November 10, 2017

Armstrong Energy Files for Bankruptcy


Armstrong Energy Inc., a producer and marketer of thermal coal in the Illinois Basin, filed for bankruptcy on November 1. The company announced that Armstrong and substantially all of its wholly owned subsidiaries (collectively, the "Company") have filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Missouri.

The company plans to use the chapter 11 process to transfer the ownership of its five mines and other operations to a new entity owned by Illinois coal company Knight Hawk Holdings LLC and some of Armstrong’s noteholders. Nearly all of Armstrong’s shares are now owned by investment funds managed by Yorktown Partners LLC.

According to a Disclosure Statement filed by Armstrong with the U.S. Bankruptcy Court for its Joint Chapter 11 Plan of Reorganization, “The Plan proposes to fund creditor recoveries from Cash on hand and the proceeds of a Sale Transaction pursuant to which the Debtors intend to transfer substantially all of the assets of the Estates. Following a robust marketing process, on November 1, 2017, the Debtors, the Supporting Senior Noteholders, and Knight Hawk executed a transaction agreement (the ‘Transaction Agreement’), which contemplates the Sale Transaction. Although the Debtors will continue to market their assets on a postpetition basis, the Transaction Agreement represents a floor bid for the sale of the Debtors’ assets. Subject to receiving a higher or otherwise better offer, the Debtors intend to consummate the Sale Transaction as contemplated under the Transaction Agreement and the Plan.”

The Statement further added, “Holders of Senior Notes Secured Claims will receive equity interests in HoldCo in satisfaction of $90 million of their Secured Claims and will receive their pro rata share of the remaining collateral securing their claims, which the Debtors anticipate will primarily be Cash on hand….Holders of the Senior Notes Secured Claims will receive $10 million in preferred equity of HoldCo and an economic interest in HoldCo consistent with the terms of the RSA and as more fully described in a term sheet between Knight Hawk and the Supporting Senior Noteholders.”

Armstrong expects its mining operations and customer shipments to continue in the ordinary course throughout the chapter 11 process. In this regard, Armstrong’s Executive Chairman J. Hord Armstrong, III said, "We remain firmly committed to serving our customers and to being a good employer by maintaining safe, productive operations as we undertake this process. We are confident that this court-supervised process is the best way to close the Transaction expeditiously."

Upon the closure of the proposed Transaction, Knight Hawk will take control of Armstrong's ongoing operations.

The company plans to continue paying employee wages and providing healthcare and other benefits. Armstrong has also asked for authority to continue existing customer programs and intends to pay suppliers in full under normal terms for goods and services provided after the filing date.

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