Two Coal Barons, One Overdue Bond Payment and the End of an Eraby and
Foresight Energy faces March 15 deadline to pay bond interest
Default would hurt coal kings Christopher Cline, Robert Murray
Both men worked down in the mines, in helmet and headlamp, digging out the coal that would one day make them piles of money.
As early as Tuesday, the mining empires the two men built from scratch could start to crumble.
Billionaire Christopher Cline, 57, hailed as the savior of the Illinois coal industry, is the founder of Foresight Energy LP, which has until March 15 to pay $23.6 million of overdue bond interest.
Industry champion Robert E. Murray, 76, would suffer with him. The company he created, Murray Energy Corp., paid $1.4 billion in April for a 50 percent stake in Foresight. A default would wipe out that investment.
So far the two titans have survived the U.S. coal industry’s worst downturn in decades, a result of tough environmental policies, a flood of cheap natural gas and slowing global demand. In the last two years, at least six U.S. coal-mining companies have filed for bankruptcy, restructuring a total of $23 billion. With a boost from fracking, the U.S. produced more natural gas in 2015 than it ever has, while U.S. coal production fell last year to its lowest level in decades and is projected to fall even more this year, according to the Energy Information Administration.
Now Cline and Murray are inextricably linked but unable to agree on a remedy, according to people with knowledge of the matter.
“Here you have the two most successful visionaries in the U.S. coal industry facing a level of challenges they probably never had to deal with before,” said Matthew Duch, a money manager at Calvert Investments Inc. who oversees $12 billion. “You can be the best operators in this industry, but you can’t do anything about the demand that’s evaporating.”
Murray became a miner after his father was paralyzed in a mining accident. He founded his St. Clairsville, Ohio-based company in 1988. It’s now the largest privately owned coal mining company in the U.S. As recently as 2013 he was still empire-building. That year, Murray Energy bought Consolidation Coal Co. for $3.25 billion.
Cline was born into a family of coal miners from West Virginia and started working the mines at 22. Ten years later, he founded the Cline Group to extract coal from beneath the hollows and rolling hills of Appalachia. In 2006, he created St. Louis-based Foresight to expand into Illinois.
Murray figured the efficiency of Foresight’s mines would help him through the price rout. Along with half of Cline’s company, Murray Energy got 34 percent of shareholder voting rights in Foresight.
Foresight bondholders, led by DDJ Capital Management and BlueMountain Capital Management, argued that Murray’s buy-in amounted to a change of control. That triggered a clause in their lending contracts forcing Foresight to repay the bonds at a premium, they said. The tab: more than $600 million.
Murray Energy and Foresight said in a press release on April 7 that no change in control would occur from the transaction. But in December, a Delaware judge ruled that it had, and it ordered Foresight to negotiate with bondholders. An agreement has yet to be reached, according to people with knowledge of the discussions.
Meanwhile, Foresight’s cash is dwindling. At the end of September, in the most recent public filings, the company said it had $25 million. In February, Foresight said it wouldn’t make a $23.6 million interest payment. Creditors gave the company 30 more days to pay the interest.
Now the March 15 deadline looms.
“I can’t comment on the content of confidential negotiations, but I have made no secret of the fact that I am proud of what we built at Foresight Energy and continue to work with all the stakeholders to try to reach agreement,” Cline said in an e-mailed statement.
Jack O’Connor, a DDJ spokesman, declined to comment. A representative for BlueMountain didn’t respond to requests seeking comment. A spokesman for Murray declined to comment.
Foresight needs to resolve the bondholder dispute if it wants to win the approval of its senior lenders to pay the interest due Tuesday, according to the people, who requested anonymity because the discussions are private.
Matters have reached a point of such urgency that Murray is pushing Cline to chip in his own money, the people said. He wants the Foresight founder to either lend to the company or inject equity to help pay down some or all of Foresight’s 7.875 percent bonds maturing August 2021, said the people.
Another option is for Cline to fund a repayment of some of Murray Energy’s $3.4 billion of debt, said the people.
“I have not been involved in any negotiations respecting any aspect of Murray Energy’s capital structure and am not in a position to comment on that at all,” Cline said in the e-mail. “Foresight’s capital structure was and remains stand alone.”
The kings of coal reign over a shrinking monarchy. The U.S. Environmental Protection Agency issued a regulation last year that requires states to make cuts to greenhouse-gas pollution caused by power plants. The rule, put on hold by the Supreme Court, would result in the closing hundreds of coal-fired plants and force a switch to natural gas.
The resulting demand for natural gas, perceived as cleaner than coal, has pushed prices down to record lows this year.
“Both of them have been fighters,” Ted O’Brien at Doyle Trading Consultants, an independent coal research firm, said of Cline and Murray. “It would be foolish to count them out. But the entire sector has been fighting an uphill battle against cheap natural gas, tightening regulations and a capital market they never had to worry about before.”