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| Wilbur Ross |
Horizon Natural Resources Co.'s $465 million term loan rose more than 10 points to the 66-70 context from the 54-56 level, where it was seen trading three weeks ago. By the end of the week the paper was being quoted at 64 1/2-67 1/2 as a fund looked to sell and fewer buyers emerged. "The notes have become commodity driven, which is coal," a trader said. The strength in the coal market makes the company more attractive, he added. The surge is part of an upward rally that began last month, when Newcoal, a company formed when W.L. Ross & Co. teamed up with the majority holders of the second-lien paper, Contrarian Capital Management, Greenlight Capital, Stark Investments and Varde Partners to place a $277 million bid for the energy company. Only weeks before the paper was trading in the 30s range. Prior to Ross' involvement, the majority holders of the second-lien paper put in a bid that was approximately $37 million less (LMW, 6/21).
Under the Ross plan, a rights offering will be made to noteholders to raise proceeds to fund the asset purchase. The rights offering will require a $125 million equity contribution from the noteholders and Ross. After the rights offering, Ross and the second-lien holders will own more than 50% of Horizon's equity, approximately $140 million.
Two years ago Horizon, then known as AEI Resources, faced a liquidity crisis caused by weak demand in the coal industry, increased inventories and an uncompetitive capital structure that led the company to file for bankruptcy twice in the same year (11/24). When Horizon first emerged from bankruptcy in May 2002 the company distributed $465 million of senior secured term notes and $450 million of 11.75% notes in exchange for $875 million of pre-petition bank debt with UBS. After the company filed for bankruptcy for the second time more than 50% of the $465 million term notes were acquired by the group of four investors.