Relevant Documents:GSO ComplaintGSO Memorandum of LawAd Hoc Group Notice of Appearance
As disclosed this morning in a press release by Arch Coal, last week Blackstone’s GSO brought a complaint against administrative agent Wilmington Trust and the holders of Arch Coal’s first lien term loans (listed in the complaint as John Does), alleging that the first lien holders, by attempting to block Arch’s proposed exchange transactions, are “acutely aware of the tenuous position in which the Company finds itself, and are attempting to wrongfully exploit it.” The complaint appears to offer a fuller explanation for
the repeated extensions of Arch’s exchange offer, as GSO contends that the holders of the loans are attempting to block the exchange from being consummated.
GSO is asking the court for an order declaring that the exchange is permissible without the consent of the directing defendants, and seeking a temporary restraining order and preliminary injunction to stop the “improper and legally unsupportable efforts” of the defendants to block the transaction.
Judge Saliann Scarpulla has been assigned to the case. A hearing on GSO’s requested TRO will take place tomorrow, Friday, Sept. 25 at 10 a.m. EDT.
Kaye Scholer has filed a notice of appearance in the case, stating that the firm represents an ad hoc group of term loan lenders which it understands will be named among the defendants identified as “John Does” in the complaint including:
- Eaton Vance Management Inc.
- Babson Capital Management LLC
- Boston Management and Research
- Tennenbaum Capital Partners, LLC
- Napier Park Global Capital LP
- Oak Hill Advisors, L.P.
- Oak Hill Credit Partners
- Allstate Investment Management Company
- Golub Capital
- Columbia Management Investment Advisers, LLC
- GoldenTree Asset Management, LP
- Trilogy Capital Management, LLC
- Highland Capital Management LP
- Wellington Management Company LLP
- Onex Credit Partners, LLC.
The complaint alleges that although the defendants are attempting to utilize the credit agreement to block the exchange transactions, the transactions are actually “fully permitted by the agreement,” and that in fact, the defendants consented to the issuance of the additional first lien debt contemplated by the exchange transactions when they purchased their first lien term loans. The credit agreement governing those term loans, GSO says, “
expressly provides that the Company may issue an additional $400 million in secured debt, provided that the incremental term loans do not exceed $150 million, and the total debt under the agreement does not exceed $2.3 billion.” The proposed exchange transactions, GSO says, “comply fully with these, and all other, provisions in the Credit Agreement.”
GSO notes that the company responded to “each point raised” by the defendants, who GSO says have refused to disclose their identities, explaining “in painstaking detail” that the defendants’ views regarding the exchange transactions are mistaken, but that the defendants “neither provided a substantive reply … nor suggested a reasonable economic solution.” Instead, the complaint alleges, the defendants “remain resolute in their efforts to hold the Exchange Transactions hostage, in the apparent hopes that they will be able to either (a) extract a favorable ransom from the Company or its unsecured creditors before standing down, or, alternatively, (b) push the Company into bankruptcy before the Exchange Transactions are consummated, so that they can avoid the dilution of their security interests.”
The defendants’ position, GSO says, “ignores the irreparable harm that all of the Company’s creditors - including the Directing Defendants - will suffer if the Company is unable to consummate the Exchange Transactions and is forced into bankruptcy.” GSO points out that the company’s secured debt is currently trading at “a significant discount,” and that it is “highly unlikely that the holders of the Company’s first lien debt (or any of the Company’s creditors) will recover in full in any bankruptcy proceeding.” The only way that creditors stand a “reasonable chance of recovering the full amount of their debt,” GSO asserts, “is if the Company is able to survive this downturn without entering bankruptcy.” And the only way that can happen, GSO says, is if the exchange transactions are consummated.
GSO points out that the original term loan administrative agent “resigned rather than being caught in the middle of the dispute,” which the complaint alleges enabled the directing defendants to install Wilmington Trust, “which is apparently willing to do their bidding,” as the new administrative agent. The directing defendants’ control of Wilmington Trust, GSO asserts, “makes it virtually impossible to complete the Exchange Transactions,” because the administrative agent’s approval of certain documents is necessary to consummate the exchange.
In the complaint, which was on Sept. 16, GSO notes that the deadline for the exchange transactions was then set for Sept. 23, and that “[t]ime is running out.”
The deadline has since been extended through Oct. 26. In a memorandum of law accompanying the complaint, GSO argues that injunctive relief is “appropriate - and, indeed, critical” in this case given that “without the Exchange Transactions, it is almost certain that the combination of the Company’s heavy debt burden and the current depressed state of coal prices … will cause the Company to file for bankruptcy.” The plaintiff argues that there is little in the way of alternatives to the consummated transaction, because a “restrictive covenant in the 2020 Notes” prevents the company from incurring new secured debt, making any out-of-court restructuring other than the exchange transactions “unrealistic.”
The plaintiff therefore requests an order from the court declaring that the exchange transactions are permissible under the credit agreement without the directing defendants’ consent, and barring the defendants from further obstructing the transactions.