Decreased demand for coal has prompted the second largest US coal producer to file for Chapter 11 bankruptcy Monday in a last ditch effort to cut $4.5 billion in debt from its doles.
Missouri-based Arch Coal is proposing a debt-for-equity swap with first-lien lenders holding more than 50 percent of the company’s first-lien $1.9 billion debt. The move would, the company says, essentially leave most of the company in the hands those lenders. Other creditors owed billions of dollars would be allowed other options.
Arch’s inability to avoid a bankruptcy through debt exchange prompted the company to issue warnings that it would be forced to file Chapter 11.
“After carefully evaluating our options, we determined that implementing these agreements through a court-supervised process represents the best way to solidify our financial position and strengthen our balance sheet,” Chairman and Chief Executive John W. Eaves said in a Monday statement.
Some unsecured creditors claim that the company’s top lenders have shirked their responsibilities to be beholden to the out-of-court restructuring.
Arch Coal claims that the $650 million it still has in the bank, along with the $275 million it acquired via bankruptcy loans would allow it to continue mining.
Arch’s debt — unlike debt from the top-ranking coal companies, which has been selling for 43-and-a-half cents on the dollar — has gone for less than a penny on the dollar, Arch company chief financial officer John Drexler said the Chapter 11 filing.
The company’s Chapter 11 plan, Drexler said, “provides unsecured creditors with an opportunity for a recovery even though, in light of the company’s highly-leveraged capital structure, they might otherwise receive no recovery at all.”
Arch Coal’s decision to file for bankruptcy dredges up memories from the 2008 election when then-candidate Barack Obama told the San Francisco Chronicle his policies would one day bankrupt the coal industry.
“So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted,” Obama told the Chronicle.
Coal power plants fare getting stiff competition from natural gas companies. In fact, the new, cleaner fossil fuel, has replaced coal as the country’s primary source for electricity for at least a portion of last year.
“Thirty percent of our coal plants’ cost is in transportation,” Duke’s Thomas Williams, told the Washington Post last year.
He added: “It’s rail to bring the coal from the mines to the plants. With gas at two and a half bucks or two bucks, incredibly low, it’s way in the money compared to coal.”
In the wake of the sea change in how Americans acquire electricity has forced coal power plants, like Arch, to scale back by shedding coal mines and employees.
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