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Mission Coal, bankruptcy lenders hit a speed bump on the way to auction

Providers of financing for Mission Coal Co. LLCs bankruptcy reorganization said they have been unable to resolve a dispute with the company over whether they should be forced to "write a blank check to backstop" some of the claims against Mission's estate in order to move forward with a deal to buy the company's assets.

The metallurgical coal company recently asked the U.S. Bankruptcy Court for the Northern District of Alabama to approve a stalking horse purchase agreement between Mission and its debtor-in-possession, or DIP, lenders that set a floor price of $145 million for the auction of the company's West Virginia and Alabama coal mining assets. In a Dec. 17 statement to the court, the lenders wrote that after weeks of negotiations with Mission, the parties have been unable to bridge a gap between them in respect to the guaranteed payment of certain administrative expenses and priority claims in connection with the bankruptcy reorganization.

"The DIP lenders have consistently and repeatedly told the debtors that this is something that they are not prepared to do," a statement to the court said. "In connection with negotiating the stalking horse agreement, the DIP lenders offered, as a compromise, to pay administrative and priority claims up to a capped amount, but the debtors repeatedly and confoundingly resisted inclusion of any cap."

The debtor-in-possession lenders provided Mission with $92.5 million in financing in January and followed up with another $54.5 million loan through a DIP facility in October to fund ongoing operations and administration of Mission's Chapter 11 bankruptcy. Mission Coal's aggregate outstanding debt under the DIP financing is around $200 million, according to the lenders' statement.

The parties have continued to negotiate over appropriate amounts for a wind-down budget and certain escrow accounts since filing a stalking horse agreement with the court, the lenders wrote. While the lenders said they are willing to commit to paying the professional fees of those hired to handle the bankruptcy case, Mission Coal has not been able to provide sufficient clarity into an estimated amount of such claims, according to their filing.

As an example of one possible concern, the lenders point to potentially significant administrative expense claims related to Mission Coal's aim to reject pension, collective bargaining and other employee and retiree obligations through the bankruptcy reorganization process.

In an attempt to resolve their dispute with the company, Mission Coal's lenders said they provided a modified stalking horse purchase agreement that allows Mission to continue pursuing confirmation of its Chapter 11 bankruptcy reorganization, but protects the lenders against risks associated with unknown administration expense obligations.

The new agreement would require Mission Coal, in the few days just before a potential bankruptcy auction, to provide the lenders with detailed information about the bankruptcy expenses including a wind-down budget, payroll and professional fee escrows. Then Mission and its DIP lenders would have two weeks to complete required good-faith negotiations over the amounts needed to enable a Chapter 11 plan to be confirmed. If an agreement could not be reached, the lenders would be permitted to provide notice of an intention to "flip" to pursuing a sale of Mission Coal's assets outside of a bankruptcy reorganization plan.

"The [lenders] believe this proposal represents a fair compromise given the uncertainty surrounding the extent of the administrative claims in these cases," the filing states. "Moreover, the modified stalking horse asset purchase agreement represents the only terms on which the [lenders] are willing to commit to serve as the stalking horse bidder, which the debtors have acknowledged is necessary to 'help ensure that the debtors are maximizing creditor recoveries.'"

The modified stalking horse purchase agreement also extends the bidding process by approximately one month, the lenders noted.