Arch Coal’s Pre-Destined Bankruptcy Filing

The other shoe has dropped for Arch Coal Inc. (NYSE: ACI). The coal miner said Monday morning that as part of restructuring deal with its lenders, it and “substantially all” of its subsidiaries have filed voluntary petitions for Chapter 11 protection. The company and its lenders have agreed on the principal terms of the bankruptcy plan, although the plan is still subject to Bankruptcy Court approval.

The company’s announcement offered this sketch of the agreement it reached with some of its lenders:

Arch has entered into a restructuring support agreement with the members of an ad hoc group of lenders that hold more than 50% of the company’s first lien debt. Under the terms of the agreement, the lenders have agreed to support a restructuring transaction that will eliminate more than $4.5 billion in debt from Arch’s balance sheet and position the company for long-term success.

At the end of the third quarter of 2015, Arch reported long-term debt of about $5.11 billion, so it appears as though most of its long-term debt will be wiped out. Arch will also receive $275 million in debtor-in-possession financing from the ad hoc group of lenders. The company said it has more than $600 million in cash and short-term investments as of Monday morning.

Arch said it intends to continue paying employee wages and benefits without interruption and to pay suppliers and vendors in full under normal terms.
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The coal mining company effected a once-for-10 reverse split in early August, and the stock enjoyed a brief burst of buying following news that George Soros had bought into Arch. The company also tried for four months to get creditors to agree to a debt swap to ease its crushing debt load, but no agreement could be reached and the company ended the exchange offer in late October.

Essentially the bankruptcy filing, inevitable as it was, is a victory for some of company’s lenders, who rejected the exchange offer because they believed it would be dilutive to their collateral. Now they will own the collateral, but given the bad news from coal industry in general, it’s not clear what that collateral is worth.

Arch Coal stock closed at just over $0.83 a share on Friday, up nearly 5.4% for the day, in a 52-week range of $0.78 to $15.00.