A federal court has confirmed bankruptcy plans for Arch Coal, paving the way for the US coal miner to emerge from Chapter 11 bankruptcy in early October and eliminate $4.7 billion in debt from its balance sheet, the company said Tuesday.
The confirmation of the plan, reached by Arch with some of its senior secured lenders and an official committee of unsecured creditors, gives the St. Louis-based company the ability to clear the "final legal step" in an eight-month bankruptcy process, it said.
"Confirmation of the plan will allow Arch to refinance existing operations and create an appropriate capital structure for the coming era, which will remain challenging," said Marshall Huebner, legal counsel for Davis Polk and Wardwell, which represented Arch.
The plan will require Arch to replace its self-bonding obligations, which totaled an estimated $486 million, with third-party surety bonds within 15 days of exit from bankruptcy, Huebner said.
More than 96% of the 7,000 claimants voted to approve the reorganization plan, according to Huebner.
Arch will become the second US coal producer to emerge from bankruptcy this year. Alpha Natural Resources sold its top mines -- the Eagle Butte and Belle Ayr mines in Wyoming and the Cumberland and Emerald mines in Pennsylvania -- and others to Contura Energy, a group of its lenders, during its bankruptcy process.
A third US producer, Peabody Energy, which filed for Chapter 11 bankruptcy in April, is not expected to emerge until the middle of next year. Arch's complementary mining assets include metallurgical coal mines in Appalachia, thermal coal mines in the Powder River Basin, and bituminous coal assets in the Uinta and Illinois basins.
It is not clear what Arch will do after it emerges from bankruptcy, but the company has followed a different path, said Dale Hazelton, senior research manager for Wood Mackenzie, based in Annapolis, Maryland.
"Look at how Alpha went through bankruptcy -- selling assets that were not profitable. We haven't seen Arch really do that," Hazelton said. "I assume they're going to keep those going. When the court process is over, they can make changes."
New ownership, however, could also make changes, a producer source said.
"Management may feel like things are going to continue as they are," the source said. "But realistically [under] new ownership, that could take the company in any direction."
