AEI reorganization plan gives banks 100% recovery, senior noteholders 87.9%

New York, Jan. 29 - AEI Resources Holding, Inc.'s proposed reorganization plan would give holders of its bank debt 100% recovery in the form of new bank debt, new senior notes and cash. Owners of the company's existing senior notes and industrial revenue bonds will receive most of the stock in the reorganized company for an 87.9% recovery rate while investors in the subordinated will receive a smaller share of the stock for a 47.9% recovery rate.

The company's existing stockholders will receive nothing.

The Ashland, Ky. coal mining company's proposed reorganization plan was disclosed in a filing with the Securities and Exchange Commission Tuesday.

AEI said Monday it has begun seeking approvals from its senior lenders and noteholders for a proposed prepackaged Chapter 11 bankruptcy filing. It said "a substantial percentage" of senior lenders and noteholders have already indicated support, as has the company's owner.

Houlihan Lokey Howard & Zukin Capital is advising AEI.

AEI also said it has a commitment for up to $150 million of debtor-in-possession financing and $250 million of exit financing, both from a lender group led by two Deutsche Bank companies, Bankers Trust Co. and Deutsche Banc Alex. Brown.

The DIP facility is for 364 days and would be at Libor plus 300 basis points or the base rate plus 200 basis points plus a 50 basis points commitment fee on the unused portion, rising to 75 and 100 basis points if utilization falls below set levels. There is also a financing fee of 200 basis points.

The exit financing is for five years at Libor plus 350 basis points or base plus 250 basis points plus a 50% commitment fee on the unused portion, rising to 75 and 100 basis points if utilization falls below set levels. There is also a financing fee of 275 basis points. AEI also agreed to use Deutsche Banc Alex. Brown for as bookrunner or lead arranger for any debt financing within 12 months of the effective date of the reorganization.

The proposed reorganization is necessary, AEI said, because it has suffered from heavy debt and "severe financial difficulties" at its principal bonding firm, Frontier Insurance Co. A number of states have refused to accept reclamation bonds issued by Frontier, AEI said. The coal mining company incurred significant costs - including having to post large amounts of cash as collateral and pay higher premiums - while making arrangements to replace the bonds and remain in compliance with state regulations. AEI now faces a March 1, 2002 deadline for replacing some of its surety bonds.

AEI said "a substantial portion of the DIP financing is expected to be used to resolve bonding issues."

The proposed reorganization is still subject to approval by creditors and the bankruptcy court, indeed AEI has yet to make a Chapter 11 filing. For each class of claims, at least two-thirds by dollar amount and one-half by number must vote in favor of the plan.

The proposed reorganization was developed in negotiations with an informal noteholders committee representing $271.8 million principal amount or 78.4% of the company's senior notes and $97.1 million principal amount or 64.7% of the company's subordinated notes and an informal bank steering committee and some other lenders representing 78% of the bank claims, according to the SEC filing. These investors have now agreed to back the plan.

Under the proposed plan, claims will be paid as follows:

--$984.2 million of secured bank claims: holders will receive 100% recovery in the form of new floating-rate senior secured term notes due 2008 totaling $475 million, reduced by the amount of available cash; a new issue of $450 million 11¾% senior secured notes due 2009; and cash.

--$200 million 10½% senior notes due 2005 issued by AEI Holding Co., Inc. and three series of industrial revenue bonds totaling $146.8 million issued by Charleston County, S.C., the Peninsula Port Authority of Virginia and Perry County, Ky.: holders will receive 87.9% recovery in the form of 80% of the common stock in the reorganized company.

--$150 million 11½% senior subordinated notes due 2006: holders will receive 47.9% recovery in the form of 20% of the new common stock.

--Old common stock: will be canceled, holders will receive nothing.

The new senior secured term notes will amortize by $5 million quarterly and will pay interest at Libor plus 525 basis points or prime plus 425 basis points.

The new $450 million 11¾% senior secured notes will be callable after one year at 105.875, declining after that to par in 2008. They will have registration rights.

The solicitation of consents to the plan will expire at midnight ET on Feb. 25 unless extended.

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