Hartshorne sale agreement rejected amid coal supply contract dispute

By Caroline Salls

Pittsburgh, Aug. 14 – Hartshorne Holdings, LLC’s motion to enter into an asset purchase agreement with lender agent Tribeca Global Resources Credit Pty Ltd. was denied Friday by the U.S. Bankruptcy Court for the Western District of Kentucky.

Judge Thomas H. Fulton said in the order that after failing to receive any qualified bids for the sale of substantially all of its assets, the company now seeks instead to assign a supply contract with Louisville Gas and Electric Co. (LG&E) and Kentucky Utilities Co. and a supply contract with Ohio valley Electric Corp.-Indiana Kentucky Electric Co.

According to the order, the purchase agreement proposes that Tribeca be allowed to place a $14 million credit bid in order to purchase supply contracts, which would require it to excise from those contracts the provisions that identify Hartshorne’s permanently closed Buck Creek mines as the coal supply source and delivery point.

In turn, assignee Tribeca would assume both supply contracts and, through a yet-to-be-identified third-party coal supplier, ensure that the utilities continue to receive any and all needed coal and that the coal the utilities receives satisfies contractual specifications.

The utilities objected to the proposed assignment of the supply contracts to Tribeca, the motion said, arguing that the assignment constitutes improper “cherry-picking” of the originally negotiated supply contract terms.

The order said the utilities argued that while Hartshorne makes assurances that the new downstream supplier will be perfectly capable of providing coal that meets the required specifications, the actual location of the coal supply is a contract term that cannot be removed without altering the entire nature of the agreements.

Meanwhile, the order said Hartshorne and Tribeca claim that the proposed assignment is the company’s best way to shed $14 million of senior secured debt and avoid rejection damages claims from the utilities.

“Debtors and Tribeca argued that coal price was the bottom-line consideration when negotiating underlying supply contracts with the utilities and, at the end of the day, coal is coal,” Fulton said in the order. “Based on the testimony, though, the court finds that all coal – even coal with the same specifications – is not equal.”

The judge said under the asset purchase agreement, the substitute coal source will not be a particular identified producer, but rather, will be brokered out to one more major middleman suppliers, becoming a moving target for the utilities.

Rumsey, Ky.-based Hartshorne develops and operates coal mining projects in the United States. The company filed bankruptcy on Feb. 20 under Chapter 11 case number 20-40133.

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