US coal producer Foresight to avoid Chapter 11

OREANDA-NEWS. July 26, 2016. Foresight Energy has struck a deal with its creditors and will avoid being forced to file for Chapter 11 bankruptcy court protection.

The St. Louis-based company and some of its lenders have agreed to refinance its debt and give investor Murray Energy the option to buy up to 75pc of parent company Foresight Reserves, a filing with the US Securities Exchange Commission shows.

Foresight and lenders of its 7.875pc notes have fought for nearly eight months over debt refinancing after a court ordered the company to pay back debt of more than \\$600mn. Foresight might have been forced into Chapter 11 bankruptcy reorganization if it could not come up with the funds.

Under the new deal, Foresight and founder Chris Cline will buy back up to \\$106mn of outstanding unsecured bonds, cut the firm's borrowing limit and pay a higher interest rate. The deal also gives US coal producer Murray a clearer path to majority ownership.

Foresight is issuing up to \\$120mn worth of convertible notes for sale and issuing Reserves Investor Group another \\$180mn. Murray will have the right to purchase the notes, equivalent to 393mn common shares or 75pc of the company, before they mature in September 2017.

The case arose from Murray's April 2015 purchase of a 50pc stake in Foresight. The Wilmington Savings Fund Society, which owns 75pc of the 7.875pc notes, and other lenders fought the deal, saying it would result in a change of control and break covenants in debt agreements. A Delaware Court of Chancery judge agreed in December, requiring Foresight to pay back the bond plus a premium required in the agreements, which the coal company could not afford.

The agreement with noteholders required Foresight to repay 101pc of the principal if someone other than founder Chris Cline and his affiliates became beneficial owner of more than 35pc of the company's voting stock.

A number of other US coal producers have refinanced or have been attempting to amid a steep decline in coal markets that has left them short of cash and struggling to repay debt.