Cloud Peak Energy Inc. is urging its claim holders eligible to vote on its Chapter 11 restructuring plan to approve the proposal, highlighting the financial repercussions of a failed vote that may result in a liquidation.
In documents filed with the U.S. Bankruptcy Court for the District of Delaware on Oct. 14, the debtors included an amended disclosure statement and amended Chapter 11 plan. Cloud Peak and its affiliates noted in the disclosure statement that due to "projected tax obligations, market constraints, operating performance, and cash flow projections, the debtors' enterprise value is significantly less than the amount of secured debt under the prepetition 2021 notes indenture."
The plan includes the reinstatement of the prepetition 2021 notes amounting to $34.5 million in aggregate principal, as amended by the amended prepetition notes indenture, as well as for the distribution of the purchaser take-back notes and certain cash distributions to allowed holders of prepetition 2021 notes secured claims and allowed general unsecured claims, according to court documents.
The plan provides for the full payment of other priority claims and other secured claims, a post-effective date minimum cash amount and mechanisms for the administrative and priority claims reserve account for distributions for other claims, including administrative and cure claims, according to the disclosure statement.
Claims holders with voting rights have until Nov. 27 to vote on accepting or rejecting the plan. If the plan is denied, the Chapter 11 case may be converted to a Chapter 7 case, during which a trustee would liquidate the companies' assets and distribute to creditors accordingly.
The debtor believes that such a move would "result in smaller distributions to creditors than those provided for in the plan" due to delays in converting the case from a Chapter 11 as well as additional administrative expenses and claims, the company wrote.
In its liquidation analysis, Cloud Peak assumed its case would be converted to a Chapter 7 liquidation Dec. 18 and based the study on the unaudited, consolidated balance sheets of the debtors as of Aug. 31.
The debtor determined that the expected class 3 prepetition 2021 notes secured claims holders would receive "significantly reduced distributions" in a liquidation than they would under the plan due to delays in the trustee familiarizing themselves with the case, additional expenses posed by these professionals, as well as "the potential inability to collect upon beneficial tax attributes that could result in significantly reduced distributions" to these holders, court documents said.
Holders of class 4 general unsecured claims would not receive any distribution for their allowed general unsecured claims in a converted case because these claims would not benefit from the plan's settlement and would not recover the distribution amount.
"Secured creditors would take possession of substantially all of the debtors' property encumbered by liens and any remaining unencumbered property would be subject to adequate protection liens and claims arising in favor of the prepetition secured noteholders under applicable law or pursuant to the final [debtor-in-possession] order," according to the disclosure statement.
On and after the plan's effective date, the debtors' boards of directors will be terminated, and all of the officers will resign from their positions, according to the amended plan. All employment, severance, retirement and other similar employee-related agreements settled as of the effective date will remain in "full force and effect" until the employees resign or are terminated.
The debtor will remain responsible for all medical, retiree health care, dental, life insurance and disability claims, among others, for current and former employees as well as their dependents and beneficiaries that are accrued as of the closing date. The reorganized company will remain liable for worker's compensation claims for current and former employees for events on or before the closing date.
Cloud Peak operates three Powder River Basin surface mines and controlled about 975 million tons of proven and probable coal reserves as of Dec. 31, 2018. It is also developing two other projects in the western basin, the Youngs Creek and Big Metal projects.
The company recently received court approval to sell substantially all of its assets. Navajo Transitional Energy Co. LLC will take over the three Powder River Basin mines.