Horizon Natural Resources Co.’s term loan has soared 20 points to the 50-54 range after trading in the 30s level two weeks ago when Newcoal, a company formed by W.L. Ross, raised to $277 million its offer for the company, a dealer noted. The original bid was $240 million. “[The] hedge funds are trading it. Most of the original lenders are gone,” another trader said.
W.L. Ross, a private equity firm known for its involvement with steel companies, and four other investors are collectively bidding to purchase the steam coal company, which was previously known as AEI Resources. This week a bankruptcy court approved Ross’ plan, which is being executed in conjunction with the four other investors that own a majority of Horizon’s second-tier secured notes. The agreement includes a cash purchase price of up to $255 million, payment of up to $5 million of cure costs and guarantee that $17 million will be collected for certain account receivable and inventory.
If approved by the bankruptcy court as the highest and best bidder after an auction, Ross will assume operational and management control of Newcoal. Alongside the four investors, Newcoal will backstop an equity rights offering to all of Horizon’s second tier noteholders.
“There has not been a tremendous amount of volume that has pushed the levels up,” a trader said, adding that levels started rising Monday after Ross’ competing plan was placed on the table. Market participants are now talking about a minimum recovery level of 60, the trader noted. The talk in the market is that a bid of 56 was placed today.
Two years ago, Horizon faced a liquidity crisis caused by weak demand in the coal industry, increased inventories and an uncompetitive capital structure led the company to file for bankruptcy in both May and November. After its second filing for bankruptcy the company obtained a debtor-in-possession facility from Deutsche Bank (LMW, 11/24).
Wilbur Ross, chairman and ceo of W.L. Ross, and Bill Campbell, an investor relations official for Horizon, did not return calls.