Arch Coal files for Chapter 11 bankruptcy protection

January 11, 2016

Arch Coal, the second largest coal mining company in the United States, and its domestic subsidiaries filed for Chapter 11 bankruptcy to facilitate a restructuring with a group of lenders that hold more than 50 percent of its debt, the company said.

Arch Coal said it has an agreement with a majority of its lenders to erase $4.5 billion in debt from its balance sheet and allow it to keep operating without interruption. Arch has been losing money since 2012, Bloomberg reported.

“Over the past several years, a confluence of economic challenges and regulatory hurdles has hobbled the coal industry,” Arch Chief Financial Officer John T. Drexler said in a filing accompanying the Chapter 11 petition in St. Louis, MO.

Industrywide troubles including slower demand from China, competition from Australian exports and cheap gas pushed competitors Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc. into bankruptcy in 2015. High pension costs and the threat of stricter environmental regulation have compounded the coal miners’ woes.

In November, Arch Coal reported a $2 billion third-quarter net loss and said it could have trouble servicing a $5.1 billion debt.

The company had ended a proposed debt swap previously, seen as key to delaying the prospects of bankruptcy, after opposition from a group of senior lenders who said that the terms of the deal jeopardized their return.

The court filing listed $5.8 billion in assets and $6.5 billion in debt.

Coal’s share of electricity generation in the U.S. fell to 30 percent in April, as the historically popular fuel was overtaken by gas for the first time. Coal still generated more than 40 percent of electricity globally and is used in the production of 70 percent of the world’s steel, according to the World Coal Association.

The St. Louis-based company’s output has put it among the top five U.S. metallurgical coal producers and made it the second-biggest thermal coal miner, behind Peabody Energy Corp. Arch owns the country’s second-largest coal mine, Black Thunder in Wyoming’s Powder River Basin.

As of the end of 2014, Arch estimated that its pension benefit obligations were $353 million, according to court filings. The company said it doesn’t contribute to any multi-employer plans and doesn’t expect its own plan, which is well-funded, to be affected during the bankruptcy.

President Barack Obama’s Clean Power Plan, which takes effect in 2022, requires states to cut carbon emissions by using less coal and more solar, wind and gas power. The plan could reduce coal demand by 20 percent, according to New York-based Doyle Trading. A so-called Stream Protection Rule from the U.S. Interior Department would also change industry practices.

The bankruptcy filing followed in-fighting among hedge funds holding different layers of Arch debt. GSO Special Situations Master Fund LP, a Blackstone Group LP affiliate, even filed a lawsuit seeking to clear the way for a debt exchange.

Arch had tried to swap $2.38 billion in unsecured bonds for new debt with longer maturities. A group of senior lenders claiming to own a majority of Arch’s $1.9 billion of bank loans blocked the deal on concern that it would harm the value of their higher-ranking debt.



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