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Murray Energy expands US coal footprint with Armstrong Energy bankruptcy deal

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Murray Energy expands US coal footprint with Armstrong Energy bankruptcy deal

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Murray Energy Corp. CEO Robert Murray gives an interview from his Ohio office. The coal CEO once vowed to be the "last man standing" in coal and has vastly grown his presence in the sector in recent years.

Source: S&P Global Market Intelligence

Murray Energy Corp. announced an agreement to acquire a majority interest in a new company that will hold certain assets of Armstrong Energy Inc., including five mines in the Illinois Basin in a move Murray hopes will "provide needed stability" to the coal industry in western Kentucky.

Murray Energy entered into a legally binding transaction agreement with Armstrong Energy and certain senior secured noteholders to acquire a 51% ownership interest in a new company that will own the assets formerly owned by Armstrong while the noteholders will hold a 49% ownership interest in the company. The transaction must still be approved by the U.S. Bankruptcy Court for the Eastern District of Missouri, which is administering Armstrong's bankruptcy case.

According to the company's amended Chapter 11 bankruptcy plan filed with the court on Jan. 24, holders of an allowed senior notes claim will receive a pro rata share of 100% of what is defined by the document as HoldCo Equity, $19 million in cash to be funded by Murray Energy and $12 million in aggregate principal amount of second lien 11.25% notes due April 2021, issued by Murray Energy.

"We are pleased that we were able to reach an agreement with Armstrong Energy and its secured noteholders in order to ensure that these mines continue to operate after the bankruptcy process," said Murray Energy CEO, President and Chairman Robert Murray. "After this transaction is completed, [Murray Kentucky Energy, Inc.] and the lenders of Armstrong Energy will jointly own five mines that are strategically important in the Illinois Basin. These operations will complement our existing mines in the Illinois Basin."

Murray Kentucky is an unrestricted subsidiary of Murray Energy.

According to the release, as of June 30, 2017, Armstrong controlled 445 million tons of proven and probable reserves in Western Kentucky. The new company's assets will include three surface coal mines, two underground coal mines, three coal processing plants and river dock handling and rail loadout facilities.

In a 2014 speech, Murray Energy CEO Robert Murray vowed to be "the last man standing." Since, Murray Energy, which touts itself as the nation's largest underground coal miner, has been amassing coal assets throughout a prolonged industry downturn that eased a bit in 2017. Murray Energy has operations in Northern Appalachia, the Illinois Basin and the Uinta Basin.

Murray scooped up five highly productive longwall coal mines in Northern Appalachia in a $3.5 billion deal with CONSOL Energy Inc. in 2013 and greatly expanded his presence in the Illinois Basin with a controlling interest in Foresight Energy LP, the operator of some of the most productive longwall coal mines in the country.

One of the brighter spots in the sector in recent years, the Illinois Basin coal region has been under some pressure lately as production has exceeded demand.

While Murray has touted a plan to keep his "best coal company in the world" out of bankruptcy, he also had recently written to the U.S. government and suggested his company may be forced to file for bankruptcy if action is not taken to keep coal-fired power plants from continuing to retire. Murray has attracted attention for his vocal support of President Donald Trump, who has delivered on many of the policy priorities Murray Energy laid out in the past.

Armstrong's original bankruptcy reorganization plan entailed transferring its mines and other assets to a new venture that would be jointly owned by secured noteholders and Knight Hawk Coal LLC. Steve Carter, president and CEO of Knight Hawk, said the company planned to streamline Armstrong's operations and make them as competitive as possible.

An attorney speaking at a November 2017 hearing said that among 24 interested parties contacted about offers for the company's assets, two indications of interest had been returned. They also said there was an agreement to pay Knight Hawk $1 million in reimbursement for certain services provided if Armstrong sold the assets to another party.

In a September 2017 note to investors, MKM Partners analyst Daniel Scott wrote that industry sources had claimed Armstrong's cost structure was "several dollars above current market prices." S&P Global Ratings recently rated Murray Energy as "stable" despite noting risk due to declining coal demand and a "highly leveraged" balance sheet.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.