Armstrong Energy Inc. and Its Subsidiaries File for Chapter 11 Bankruptcy, for $90 Million in Debt Forgiveness, Blames Natural Gas

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New York, Nov. 01, 2017— Armstrong Energy Inc. and its affiliates (together, the “Debtors” or “ Armstrong ”) filed joint petitions for protection under Chapter 11 of the Bankruptcy Code on November 01, 2017 in the Eastern District of Missouri under Case No. 17- 47541.[1]

Armstrong has employed the law firm of Kirkland & Ellis LLP as general bankruptcy counsel, the law firm of Armstrong Teasdale LLP as local bankruptcy counsel, the firm MAEVA Group, LLC as financial advisor, FTI Consulting, Inc. as restructuring advisor, and Donlin, Recano & Company, Inc. as notice and claims agent and administrative advisor.[2]

Armstrong is a leading producer of thermal coal used for coal energy.[3] Their primary mining business is based in Western Kentucky, operating coal plants in the Illinois Basin with 445 million tons of coal reserves owned and with the capabilities of blending coal in processing facilities and transporting it to customers by rail, barge, and trucking.[4] As of filing, the Debtors employ 600 non-union individuals.[5] In 2016 the Debtors sold nearly 99 percent of their coal through multi-year coal supply agreements with their customers and were the sixth largest producers of coal in the Illinois Basin for fiscal 2016 with six percent of total coal production in the basin.[6]

Nonetheless Armstrong faced formidable competition from other Illinois Basin coal producers, national, and international thermal coal producers.[7] The demand for coal energy is volatile and affected by economic conditions, weather temperatures, and U.S regulations.[8] In explaining the need for a Chapter 11 Bankruptcy filing, Armstrong attributed federal government and state regulations mandating permit and licensing, employee safety, and environmental protection along with groundwater quality regulations.[9]

However, the main culprit outlined by Alan Boyko, Chief Restructuring Officer, was the advancement of shale extraction technology that has injected vast quantities of natural gas in the electric energy industry, reducing the price of coal and increasing a supply surplus.[10] In 2015 natural gas production broke records and by 2016, the abundance of inexpensive gas had relegated coal volume and prices to a 25% decline since 2012.[11] It was during the decline of 2016 that Armstrong entered a series of negotiations for sale of their assets and acquisition of the business, but no bids were accepted.[12] Instead, the Debtors focused on restructuring options, but with no agreement reached through mid-2017, their final forbearance period expired in October 31, 2017.[13] Finally the Debtors and stakeholders agreed on a chapter 11 bankruptcy restructuring plan with a predetermined stalking horse, outlined in court documents as such:

• Administrative expense claims and prepetition priority claims (including tax claims) will be paid in full upon emergence (or, in the case of priority tax claims, treated in accordance with section 1129(a)(9)(C) of the Bankruptcy Code);

• Holders of senior secured notes claims will serve as a stalking horse that will receive 100 percent of the equity in an entity holding substantially all of the Debtors’ assets in exchange for the satisfaction of $90 million of their indebtedness and will receive their pro rata share of the remaining collateral securing their claims;

• Other secured claims will be treated in such a manner that they are unimpaired;

• Holders of general unsecured claims (including any deficiency claims) against each of the Debtors will receive their pro rata share of certain residual and unencumbered assets of the Debtors’ estates after all senior claims have been satisfied; and

• Existing equity interests in the Debtors will be cancelled without any distribution to the holders of such interests.[14]

In an official press release by the company, Armstrong stated the transfers of all its assets to Knight Hawk Holdings and secured noteholders listed above.[15] Armstrong Executive Chairman, J. Hord Armstrong, III expressed satisfaction with the Chapter 11 filing, stating that they “are confident that this court-supervised process is the best way to close the Transaction expeditiously.”[16] He also stated commitment to their customers and that business would continue uninterrupted.[17]

Court filings and other information about this bankruptcy case are available at https://www.donlinrecano.com/Clients/aenergy/Index.

 

Cristina Lipan is a bankruptcy attorney and partner with the law firm of Shipkevich PLLC. Cristina is admitted in the Southern and Eastern Districts of New York and regularly practices before the United States Bankruptcy Court. For more information on this matter, you can reach Cristina at 646-867-0098 or at clipan@shipkevich.com

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  • [1] Voluntary Petition for Non-Individuals Filing for Bankruptcy, Doc. No. 1, Case No. 17- 47541, E.D. Mis. Filed November 01, 2017 (the “Petition”).
  • [2] Petition, Resolution of the Board of Directors of Armstrong Energy, Inc., Retention of Professionals (No. 17- 47541)
  • [3] Declaration of Alan Boykon of Armstrong Energy, Inc., In Support of First Day Pleadings, Doc. No. 5, Case No. 17- 47541, E.D. Mis. Filed November 01, 2017 (the “Declaration of Alan Boykon”), ¶ 6.
  • [4] Declaration of Alan Boykon, ¶¶ 14-15.
  • [5] Declaration of Alan Boykon, ¶ 14.
  • [6] Declaration of Alan Boykon, ¶¶ 26, 29.
  • [7] Declaration of Alan Boykon, ¶ 30.
  • [8] Declaration of Alan Boykon, ¶ 30.
  • [9] Declaration of Alan Boykon, ¶ 41.
  • [10] Declaration of Alan Boykon, ¶¶ 6, 38-39.
  • [11] Declaration of Alan Boykon, ¶ 6.
  • [12] Declaration of Alan Boykon, ¶ 8.
  • [13] Declaration of Alan Boykon, ¶¶ 8-10.
  • [14] Declaration of Alan Boykon, ¶ 12.
  • [15] PRNewsWire.com, Armstrong Energy Files For Chapter 11 Reorganization As Part Of Strategic Transaction, https://www.prnewswire.com/news-releases/armstrong-energy-files-for-chapter-11-reorganization-as-part-of-strategic-transaction-300547448.html (the “Press Release”)
  • [16] Press Release
  • [17] Press Release
  • Image Credit: Coal Face by Dennis Jarvis via CC Licensing 

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