Alpha Natural committee objects to parts of DIP financing agreement

By Mark Reccek

Bethlehem, Pa., Sept. 4 – Alpha Natural Resources, Inc.’s official committee of unsecured creditors objected to protections granted to pre-petition lenders and second-lien noteholders in the company’s debtor-in-possession financing agreement, according to a Thursday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

According to the filing, the committee argues the adequate protection package is not close to market and provides the creditors with far more protection than is necessary or appropriate.

The committee specifically takes issue with the following in the financing agreement:

• Any cash adequate protection payments the applicable creditors receive on account of interest or fees and expenses must be subject to re-characterization as principal or disgorgement in the event they were not over-secured or not secured at all;

• The proposed waiver of marshaling allows the applicable creditors (including those under-secured or unsecured) to recover first from the debtors’ assets that were unencumbered on the petition date, destroying value otherwise available to unsecured creditors. The committee requests that the court preserve the ability of the parties in interest to invoke marshaling and grant the committee standing to bring a marshaling claim against any pre-petition or post-petition secured lender;

• The proposed final order provides that the debtors’ right to use cash collateral will terminate unless the debtors’ Chapter 11 plan provides for the payment in full in cash of all of the obligations under the existing credit agreement and provides blanket releases to the applicable creditors and their representatives for any claims relating to their pre-petition debt. The committee argues conditioning the debtors’ right to use their cash on the debtors’ commitment to provide such treatment and such releases before the committee has had a chance to conduct its investigations is premature and unwarranted;

• The committee also argues a blanket waiver of the debtors’ rights pursuant to the Bankruptcy Code in favor of the applicable creditors is inappropriate. To the extent the debtors expend any unencumbered cash or any other unencumbered assets for the production of coal or gas assets that would become the applicable creditors’ collateral, the court should preserve the right to surcharge such collateral;

• The debtors’ willingness to waive their rights is premature. The committee requests the court prohibit the debtors to waive such a remedy before allowing the parties in interest to examine the equities of the case;

• The final order grants the applicable creditors the right to credit bid the full amount of the pre-petition credit agreement debt then outstanding without the need for further court approval. The committee asks the court to decline the pre-authorization, as well as preserve its right to restrict credit bidding based on a review of the facts and circumstances before the court at the time of the proposed asset sale; and

• Certain provisions in the proposed final order possibly grant the applicable creditors rights that go beyond those granted by the Bankruptcy Code.

“Adequate protection should be granted only to the extent necessary to protect pre-petition secured creditors for the post-petition diminution in the value of their collateral as it existed on the petition date, and not to provide them with a windfall unrelated to any risk of harm to that collateral,” the filing said.

As previously reported, the DIP facility includes a $300 million term loan and a $100 million bonding facility, which may be increased with lender consent. Also, the facility includes, with additional court approval, revolving credit loans in an amount to be agreed, as well as an up to $192 million facility for letters of credit.

The financing was arranged by Citigroup and led by a group of the company’s first-lien and second-lien lenders. Citibank, NA is the administrative agent.

Alpha Natural Resources is a Bristol, Va., coal miner that filed bankruptcy on Aug. 3. The Chapter 11 case number is 15-33896.

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