Walter Energy Inc.’s most senior lenders are pushing the unprofitable coal miner to slash worker pay, reduce pension expenses and idle plants as part of a bankruptcy plan that they will present the company this week, according to three people with direct knowledge of the matter.
The creditors, including Apollo Global Management LLC, Blackstone Group LP’s GSO Capital Partners, Fidelity Investments and KKR & Co., are seeking the cuts in exchange for support of a restructuring plan in bankruptcy court that would grant mining unions an equity stake in the company, said the people, who asked not to be named because the talks are private. The lenders, which own Walter’s first-lien bonds and loans, want to take ownership of the company as part of the reorganization, two people with knowledge of the matter told Bloomberg on Wednesday.
The steering committee representing Walter’s creditors has shifted in the last three months. It now comprises at least six investment firms: Ares Management, Apollo, Caspian Capital Management, Fidelity, GSO and KKR, the people said.
GSO’s influence over the group has grown as it’s bought more of the loan, and Franklin Resources Inc., which had been part of the steering committee, cut its stake, said the three people with knowledge of the matter. KKR, meanwhile, replaced Cyrus Capital Partners after the distressed-debt investment firm sold most of its first-lien position, said the people.
Walter, which last generated an annual profit in 2011, has been discussing a reorganization since April as it struggles with a $3.1 billion debt load amid the worst downturn for coal in decades. Prices of metallurgical coal have been undermined by excess supply and slowing demand from China.
William Stanhouse, a spokesman for Birmingham, Alabama-based Walter, declined to comment. Representatives for Ares, Caspian, Cyrus, Fidelity, Franklin, GSO and KKR declined to comment. A spokesman for Apollo didn’t respond to telephone and e-mail messages. A spokesman for Akin Gump Strauss Hauer & Feld, the law firm advising the firm on a restructuring, and a spokeswoman for Lazard Ltd., its financial adviser, also declined to comment.
The creditors, who’d become owners of a reorganized Walter, are set to submit a draft restructuring agreement to the company that sets out cost-savings targets, said the people. It proposes to cut mine workers’ hourly pay and limit their overtime, temporarily idle at least part of one coal mine in Alabama, and reduce pension contributions, the people said. The company would need to negotiate those proposals with representatives of the mine workers unions before they could be approved.
The company issued notices to 370 workers at a mine complex in Alabama that could potentially be dismissed in mid-July, Stanhouse told Bloomberg in May. Walter would reduce staff “if market conditions do not improve,” he said.
The lender group owns a majority of Walter’s $1.95 billion of first-lien debt, said two of the people.
The senior lenders want Walter to file for bankruptcy by July 15, when the grace period on a $19 million interest payment due to junior bondholders ends, people with knowledge told Bloomberg on Wednesday. The company elected to miss the June 15 interest payment as it negotiated with creditors, it said last month.
One of the hardest-hit coal miners, Walter said in May there was “substantial doubt” that it could continue as a going concern and raised the possibility of a bankruptcy. It delayed two interest payments due to bondholders in April as it discussed restructuring options.
In exchange for approving their plan, the creditors are offering to back a loan that would fund the company’s operations during the bankruptcy proceedings, the people said Wednesday.
Each of Walter’s three bond issues ranking below its first-lien debt trades at less than 10 cents on the dollar. Its $450 million of 8.5 percent unsecured notes due April 2021 fell nearly 0.8 of a cent to 3 cents on Tuesday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The company’s $970 million of 9.5 percent first-lien notes due October 2019 dropped nearly 2.8 cents to about 52.3 cents on the dollar at 10:18 a.m. in New York, Trace data show.