Foresight Loses Bondholder Case Involving Murray Purchase

  • Trustee says deal required buyback of $600 million in bonds
  • Judge assails `preposterous' assumptions in company's case

A Delaware judge won’t let Murray Energy Corp. use a loophole to avoid cashing out creditors of Foresight Energy LP, saying the move breached an agreement to buy back $600 million in bonds.

Friday’s ruling comes in a lawsuit brought by a bond trustee alleging that Foresight altered Murray’s purchase from a controlling 80 percent to a minority stake of 34 percent to avoid triggering the payment under a debt agreement.  

Officials at Foresight had no immediate comment on the decision.

Murray acquired 34 percent of the voting rights in Foresight in April as part of a $1.37 billion takeover, while maintaining a 50 percent economic interest in the company. Murray, seeking to expand its presence in low-cost mining regions such as the Illinois coal basin where Foresight operates, revised the terms after struggling to raise the required debt to fund the deal.

A shift of the controlling stake would have constituted a change of control under an indenture agreement, requiring Foresight or Murray to buy back the bonds at 101 cents on the dollar or pay $606 million, according to the lawsuit filed in May by Wilmington Savings Fund Society FSB. 

Delaware Chancery Judge Travis Laster sided with the trustee.

‘De Facto’

The price of the revised deal reflects the fact that Murray acquired “de facto control” of Foresight, Laster said. Under the original deal, Murray would have paid $1.39 billion for 80 percent of the voting rights. In the revised deal, Murray paid $1.37 billion for a 34 percent stake with the option of paying $25 million for an additional 46 percent voting interest later.

The judge questioned why Foresight founder Christopher Cline, “a savvy businessman with over 30 years’ experience in the coal industry,” would have settled for just 1.8 percent more for a change in control than the price he accepted for the 34 percent stake.

“That is preposterous,” the judge said.

While Laster concluded that Foresight wasn’t trying to conceal its actions, he did say the company sought to structure the deal with the purpose of preventing Murray from being vested with beneficial ownership so as not to trigger the change-of-control clause in the bond agreement.

The case is Wilmington Savings Fund Society FSB v. Foresight Energy LLC, CA11059, Delaware Chancery Court (Wilmington).

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