (i) $[14,700,000] of Junior DIP Facility Claims to be contributed to Buyer by one or more of its members or their respective Affiliates prior to the Closing, and (ii) up to $3,000,000 of Prepetition Last Out Term Loans to be contributed to Buyer by one or more of its members or their respective Affiliates prior to the Closing (collectively, the “Credit Bid and Release”), (b) New First Lien Facility Loans in the aggregate principal amount equal to the sum of (i) $3,500,000 and (ii) the aggregate principal amount of Senior DIP Loans outstanding as of immediately prior to the Closing, (c) New Second Lien Facility Loans in the aggregate principal amount equal to (i) the aggregate principal amount of Prepetition Last Out Term Loans outstanding as of immediately prior to the Closing, minus (ii) $45,000,000, (d) New Preferred Equity with an aggregate initial stated value of $45,000,000, (e) a promissory note issued by Hatfield Metallurgical Holdings, LLC in the aggregate principal amount of $[●], and (f) the assumption by Buyer of the Assumed Liabilities from Seller."
Background on Maple Eagle Assets Sale
April 1, 2020 – The Court hearing the Murray Metallurgical Coal Holdings cases has approved the $31.0mn sale of Murray Maple Eagle Coal, LLC (“Maple Eagle Assets”) to stalking horse Panther Creek Mining, LLC (the “Buyer”) [Docket No. 326]. The stalking horse asset purchase agreement is attached to the Debtors' bidding procedures motion motion as Exhibit 1 [Docket No. 60]. The Buyer is one of nine mining complexes owned by Lexington, Kentucky based Blackhawk Mining, LLC ("Blackhawk").
On March 23, 2020, further to the Court's March 12th bidding procedures order [Docket No. 245], the Debtors notified the Court that it had cancelled the auction scheduled for March 24th and designated the stalking horse as the successful bidder [Docket No. 288]. In advance of the scheduled auction, the Debtors had considered two other bids, but "by close of business on Monday, March 23, 2020, the parties that submitted the Bids were unable or unwilling to modify their proposals such that the Debtors would declare them to be Qualified Bids."
The purchasers of the Maple eagle Assets know something about bankruptcy and distressed coal assets. On November 5, 2019, after a last minute redraft of their Plan to reflect the drop of coal prices and the need for an addition $35.0mn of debtor-in-possession ("DIP") financing, Blackhawk emerged from its own bankruptcy having shed $1.0bn of debt and owned by prepetion first and second lien term loan lenders.
In January 2020, the Buyer filed a WARN layoff notice in respect of 65 employees.
The Debtors' bidding procedures motion [Docket No. 60 which attaches the APA] states, “The Debtors commenced these chapter 11 cases to achieve three main goals. First, the Debtors intend to facilitate the consensual sale (the 'Sale') of substantially all of the assets of Murray Maple Eagle Coal, LLC ('Maple Eagle') pursuant to section 363 of title 11 of the United States Code (the “Bankruptcy Code”), which will maximize value for the benefit of all stakeholders. Second, the Debtors intend to effectuate a sale of their remaining operations, which is premised on the continued and future operation of the Oak Grove…mining complex. And, third, the Debtors intend to ensure that they can continue to comply with their remediation obligations at the North River mining complex.
The Maple Eagle Sale is a critical element of the Debtors’ overall restructuring. Pursuant to the Restructuring Support Agreement, dated February 11,2020 (the 'RSA'), among the Debtors and their principal stakeholders, the Debtors agreed to pursue a Sale of Maple Eagle pursuant to Bankruptcy Code section 363. As set forth in the RSA, (i) the funding of the junior debtor in possession facility (the 'Junior DIP Facility') is expressly conditioned upon the execution of a Stalking Horse Purchase Agreement (as defined herein) and (ii) any net proceeds from the Sale will be used first to repay the Junior DIP Facility. This Motion seeks relief from the Court to (i) authorize Maple Eagle to enter into the Stalking Horse Purchase Agreement, which, among other things, will allow the Debtors to receive the funds from the Junior DIP Facility and (ii) approve the proposed bidding procedures and mechanics surrounding the Auction (as defined herein), if an Auction ultimately proves necessary.
Prior to the commencement of these chapter 11 cases, the Debtors have been engaged in a marketing process for the Maple Eagle complex, which has involved numerous potential purchasers. That marketing process resulted in an offer being made for the Maple Eagle complex in mid-January. Following discussions regarding the Debtors’ need for a comprehensive process to effectuate their restructuring, the Buyer has agreed to provide the Stalking Horse Bid to set the floor price for Maple Eagle’s assets pursuant to the terms of the Stalking Horse Purchase. While the Debtors believe the assets have already been subject to a full marketing process, the Debtors have determined, in the exercise of their business judgment, that the best way to maximize the value of Maple Eagle’s assets for all stakeholders, and to ensure that the process is fair to all constituents, is to market-test the Stalking Horse Bid through an auction process and, if no other bids are received, to expeditiously sell the assets to the Stalking Horse Bidder without delay.
The Sale of Maple Eagle is one element of a carefully constructed restructuring of six entities that own three Mining Complexes. The Debtors face important milestones and deadlines under the DIP Facility and RSA. At the same time, the Debtors seek to minimize the time and expense of these chapter 11 cases, so as to ensure sufficient liquidity to fund the chapter 11 process. The proposed Sale will yield much-needed certainty as to the value of Maple Eagle, with the liens on Maple Eagle attaching to any proceeds of the Sale…pursuant to the RSA, any proceeds of the Sale must be used first to pay down the Junior DIP Facility.
The Debtors believe an expeditious Sale process for Maple Eagle will serve as a cornerstone of their restructuring and maximize the ultimate value realized by their stakeholders. Moreover, the Debtors believe the establishment of Bidding Procedures, entry into the Stalking Horse Purchase Agreement, and the related relief requested in this Motion are in the best interests of the Debtors’ estates and their stakeholders.”
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