Aei Takes First Step To Filing Chapter 11 – AEI Resources Holding Inc – Brief Article
AEI Resources Holding Inc., one of the country’s largest coal producers, confirmed Jan. 28 it had taken the first step toward filing for Chapter 11 bankruptcy reorganization, an action rumored for months in the Appalachian coalfields. The Ashland, Ky.-based company planned to present the court with a pre-packaged plan for reorganization that would shift control of the company from the Addington family of eastern Kentucky to AEI’s largest creditors. As of mid-February, AEI still was in the solicitation process, though a company spokesperson told Coal Age a formal filing was anticipated by the end of February.
A pre-packaged bankruptcy occurs when a debtor and its major creditors essentially agree on a reorganization plan prior to the actual filing. As a result, the normal bankruptcy process which can take years to navigate through Chapter 11 in some cases, is accelerated, often lasting only a few months. AEI disclosed it and its subsidiaries had negotiated a commitment for up to $150 million in debtor-in-possession (DIP) financing to augment cash flow and fund operations under the Chapter 11 process. The company also has up to $250 million in exit financing available once it emerges from bankruptcy proceedings. The closing of the DIP financing was contingent upon bankruptcy court approval, among other things. Both the DIP and exit financing are from a lender group led by Bankers Trust Co. and Deutsche Bank.
Don Brown, AEI chairman and CEO, called the Chapter 11 filing “a positive step in our efforts to create a more appropriate capital structure, to continue to strengthen AEI, and to make the company more competitive. We have been meeting with informal committees of our lenders and noteholders and we are encouraged by their support.”
Brown said AEI believes the plan “is in the best interests of all our creditors.” A “substantial percentage” of AEI’s senior lenders and noteholders already had indicated their support for an unspecified plan of reorganization, although the precise number was not revealed. In addition, Larry Addington, a principal owner of AEI, had indicated his support of the plan.
AEI, which ranked sixth in U.S. coal production in 2000 with just over 48 million tons, has 29 surface and 15 deep mines and about 4,000 employees in central Appalachia, the Illinois Basin, and the Rocky Mountains.
For several years, many have questioned the profitability of some of those mines, particularly in the Illinois Basin. However, Brown and the AEI spokesperson said no mines are expected to close during the reorganization and neither customers nor employees should notice any difference in the company’s operations during the process. AEI’s financial difficulties did not materialize overnight. In addition to heavy debt, Brown said the company has been harmed by severe financial problems at its principal bonding firm, Frontier Insurance Co., which caused a number of states to refuse to accept reclamation bonds issued by Frontier. While AEI is making arrangements to replace these bonds and remain in compliance with all state regulators, the company incurred significant costs as a result, including being required to post large amounts of cash as collateral and to pay significantly higher premiums. A substantial portion of the DIP financing is expected to be used to resolve bonding issues.
The company said it anticipates that all existing trade claims will be paid in full. The vast majority of the company’s contracts will be assumed, and any claims under rejected contracts will be unimpaired.
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