Murray Energy: Defaults On Bankruptcy Financing

The Wall Street Journal – which has been meticulously covering the troubles at bankrupt coal miner Murray Energyprovided another update on May 21, 2020. The company apparently has managed to default on its financial package assembled following its Chapter 11 filing to assist in preparing for an eventual exit. There’s $440mn of post filing financing involved that’s in default. Now the embattled company wants its lenders, who are seeking to become its owners, to roll over the new monies into whatever the exit financing package will look like. For our part, we believe that a liquidation is more likely than an orderly return to business as usual at this stage but much will depend in the days ahead on what the bankruptcy judge and the lenders decide.

This is yet another concern for the two BDCs with $16.1mn of exposure: Business Development Corporation of America and Cion Investment. The two non-traded BDCs are lenders in the pre-bankruptcy Murray Energy first lien debt and in the new financing to the tune of $2.8mn between them. This most recent debt was supposed to be bulletproof but as of March 31, 2020 the BDCs had discounted their loans by as much as (9%). Both the earlier debt (discounted 88%) and the newer facility are in danger of losing more value by the next time the BDCs report and resulting in a realized loss if a liquidation does occurs.

For neither BDC is the total exposure very high and the income being received on the new debt is very modest. This story is more important as a warning that, in the current economic conditions, even debtor-in-possession financings are not necessarily safe from loss. That could cause some lenders in some bankruptcy situations to throw up their hands and not provide essential financing. This would increase the number of liquidations and the value of realized losses. Maybe Murray Energy is just an outlier, but we’ll be watching.