Westmoreland Coal Co. filed for bankruptcy protection Tuesday with an agreement to sell the mining business to a group of lenders, subject to better bids, in a transaction intended to reduce its $1.4 billion in debt.
The Englewood, Colo.-based company and a handful of its affiliates, including Westmoreland Resource Partners LP, filed chapter 11 petitions in the U.S. Bankruptcy Court in Houston. The filing comes after Westmoreland warned in April that it could file for bankruptcy as it negotiated with lenders on ways to address its debt.
Westmoreland’s slide into bankruptcy followed a drop in sales and production volume over the last year for its business in the U.S. and Canada. Those declines put more pressure on Westmoreland as it struggled to manage what it described in a May filing with the Securities and Exchange Commission as “a substantial amount of long-term debt” which squeezed the company’s liquidity.
The coal-mining company said earlier this year that it is facing volatile prices and competition from cheaper natural gas, which has depressed demand for coal from some of its U.S. mines. The deal to sell Westmoreland’s assets to lenders comes months after the Trump administration announced plans to roll back restrictions on coal-burning power plants.
“Coal mining businesses across the U.S. and around the world are feeling pressure as a result of a variety of macroeconomic factors, and the fate of many of these companies is yet to be determined,” Jeffrey Stein, Westmoreland’s chief restructuring officer, said in a declaration filed in bankruptcy court.
Westmoreland said it has signed a restructuring support agreement with a lender group that holds more than two-thirds of a term loan and bridge loan and more than half of its senior secured bonds. The lender group has agreed to serve as a stalking horse, or lead bidder, in a potential auction, setting the floor price for Westmoreland’s assets.
Under the terms of the restructuring pact, Westmoreland’s lenders will provide debtor-in-possession financing to fund the chapter 11 proceedings, the company said. The $110 million in financing will provide Westmoreland access to $20 million in new cash and rolls up, or pays off, $90 million that has already been drawn on an existing bridge loan, court papers say.
Late Tuesday, Judge David R. Jones approved requests by Westmoreland to keep the company’s operations running normally while it is in chapter 11. The court approved requests to continue paying wages, employee benefits, taxes, insurance and utilities. The court also approved the mining company’s request to pay millions of dollars on an initial basis to vendors it says are important to keeping its business operations running normally.
Michael Hutchinson, Westmoreland’s interim chief executive officer, said in a press release that the restructuring agreement was the culmination of months “of thoughtful and productive conversations with our creditors.”
Westmoreland said in court papers that it operates the sixth-largest coal mining enterprise in North America, with 19 mines in six states and Canada and nearly 3,000 employees. The company produces and sells thermal coal to power plants, industrial customers and barbecue charcoal manufactures, the company said.
The law firm Kirkland & Ellis LLP is representing Westmoreland. Centerview Partners LLC is acting as Westmoreland’s investment banker and financial adviser. Alvarez & Marsal is its restructuring adviser and McKinsey & Co.’s restructuring unit is an operational adviser, the company said.