By Jennifer Compston-Strough

November 11, 2019 - There are many potential paths through the bankruptcy process, and attorneys who are following Murray Energy’s filing for Chapter 11 protection say it is too early to predict how details of the case will unfold.

Murray, the largest underground coal producer in the United States, filed for Chapter 11 reorganization in late October after failing to make payments to creditors. The St. Clairsville-based company cited billions in debt and a declining demand for its primary product – steam coal, which is used to generate electricity – among reasons for its need to restructure.

Executives working at Murray Energy Corp. headquarters west of St. Clairsville are navigating the early stages of the Chapter 11 bankruptcy process. It could be months before details of the company’s plan to move forward are determined.

David M. Whittaker, a partner in the Columbus law firm of Isaac Wiles with more than 40 years’ experience working on bankruptcy and debtor-creditor issues, was in Cincinnati on Thursday to help with the formation of a creditors committee in the Murray case.

Whittaker said the committee was created to help protect the interests of Murray’s unsecured creditors – those that do not hold liens against any of Murray’s assets as collateral for their lending.

He said that forming such a committee is a regular part of the process.

“The committee ordinarily consists of the persons, willing to serve, who hold the seven (7) largest unsecured claims of the kinds represented on such committee,” a document from the Office of the United States Trustee Southern District of Ohio states.

Whittaker said the committee members are Bank of New York Mellon Trust as Indenture Trustee; CB Mining Inc. of Murraysville, Pennsylvania; Joy Global, a Pennsylvania mining equipment manufacturer; RM Wilson Co. of Wheeling; the United Mine Workers of America Pension Trust; the UMWA union; and Wheeler Machinery of Salt Lake City, Utah. The committee chose the New York law firm Morris and Forster to act as its counsel with Lorenzo Marinuzzi as the lead lawyer.

Whittaker said federal bankruptcy code permits the formation of one or more committees of creditors to act as fiduciary representatives in a Chapter 11 case. Those committees can take positions on anything that happens in the case. They also can employ counsel as well as financial advisers, accountants and other professionals to advise members of their rights, duties and responsibilities.

Such committees “will typically have more ability to persuade within a case than individual creditors do,” Whittaker said.

In general terms, Kelly Kotur, an attorney with Davis & Kotur Law Office Co. LPA of Bridgeport, said once Murray’s Chapter 11 plan is proposed and the court approves it, the debtor will begin making payments pursuant to the plan terms and will begin to exit the Chapter 11 process.

Kotur said primary goals for filing a Chapter 11 case usually include reorganizing debts and obtaining necessary financing to continue operating as a company. Ultimately, she said, the filer may end up paying only a few cents on the dollar for its debt obligations, and she said this can impact creditors negatively, especially smaller creditors.

Whittaker said the purpose of a Chapter 11 filing is to permit a debtor-in-possession, in this case Murray Energy Holdings, to restructure its debt. He said this effort can include reorganizing obligations, making new payment arrangements, the sale of assets, and/or infusions of new equity from new ownership interests.

“It is not limited to a particular path,” he said of the company navigating the process. “I would expect this case to have some combination of restructuring debt and liquidation of assets.”

Whittaker anticipates that Murray’s goal will be to create a scaled-down company that can operate profitably. He said if that is found to be impossible, he would expect the company to simply liquidate.

“It wouldn’t surprise me if the debtor is hopeful to be able limit its liability for legacy debt, such as pensions,” he added. “Those debts can be a huge expense, of course, and can prevent a company from having any real hope of restructuring.”

An affidavit filed in the case on Oct. 29 and signed by new President, Chief Executive Officer and Chief Financial Officer of Murray Energy Holdings Co. Robert D. Moore states that the company owes billions in such debt.

“Murray has more than $8 billion in actual or potential legacy liability, and in 2018, Murray’s actual cash outlay for certain statutory or collective bargaining agreement related employee and retiree obligations was approximately $160 million. Murray’s employees are its lifeblood and Murray has a longstanding history and valued partnership with their unions, including the United Mine Workers of America (“UMWA“). Nonetheless, the cost of servicing its funded debt, together with the myriad of obligations Murray has to current and former employees, including to a pension fund that has been abandoned by other employers, have substantially reduced liquidity,” the document states.

Whittaker stressed, however, that nothing has yet been filed that indicates Murray is making an effort to shed this specific debt.

Whittaker also said the entire process can be “fairly complicated,” especially for a large company such as Murray. So far, he said, motions that have bee filed pertain mainly to maintenance of the company’s books and records, continuing certain insurance coverage, continuing operations and administrative aspects of the case.

According to Whittaker, some motions have been “very substantive,” such as efforts to create a pool of critical vendors who would receive certain advantages in consideration for permitting Murray to have certain purchasing and credit arrangements. The formation of a DIP, or debtor-in-possession, facility for additional financing also has occurred.

Judge John Hoffman early this month approved post-petition borrowing in the amount of $127.2 million in immediate relief so that Murray can make interest payments that were delayed in September and early- to mid-October and continue to meet obligations such as payroll That money is part of an overall $40 million proposed DIP facility.

Whittaker said the bankruptcy court must approve such financing. In some instances, he said, a post-petition lender can receive senior lien interests over and above those of other lenders.

“Those can be controversial kinds of transactions,” he noted.

Following the first day filings that led to the judge’s decisions this month, Kotur said the company will have deadlines to file certain information, including details about its debt load, assets and creditors. She said a long and detailed plan for recovery will be filed, and creditors may object to some of its provisions. The court will then rule on those matters.

Kotur added that Chapter 11 cases are “really complex” and expensive for the filer, since as many as 20 attorneys may be representing a company’s interests. She said legal fees can get “out of control” and that only a company with sufficient assets to cover those costs will successfully complete the process.

Once the early days and motions of such a case have passed, Whittaker said it is typical for the debtor, the creditors’ committee and other creditors to begin negotiating a plan for restructuring the company’s debt.

“This is not a pre-packaged case” that had detailed payment plans worked out before it was filed,” he said. “Those details have yet to be dealt with, and I expect some difficult issues will have to be addressed.”

Whittaker said it is too early to know what those details will look like, but he expects to see a focus on specific Murray mines or operations that can be operated profitably if they are “segregated,” or spun off or sold off from the rest of the company. He said negotiations also would determine what will be done with mines and operations that cannot be made profitable In addition, those with interests in the case will have to determine what “pot of money” is available to distribute to creditors.

“It could take many months for these things to be resolved,” he said.

He also pointed out that Murray has a “lot of assets” on its books.

“The question is, what are they really worth?” he added.

Whittaker said priority debts for Murray will include any overdue tax payments. He emphasized that people with ownership interests in Murray and its subsidiary companies will be at the lowest level of priority in terms of their rights under the bankruptcy code.

“It would be unusual for the current owners to be able to retain their interests as part of any restructuring that may occur,” he said. “It is unlikely that the current owners will receive any distribution in this case.”

It is possible under bankruptcy code, however, for “insiders of Murray Energy entities” to acquire the company’s assets as they are liquidated, he said.

“If the assets are sold, they can be sold to anybody as long as the sale is fair and equitable and in the best interest of the bankruptcy estate,” he said. “That means the price has to be reasonable. … It’s an open sale process, so there is no way, typically, for an insider to ensure they will be the purchaser of assets.”

Whittaker concluded that those involved in the case – as well as those who work for Murray and its subsidiaries – now must wait and see how the process plays out.

“There is not an exact script to this,” he said.