Arch Coal has escaped possible litigation from creditors after securing support to work its way out of Chapter 11 bankruptcy.
The miner declared bankruptcy earlier this year on the back of continued weak coal prices and a failed exchange offer with junior bondholders, which was ultimately blocked by senior bondholders.
The decision was part of the company’s strategy to reduce its existing debt, and followed an agreement with the majority of lenders under its US$1.9 billion first lien to restructure the company’s debt load.
However this move angered unsecured creditors, who threatened legal action to recoup losses, in part driven by the failed debt exchange.
Now Arch has avoided potential litigation after securing a global settlement with its senior secured lenders that hold more than 66 per cent of its first lien term loan, and the Official Committee of Unsecured Creditors (OCUC), offering them cash and stock.
The company has filed an amended Plan of Reorganisation (the “Plan”) that incorporates and implements the global settlement and a related Disclosure Statement.
Investment funds run by Blackstone Group’s GSO Capital Partners, which reportedly holds unsecured bond debt in Arch Coal, will be paid US$5 million to dismiss its lawsuit against Arch Coal filed two months ago, according to The Australian.
The aforementioned OCUC has also agreed to drop its plans for litigation against the miner.
“The global settlement is a momentous achievement that should facilitate a timely and successful conclusion to our financial restructuring process,” John W. Eaves, Arch’s chairman and CEO, said.
“With this agreement, the path is now clear for Arch to move forward with our plan to position the company for long-term success by strengthening our balance sheet.”
Fellow bankrupt US coal miner Alpha Resources is also heading to court this week to appeal to US Federal judges to approve its plan to not purchase remediation insurance on federal land, and instead pledge to cover cleanup costs should they be incurred, a program known as ‘self-bonding’, according to Reuters.