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Murray Energy creditors justify $15.7M deal to drop claims against execs, family

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Essential Energy Insights - January 2021


Murray Energy creditors justify $15.7M deal to drop claims against execs, family

Murray Energy Corp. founder Robert Murray and his family plan to settle, for $15.7 million, claims that they treated the company as their personal "piggy bank." Among other reasons for settling, creditors who raised the claims said they feared that executives might leave the privately held coal miner as it struggles through a deteriorating coal market and a global health crisis.

A committee of unsecured creditors noted that they remain confident in the results of their investigation, which they previously said uncovered "material and viable" claims against Murray Energy insiders. The company recently disclosed that they would settle those claims for $15.7 million. A new, July 29 filing details the creditors' logic behind dropping the claims — which included gross overcompensation at the executive level, and the personal use of corporate assets and funds by the family while the company was allegedly insolvent — in exchange for the settlement.

The group originally filed a standing motion seeking authority to prosecute the insider claims for the benefit of the Murray Energy estate on May 1. They highlighted six reasons that there was a "very real risk" that general unsecured creditors would receive little to no proceeds from the claims.

Among the top concerns was that Murray Energy CEO, COO and CFO Robert Moore, the nephew of founder Robert Murray, would leave the company if forced to confront claims that he was "grossly overcompensated" compared to other coal executives while Murray Energy was spiraling toward bankruptcy. As the top executive of Foresight Energy LP, a company controlled by Murray Energy that recently emerged from its own bankruptcy, creditors worried that pursuing the claims could strain the relationship between the two companies.

"The debtors would be required to conduct a search for and retain a new executive management team that likely would be unfamiliar with the debtors' operations and current challenges," a statement from the committee included in the July 29 motion states. "In light of the deteriorating coal market and the current global health crisis, losing the services of Robert Moore and his team could be value destructive and call into question the ability of the debtors to remain viable as a going concern upon emergence from Chapter 11. "

Creditors were also concerned about the uncertainty that they would prevail with their claims and the unknown timeline of any potential litigation against the executives. They noted that the company maintains just $10 million of director and officer liability insurance coverage that could easily be exhausted by their defense costs, even if the coverage was available to creditors.

Other concerns leading to the settlement revolve around the idea that many other parties would likely be entitled to any proceeds and little would trickle back to the unsecured creditors. The settlements, part of a broader amendment to Murray Energy's restructuring plan, contribute to a significant and material improvement over how they were treated in the original plan, the creditors wrote.

"Most importantly, the amended plan puts the debtors one-step closer to emergence, which will preserve thousands of jobs, ensure go-forward retiree and union benefits, and provide vendors and other small businesses with a recapitalized partner in the form of a restructured company," the creditors said.

The new filing also includes a statement from Mark Cox, appointed as Murray Energy's independent director, who also determined the settlement was in the best interest of the company's estate. The company recently disclosed they secured a new $45 million term loan from Silver Point Finance LLC for its bankruptcy exit after shopping for financing options yielded little interest from potential lenders.

"Without the proceeds from the Murray family, the debtors also would need to find other sources to fund their exit, which was not a certain outcome given the difficulty the debtors had in obtaining exit financing commitments," Cox wrote. "The settlement thus allows the debtors to preserve the go-forward business by removing obstacles to the debtors' Sale Transaction and avoiding the risk and expense of uncertain litigation."

In previous statements, Murray has called the creditors' claims "baseless and concocted."