Westmoreland Coal files for Chapter 11

December 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2018 Issue

The declining US coal sector has claimed another victim, with Westmoreland Coal Company filing for Chapter 11 bankruptcy in order to implement a restructuring support agreement (RSA) with lenders to reduce its $1.4bn debt.

The RSA has been reached with members of an ad hoc group of lenders that hold approximately 76.1 percent of the company’s term loan, approximately 57.9 percent of its senior secured notes and approximately 79.1 percent of its bridge loan.

To support the RSA, Westmoreland – the sixth-largest coal-mining business in the US, with 19 mines in six states as well as operations in Canada – has launched a business transformation aimed at significantly increasing cash flow for all operational and support areas of the business. Initiatives identified by Westmoreland are expected to yield significant annual run rate savings from operational, commercial and overhead efficiencies.

In addition, Westmoreland affiliate Westmoreland Resource Partners, LP (WMLP) has also filed for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the Southern District of Texas, Houston Division. WMLP is a low-cost producer of high-value thermal coal.

Furthermore, WMLP has agreed to terms with its secured creditors on the use of cash collateral to fund WMLP’s normal course operations and to allow it to serve its customers during the course of the Chapter 11 process.

Westmoreland’s Canadian entities and Westmoreland Risk Management, Inc. are excluded from the voluntary petitions. Westmoreland’s operations in the US and Canada are cash flow positive and liquidity from operations combined with the company’s debtor-in-possession (DIP) financing is sufficient to continue operating its mines in the normal course of business, without any expected impact to current output levels.

Under the RSA, the ad hoc group of lenders has agreed to act as a stalking horse bidder to acquire substantially all of Westmoreland’s business assets. Separately, WMLP will continue its sale process.

Westmoreland Coal Company anticipates no staff reductions as a result of the Chapter 11 and restructuring announcements.

The oldest independent coal company in the US, Colorado-based Westmoreland’s coal operations include surface coal mines in the US and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50 percent interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in WMLP, a publicly-traded coal master limited partnership.

“After months of thoughtful and productive conversations with our creditors, we have developed a plan that allows Westmoreland to operate as usual while positioning Westmoreland for long-term success,” said Michael Hutchinson, Westmoreland’s interim chief executive. “We will continue to work constructively with the Ad Hoc Group and serve our customers in the normal course as we progress through an expedited process to restructure our long-term debt and other liabilities.”

Acting as legal counsel to Westmoreland is Kirkland & Ellis LLP. Centerview Partners LLC is acting as investment banker and financial adviser and Alvarez & Marsal is acting as restructuring adviser. In addition, McKinsey Recovery & Transformation Services U.S., LLC is acting as an operational adviser. Jones Day is acting as legal counsel and Lazard Freres is acting as investment banker to the conflicts committee of the board of directors of Westmoreland Resource Partners, GP (general partner of WMLP).

Mr Hutchinson concluded: “Our goal is to emerge as a stronger Westmoreland, better positioned to grow and thrive. We appreciate the ongoing support of our business partners, customers and creditors throughout this process. In addition, we thank our passionate Westmoreland team members for their tireless dedication and commitment to building a stronger Westmoreland.”

Fraser Tennant