The bankruptcy court has granted interim approval of $275 million as debtor-in-possession (or DIP) financing. Arch Coal will receive this amount from an ad hoc group of lenders that hold more than 65% of the company’s first lien debt.
Arch Coal (ACIIQ) also received interim approval from the court to continue with securitization of $200 million trade account receivables. Securitization of trade receivables may help Arch Coal raise low-cost capital, as the credit ratings of collateral can be higher than Arch Coal’s corporate credit ratings.
Existing debt structure
More than 70% of Arch Coal’s long-term debt is due by 2019. The $1.9 billion term loan due in 2018 is a first lien loan. A first lien loan is priority debt, and first lien creditors must be paid before all other creditors.
The agreement reached with the majority of first lien financing lenders will reduce more than $4.5 billion dollars in debt from Arch Coal’s balance sheet. According to the latest news release from the company, it had more than $600 million dollars in cash and short-term investments as of January 11, 2016.
During the restructuring process, Arch Coal hopes to continue its normal course of business with cash generated from ongoing operations, existing liquidity, and new financing. Restructured business recovery predominantly depends on demand for coal in both domestic and international markets.
After a series of bankruptcy filings, the US coal (KOL) mining industry may not witness leveraged acquisitions in the near future. Solvent companies such as Peabody Energy (BTU), Alliance Resource Partners (ARLP), and Consol Energy (CNX) will try to reduce and refinance their debts to decrease their interest expenses.