WSJ: "How Zombie Companies Are Killing the Oil Rally"

WSJ article - coal and oil are maintaining production during and after restructurings. Goodrich and Arch Coal emerged from bankruptcy recently and are ready to compete.

Arch Coal Plan Effective Date on Wednesday

From an 8-K filing:

In connection with the anticipated effectiveness on October 5, 2016 of Arch Coal Inc.’s (the “Company”) previously confirmed Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, Company management will be meeting from time to time with various analysts and investors.

Arch Coal Confirmation of Plan of Reorganization

From an 8-K filing last week:

• On September 13, 2016, the Bankruptcy Court entered an order, Docket No. 1324 (the “Confirmation Order”), attached hereto as Exhibit 2.1, confirming the Debtors’ Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated September 11, 2016 (the “Plan”). The Plan incorporates by reference certain documents filed with the Bankruptcy Court as part of the “Plan Supplement.” A copy of the Plan is attached hereto as Exhibit 2.2.
• The Plan will not become effective until certain conditions are satisfied or waived, including, (a) the documents governing the Reorganized Debtors’ new $326.5 million first lien debt facility (the “New First Lien Debt Facility”) shall have been duly executed and delivered by the Reorganized Debtors parties thereto, and all conditions precedent to the consummation of the New First Lien Debt Facility shall have been waived or satisfied in accordance with the terms thereof, and the closing of the New First Lien Debt Facility shall have occurred; (b) the Debtors’ existing securitization facility shall be reinstated on terms substantially as set forth in the Plan Supplement; (c) all documents and agreements necessary to implement the Plan, including the Plan Supplement and the Confirmation Order, shall have been executed; and (d) the Debtors shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents that are necessary to implement the Plan and that are required by law, regulation or order. The date on which all conditions to the effectiveness of the Plan have been satisfied or waived will be the “Effective Date” of the Plan. It is possible that amendments could be made to the Plan prior to effectiveness.
• Arch Coal currently has 21,298,872 shares of common stock, par value $0.01 per share, issued and outstanding. On the Effective Date, all outstanding shares of Arch Coal’s common stock will be cancelled and extinguished, and any rights of any holder in respect thereof, will be deemed cancelled, discharged and of no force or effect.
• On the Effective Date, Reorganized Arch Coal will file with the Secretary of State of the State of Delaware an Amended & Restated Certificate of Incorporation authorizing the issuance of 25 million shares of New Common Stock, divided among Class A common stock, par value $0.01 per share (“Class A Common Stock”), Class B common stock, par value $0.01 per share (“Class B Common Stock”), and 50,000,000 shares of preferred stock, par value $0.01 per share.  The Class B Common Stock will have identical terms to the Class A Common Stock, except that the Class B Common Stock will not be listed on any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
• On the Effective Date, Reorganized Arch Coal will issue or reserve for issuance shares of New Common Stock for distribution in accordance with the Plan. Pursuant to the Plan, 25 million shares of New Common Stock will be issued to the holders of allowed claims on account of the First Lien Credit Facility and holders of allowed claims on account of Prepetition Notes, as discussed above under “Treatment of Claims.”  Reorganized Arch Coal will reserve for issuance the maximum number of shares of Class A Common Stock issuable upon exercise and settlement of the New Warrants (assuming all New Warrants are physically settled) and a sufficient number of shares pursuant to honor incentive awards to be granted under the Management Incentive Plan.

Amazingly, the stock is still trading for 40 cents.

Estimated Recoveries for Arch Coal Plan

"The Plan is also in the best interests of Creditors, allowing them to realize the highest possible recoveries under the circumstances, including an (i) estimated recovery to holders of First Lien Credit Facility Secured Claims of up to 58.2%, (ii) estimated recovery of up to 2.9% to holders of Unsecured Funded Debt Claims and (iii) estimated recoveries of approximately 1.9% for holders of General Unsecured Claims, whereas the distributable value to those claims would be up to 21%, zero and zero, respectively, if the Debtors were to be liquidated."

September 13: Confirmation Hearings for Energy XXI and Arch Coal

Looks like both cases have Confirmation Hearings scheduled for September 13, 2016.

Dockets for Recent Bankruptcy Cases

• Energy XXI
• Arch Coal
• Peabody Energy
• Goodrich Petroleum
• Linn Energy

Arch Coal Amended Disclosure Statement

Debtors have continued to seek to obtain support for a plan that would provide holders of General Unsecured Claims with enhanced distributions and would also be supported by more than 80% of the Consenting Lenders, in accordance with the RSA. However, the Debtors, the Ad Hoc Committee Lenders and the Creditors’ Committee have been unable to reach consensus regarding plan distributions to General Unsecured Creditors. Accordingly, the Plan that the Debtors have filed provides that holders of General Unsecured Claims will receive their pro rata share of the Debtors’ unencumbered assets in the form of (i) cash, subject to reductions for certain fees and, potentially, adequate protection claims and (ii) shares of Prairie Holdings, Inc., which is the Debtor that owns a 49% interest in Knight Hawk Holdings, LLC, but only if it is judicially determined that Prairie Holdings’ interests in Knight Hawk Holdings, LLC are unencumbered.

Further, as discussed in detail in this Amended Disclosure Statement, the Plan is premised on a global settlement and compromise of certain claims and causes of action that could be asserted by the Debtors against certain of the First Lien Lenders for actions taken in connection with the Debtors’ prepetition exchange offers and certain of the Debtors’ employees. The consideration for the global settlement is to be provided by the holders of First Lien Credit Facility Claims, who will waive the Prepetition Lender Adequate Protection Claim in respect of any diminution in the value of the Prepetition Collateral from the Petition Date through and including June 22, 2016 and, potentially, through the Effective Date, subject to certain exceptions.

"Arch Coal extends period to file reorganization plan"

Latest: "On Monday, Arch entered an amendment to push the deadline for the restructuring agreement to May 13."

"Bankruptcy court approves Arch Coal financing over objections" $ACI

Sounds like Arch Coal bankruptcy is on track:

"A federal bankruptcy judge has approved Arch Coal’s request for $275 million in interim financing, delivering a victory to the embattled mining firm and a blow to junior creditors and environmentalists opposed to the deal.

The ruling removes two significant obstacles to Arch’s restructuring efforts and puts the company on track to meet its fall timeline for reemerging from bankruptcy."

Arch Coal Restructuring Milestones in DIP Agreement $ACI $ACIIQ

The following milestones are in the DIP agreement recently filed by Arch:

Each of the following milestones (the "Milestones") are included in the DIP Credit Agreement, and any failure to comply with these Milestones will constitute an event of default:

• No later than five (5) days after the Petition Date, entry of the Interim Order;
• No later than forty-five (45) days after the Petition Date, entry of a final order approving the DIP Facility (the "Final Order");
• No later than sixty (60) days after the Petition Date, delivery of an updated business plan that is reasonably acceptable to the Required DIP Lenders;
• No later than ninety (90) days after the Petition Date, filing of a Plan of Reorganization and accompanying disclosure statement;
• No later than sixty (60) days after the date of the filing of the Plan of Reorganization described in the immediately preceding clause, entry of an order approving a disclosure statement for the solicitation of the Plan of Reorganization;
• No later than ninety (90) days after the entry of the order approving a disclosure statement for the solicitation of the plan of reorganization described in the immediately preceding clause, entry of an order confirming the Plan of Reorganization; and
• No later than fifteen (15) days after the entry of the order confirming the plan of reorganization described in the immediately preceding clause, effectiveness of the Plan of Reorganization.

So, that would mean an effective date of January 11 + 90 days + 60 days + 90 days + 15 days = September 22, 2016 (assuming that it doesn't get extended, of course).

Distressed Debt Update

• Peabody 4.75s traded at 5.75, current yield of 83%.
• Energy XXI 3s traded at 12, ytm of 97%
• Goodrich Petroleum 8.875s traded at 17, ytm of 92%.
• Linn Energy 7.75s traded at 19.4, ytm of 58%.
• Arch Coal unsecured debt was "0.75, flat" bid today. That's with coupons due on 12/15.

The equity in all of these companies is most likely worthless. At Arch, Peabody, and Energy XXI, the (subordinated) unsecured debt could also be worthless.

"Arch Coal Lenders Aligned With Oaktree Said Seeking Control" $ACI

The company, the second largest coal miner in the U.S. by volume, said in a filing Monday that it’s in talks with creditors on a “significant restructuring” of its balance sheet. Arch may file for Chapter 11 protection regardless of whether it strikes a deal with creditors, it said.

The miner owes about $90 million in coupon payments on Dec. 15. Advisers for its lenders are in talks for a deal that would put the company into bankruptcy by Jan. 15, when a 30-day grace period for the payments would run out, said the people, who asked not to be named because the negotiations are private.

Bankruptcy Warning in Arch Coal 10-Q $ACI

As a result of extremely challenging current market conditions, Arch believes it will require a significant restructuring of its balance sheet in order to continue as a going concern in the long term. We are currently in active dialogue with various creditors with respect to a restructuring of our balance sheet. There can be no assurance that these efforts will result in any such agreement. If an agreement is reached and we pursue a restructuring, it may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement this agreement through the confirmation and consummation of a plan of reorganization approved by the bankruptcy court in the bankruptcy proceedings. We may also conclude that it is necessary to initiate Chapter 11 proceedings to implement a restructuring of our obligations even if we are unable to reach an agreement with our creditors and other relevant parties regarding the terms of such a restructuring. In either case, such a proceeding could be commenced in the near term. If a plan of reorganization is implemented in a bankruptcy proceeding, it is likely that holders of claims and interests with respect to, or rights to acquire our equity securities, would likely be entitled to little or no recovery, and those claims and interests would likely be canceled for little or no consideration. If that were to occur, we anticipate that all, or substantially all, of the value of all investments in our common stock will be lost and that our equity holders would lose all or substantially all of their investment. It is also likely that our other stakeholders, including our secured and unsecured creditors, will receive substantially less than the amount of their claims.

"Arch May File for Bankruptcy in ‘Near Term’ as Debt Mounts" $ACI

Arch’s cash flow “is not sufficient to service our debt sustainably in this operating environment,” Chief Executive Officer John Drexler said in an earnings statement earlier Monday. “Arch will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long term.”

WSJ: "Judge Declines to Protect Arch Coal Bond Swap" $ACI

WSJ:

"Judge Saliann Scarpulla of the New York State Supreme Court denied a request by an affiliate of GSO Capital Partners that she prevent a group of majority lenders from freezing the debt swap. The standard for granting such a request is that the judge must find that allowing the lenders to proceed would do “irreparable harm.” She didn’t find that to be the case."

Recent Distressed Bond Trades

Yesterday the EXXI holding company 3%s due 12/2018 traded at 9.5 to yield 105% to maturity (32% current yield). The 9.25% note due 12/2017 has traded in the low 20s to yield 100%+ to maturity (40% yield to maturity).

Peabody did a 1:15 reverse split this morning. The 4.75% sub note traded yesterday at 11.5 for a current yield of 41%. The 6% note due 11/2018 has traded in the high 20s to yield 60% to maturity.

Goodrich Petroleum 8.875% note due 3/2019 has traded around 17 to yield around 90% to maturity.

The Arch Coal unsecured notes are trading in the single digits with current yields higher than 100%!

Linn Energy has a 6.5% due 5/2019 that's trading today for around 27, yielding 54%. Had been single digit ytm% as recently as May 2015.

It is astonishing how many companies have unsecured debt that is worthless. This of course is a sign that lending had become very sloppy.

"Arch Coal Lenders Balk at Bond Deal"

"Arch Coal Inc. is under mounting pressure to get a grip on its dwindling cash. The miner is saddled with $5.1 billion of debt and has failed to clinch a deal with creditors to swap existing bonds for new securities with longer maturities, which would help the company cut its obligations and ride out a commodities slump. Now Arch is three weeks away from an $18.1 million interest payment on some of the bonds it wants to make disappear. With the company’s senior lenders not wanting to see that cash used up, they’re likely to pressure the company to skip the payment..."

Apparently, unsecured creditors have agreed to a deal with the company to swap their notes for a lower face amount of secured debt, BUT the existing secured lenders are refusing to consent because more debt pari passu with them would lower their recoveries.

The senior lenders want that deal blocked, and they want the company to stop making payments on unsecured debt.

Partial List of Met Coal Miners in U.S.

• Alpha Natural Resources - earnings August 6
• Arch Coal - Q2 report: "'Recently, we’ve announced the idling of our Cumberland River complex in response to weak global metallurgical coal prices,' said Eaves. 'Although idling higher-cost coking coal capacity lowers our metallurgical coal volume expectations for 2014, it also shifts our mine portfolio toward higher-margin metallurgical coal operations and enhances our competitive cost position in that region.'"
• Consol Energy - Q2 report
• Cliffs Natural Resources - Q2 report: "During the three months ended June 30, 2014, our North American Coal business segment market pricing has continued to be affected by various supply and demand pressures in the metallurgical coal markets, which has impacted negatively revenue by $65.3 million and decreased our realized revenue rate by 30.6 percent."
• James River Coal
• Patriot Coal
• Teck Resources - Q2 report: "Coal prices in U.S. dollar terms were lower by 29% in the second quarter of 2014 compared with a year ago and 15% lower than the first quarter of 2014."
• Walter Energy