|Rhino and its affiliates produce, process and sell thermal and metallurgical coal
|Attribute the bankruptcy to increased production costs and falling commodity prices, along with the impact of Covid-19, including idled mines
|Seeks to sell substantially all assets, with stalking horse credit bid from prepetition lenders, who are also providing $11.75 million in DIP financing
Hopedale Mining LLC, along with ultimate parent Rhino GP and publicly traded debtor Rhino Resource Partners and various other affiliates, Lexington, Ky.-based coal producers of various steam and metallurgical grades from multiple coal producing basins in the United States, filed for chapter 11 protection on Wednesday in the Bankruptcy Court for the Southern District of Ohio. A prepetition sale process led to a stalking horse bid for substantially all of the debtors’ assets from their prepetition lenders, “in conjunction with a chapter 11 bankruptcy where the prepetition lenders are providing debtor-in-possession financing.” The debtors seek approval of $11.75 million in new-money DIP financing, with Alter Domus (US) LLC as agent and Colbeck Strategic Lending Master LP and Cion Investment Corp. as lenders. “The financing to be provided through the proposed DIP Facility will permit the Debtors to restructure,” according to the DIP motion, which adds that the facility “will enable them to commence an expeditious but orderly sale and marketing process for substantially all of the Debtors’ assets.”
The debtors’ bid procedures motion provides that the stalking horse bidder is Pledge Servicing Partners LLC (the proposed assignee of the credit bidding rights), for consideration of $40 million in the form of a credit applied first against the DIP facility and then to the prepetition debt. In consideration for the transfer of the credit-bid rights, “the DIP Lenders and Prepetition Lenders will become lenders to the Stalking Horse Bidder.” In addition, “the DIP Lenders and the Prepetition Lenders will receive equity or warrants to own equity in the Stalking Horse Bidder.”
The first day hearing is set
for tomorrow, Friday, July 24, at 10:30 a.m. ET. The case docket can be found on Reorg HERE
The company’s prepetition capital structure includes approximately $162.1 million of liabilities, including:
- Secured debt:
- Term loan (Cortland Capital Market Services LLC as agent): $39.8 million
- Unsecured debt:
- Paycheck Protection Program loan: $10 million (all of which has been expended prepetition)
- Equity: Rhino Resource Partners’ common units were originally listed on the New York Stock Exchange under the symbol RNO but currently trade on the OTC Markets under the symbol RHNO.
In addition, “certain lenders and governmental agencies may also purport to have liens on certain discreet equipment or assets owned by the Debtors, including Komatsu Financial, Caterpillar Financial Services Corporation, and Wintrust Commercial Finance,” and the “remaining balance of the Debtors’ obligations is generally comprised of unsecured claims.”
The term loan prepetition debt includes: (i) $26.8 million at a variable interest rate of LIBOR plus 10% (10.18% as of June 30, 2020), (ii) $5 million at a variable interest rate of LIBOR plus 10% (10.19% as of June 30), (iii) $5 million at a variable interest rate of LIBOR plus 10% (10.18% as of June 30) and (iv) $3 million at a variable interest rate of LIBOR plus 10.00% (10.18% as of June 30). The prepetition agreement requires amortization payments equal to $125,000 on a monthly basis to pay down the principal amount of the debt, as well as “the payment of exit fees and an applicable premium.”
According to the first day declaration of Richard Boone, president and chief executive officer of the debtors, the company attributes the bankruptcy filing to the confluence of “significantly higher than expected” production and related costs and coal prices “significantly lower than expected,” which have caused a “liquidity crunch.” As a consequence, the debtors have triggered financial covenant and other defaults under the financing agreement, which they say they are “unable to service.”
Notwithstanding efforts to alleviate cash flow struggles, including suspension of common stock distributions, divesting certain mining operations and otherwise downsizing, the debtors say that they have been “unable to overcome the pressures placed on their profit margins from steadily declining coal prices (along with burdensome regulations and the accompanying decline in demand for coal), all of which have contributed to the Debtors’ substantial negative cash flow.” The Covid-19 pandemic has also hampered the debtors’ operations, requiring the idling of many operations for an extended amount of time.
The debtors are represented by Frost Brown Todd as counsel and Energy Ventures Analysis Inc. as financial advisor (which replaced Rhino’s prior investment banker Evercore on July 17). The company is also working with Whiteford, Taylor & Preston and FTI Consulting. Thomas Fairfield of Cambio Group is the chief restructuring officer. The jointly administered case number is 20-12043 (the Hopedale Mining LLC case). The case has been assigned to Judge Guy R. Humphrey.
Rhino produces and processes steam coal (also known as thermal coal), which it sells primarily to electric utility companies, and metallurgical coal, which it sells primarily to the steel production industry. For the year ended Dec. 31, 2019, the debtors produced approximately 3.2 million tons of coal, of which they sold approximately 3 million tons. The debtors have 547 employees.
The company characterizes its asset base as geographically diverse, with coal reserves located in Central Appalachia, Northern Appalachia, the Illinois Basin and the Western Bituminous region. As of Dec. 31, 2019, the debtors controlled an estimated 277.6 million tons of proven and probable coal reserves, consisting of an estimated 171.1 million tons of steam coal and an estimated 106.5 million tons of metallurgical coal. In addition, as of Dec. 31, 2019, the debtors controlled an estimated 190.7 million tons of non-reserve coal deposits. The debtors operate underground and surface mines in Kentucky, Ohio, Virginia, West Virginia and Utah. A map of the debtors’ operations appears below:
The debtors describe the the North American coal industry as “intensely competitive,” with market forces over the past several years hamstringing “a number of coal companies, many of which have filed for chapter 11.” Although the metallurgical coal market was favorable until approximately the third quarter of 2019, this market has declined “substantially” since the fourth quarter of 2019, resulting in a sustained low-price environment. The debtors also note the “high level of capital expenditure to sustain production and to maintain safety requirements” inherent in coal mining.
Rhino has suffered drops in coal production, sales and revenue over the previous three years, with production, sales and revenue of 4.25 million tons, 4.18 million tons and $216 million, respectively, in 2017, falling to 4 million tons, 3.87 million tons and $213.9 million in 2019. During this stretch, Rhino divested its Sands Hill thermal coal surface mine operation in Ohio and its Pennyrile mining complex in the Illinois Basin. For the years ended Dec. 31, 2018, and Dec. 31, 2019, the debtors recorded net losses of $16 million and $99 million. Adjusted EBITDA for the year ended Dec. 31, 2019, was negative $5.7 million.
The company’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below: