In the latest bankruptcy in the coal industry, Blackhawk Mining has filed Chapter 11 to reduce a $1 billion debt load resulting from acquisitions of the assets of distressed mining companies.
Blackhawk operates 25 active mines at ten different mining complexes in Kentucky, West Virginia, and Indiana that produce metallurgical and thermal coal.
The company said it had reached an agreement with more than 90% of its lenders on a financial restructuring that will be implemented through the Chapter 11 process. The plan would convert more than 60% of its debt to equity and provide $150 million of incremental liquidity, with lenders emerging as the owners of the reorganized company.
“The plan provides the debtors with a deleveraged capital structure that will allow the debtors to implement a go-forward business strategy without the overhang of their historical leverage profile and sizeable annual debt service requirements,” Blackhawk CFO Jesse Parrish said in a court declaration.
Blackhawk is the eighth major U.S. coal producer to file bankruptcy since November 2017 and the fifth so far this year.
The coal industry as a whole has been hit by competition from natural gas, which in 2016 overtook coal as the largest source of electricity generation in the U.S., and weak growth in demand for electricity.
Parrish said Blackhawk’s fundamentals are strong. “Through a series of acquisitions from distressed coal operators, Blackhawk now controls one of the largest amounts of proven and probable reserves of metallurgical coal in the United States,” he noted, with annual production approaching 6.9 million tons
However, Parrish said, “the pricing environment for metallurgical coal did not improve until late 2016, and the debt attendant to Blackhawk’s acquisition strategy in 2015 placed a strain on Blackhawk’s ability to maintain its then-existing production profile while continuing to reinvest in the business.”
Once the coal markets began to improve, moreover, Blackhawk was forced to make elevated capital expenditures and bear unanticipated increases in costs — labor costs rose approximately 25% between 2016 and 2018 — to remain competitive.
“The confluence of these factors eventually made Blackhawk’s financial position untenable,” Parrish explained.