Thu 07/23/2020 15:13 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
Bid Procedures Motion
DIP Financing Motion
First Day Hearing Agenda


 

















Summary
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.

Background

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:












































































10 Largest Unsecured Creditors
Creditor Location Claim Type Claim Amount
Blue Ridge Bank, N.A. Luray, Va. PPP Loan $    10,000,000
Whayne Supply Company Louisville, Ky. Trade 4,898,612
Rockwood Casualty Insurance Co. Rockwood, Pa. Trade 678,094
Joy Global Underground LLC Warrendale, Pa. Trade 620,728
Minova USA Inc. Georgetown, Ky. Trade 523,602
Consol Mining Company LLC Canonsburg, Pa. Trade 492,127
Austin Sales LLC Vansant, Va. Trade 490,268
C & M Giant Tire LLC Lexington, Ky. Trade 456,384
Phillips Machine Service Inc. Beckley, W.Va. Trade 455,221
PricewaterhouseCoopers LLP Chicago Trade 341,270


The case representatives are as follows:





























































































Representatives
Role Name Firm Location
Debtors' Bankruptcy
Counsel
Douglas L. Lutz Frost
Brown
Todd
Cincinnati
A.J. Webb
Erin P. Severini
Debtors' Investment
Banker
Seth Schwartz Energy
Ventures
Analysis
Arlington, Va.
Emily Medine
Debtors' Counsel N/A Whiteford,
Taylor &
Preston
N/A
Debtors' Advisor N/A FTI
Consulting
N/A
Debtors' CRO Thomas L. Fairfield Cambio
Group
Philadelphia
Co-Counsel to the DIP
Agents and Lenders
and Prepetition Agents
and Lenders
Frank A. Merola Stroock &
Stroock &
Lavan
New York
Samantha Martin
Alex Cota
Co-Counsel to the DIP
Agents and Lenders
and Prepetition Agents
and Lenders
Mary Elisabeth Naumann Jackson
Kelly
Lexington, Ky.
Charles A. Compton Evansville, Ind.
Clay K. Keller Akron, Ohio
United States Trustee Monica V. Kindt Office of the
U.S. Trustee
Cincinnati
Debtors' Claims Agent Brian Hunt Epiq New York

 


DIP Financing Motion

The debtors request approval of new-money DIP financing up to $11.75 million ($3.5 million on an interim basis) in the form of delayed-draw term loans, with Alter Domus (US) LLC as agent and Colbeck Strategic Lending Master L and Cion Investment Corp. as lenders. Despite five parties signing nondisclosure agreements, no parties other than the DIP lenders submitted an indication of interest to provide DIP financing, the debtors say.

The DIP financing bears interest at L+10% (with a 1% LIBOR floor), with 4% added for the default rate, and matures on the earliest of 120 days from the petition date, consummation of a sale of substantially all of the debtors’ assets, 33 days from the petition date if the final DIP order has yet to be entered, acceleration of the DIP loans and termination of the DIP commitments or the effective date of a plan. The facility includes various fees, including a 2% origination fee, 1% original issue discount and 2% exit fee.

To secure the DIP financing, the debtors propose to grant a priming lien on all collateral under the prepetition secured credit agreement, a first priority lien on all of the debtors’ unencumbered property (including, upon entry of the final order, proceeds of avoidance actions) and a junior priority lien on all assets encumbered by a permitted senior lien. The DIP financing would also have superpriority administrative expense status (with recourse to avoidance action proceeds subject to the final order).

In support of the proposed DIP financing, the debtors filed the declaration of CRO Thomas Fairfield, who states that “substantially all of the Debtors’ assets are encumbered under their prepetition secured credit facilities and other agreements.”

The company proposes the following adequate protection to the prepetition secured lenders: (a) current interest payments in cash under the prepetition financing agreement, (b) current amortization payments in cash under the prepetition financing agreement, (c) current payment of the fees and expenses of the prepetition financing agreement agent and prepetition lenders, including their respective professionals’ fees, (d) replacement liens and (e) superpriority claims.

In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b). The carve-out for professional fees is $300,000.

The proposed budget for the use of the DIP facility is HERE. The company also submitted a wind-down budget:

The DIP financing is subject to the following milestones:

  • File DIP motion and bid procedures motion: Within one day of petition date

  • Entry of interim DIP order: Within three days of petition date

  • Entry of final DIP order and bid procedures order: Within 22 days of petition date

  • Bid deadline: Within 30 days of petition date

  • Auction: Within 35 days of petition date

  • Entry of sale order: Within 40 days of petition date

  • Sale consummation: Within 10 days of entry of sale order.


The lien challenge deadline is 75 days from entry of the interim DIP order for parties in interest other than an official unsecured creditors’ committee, which would have 60 days after formation. The UCC challenge budget is $25,000.

Bid Procedures Motion

The debtors propose bid procedures for substantially all of their assets, having signed nondisclosure agreements with 17 potential bidders prepetition, and entered into the stalking horse agreement.

The debtors have grouped their assets into six groups:

  • Asset group 1: Accounts receivable, inventory at CAM mining operations, inventory at Castle Valley mining operations, inventory at Hopedale mining operations and inventory at Jewell Valley mining operations;

  • Asset group 2: All assets associated with the CAM mining operations (excluding inventory) including, without limitation, all of debtors’ rights and interests in the following related assets: land, leasehold interests, mineral rights, equipment, other related executory contracts, permits and the assumption of reclamation liabilities;

  • Asset group 3: All assets associated with the Castle Valley mining operations (excluding inventory) including, without limitation, all of debtors’ rights and interests in the following related assets: land, leasehold interests, mineral rights, equipment, other related executory contracts, permits and the assumption of reclamation liabilities;

  • Asset group 4: All assets associated with the Hopedale mining operations (excluding inventory) including, without limitation, all of debtors’ rights and interests in the following related assets: land, leasehold interests, mineral rights, equipment, other related executory contracts, permits and the assumption of reclamation liabilities;

  • Asset group 5: All assets associated with the Jewell Valley mining operations (excluding inventory) including, without limitation, all of debtors’ rights and interests in the following related assets: land, leasehold interests, mineral rights, equipment, other related executory contracts, permits and the assumption of reclamation liabilities; and

  • Asset group 6: All other assets of the debtors including, but not limited to, Rhino Eastern Reserve, Colorado Property, Rich Mountain Reserve, Hopedale Dock, Taylorsville Reserve, Leesville Reserve, Springdale Reserve, McClane Canyon Reserve and Jewell Valley Plant.


The debtors propose an expense reimbursement for the stalking horse up to $250,000. Initial overbids must exceed the value of the stalking horse bid for that same asset group, plus the expense reimbursement amount (“as reasonably allocated to that Asset Group”), plus cash as determined by the debtors in consultation with certain parties at the auction, provided that any bid for asset group 2 may include cash or cash equivalent up to 65% of the stalking horse bid value for asset group 2 as long as it includes an assumption of bank debt (subject to the bidder gaining approval of the prepetition lenders) that results in an aggregate bid amount equal or greater than the stalking horse bid value for asset group 2 plus the expense reimbursement, provided further that each bid seeking to acquire individual assets within asset group 6 must have have a value “that satisfied the criteria for being a Qualified Bid.”

Partial bids must include an allocation of the purchase price with respect to the applicable assets and state the price the bidder would pay for each of the assets included in the bid individually. Subsequent bids at auction would be made in minimum increments of $100,000 for asset groups 1, 2, 3, 4 and 5 or any combination thereof and minimum increments of $25,000 for assets within asset group 6.

The proposed sale timeline follows:

Other Motions

The debtors also filed various standard first day motions, including the following:



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