In re Murray Metallurgical Coal Holdings, LLC, Case No. 20-10390

• Court: U.S. Bankruptcy Court — Southern District of Ohio
• Writing for the Court: John E. Hoffman, Jr., United States Bankruptcy Judge
• Citation: 623 B.R. 444
• Docket Number: Case No. 20-10390
• Decision Date: 11 January 2021
• Parties: IN RE: MURRAY METALLURGICAL COAL HOLDINGS, LLC, et al., Debtors.

623 B.R. 444

IN RE: MURRAY METALLURGICAL COAL HOLDINGS, LLC, et al., Debtors.

Case No. 20-10390

United States Bankruptcy Court, S.D. Ohio, Western Division.

Signed January 11, 2021

Thomas R. Allen, Rick L. Ashton, James A. Coutinho, Richard K. Stovall, Matthew M. Zofchak, Allen Stovall Neuman Fisher & Ashton LLP, Columbus, OH, for Debtors.

Jeremy Shane Flannery, Office of the United States Trustee, Mary Anne Wilsbacher, USDOJ - Office of the U.S. Trustee, Columbus, OH, Benjamin A. Sales, Office of the United States Trustee, Monica V. Kindt, Cincinnati, OH, for U.S. Trustee.

OPINION ON CONFIRMATION OF THE DEBTORS' THIRD AMENDED CHAPTER 11 PLAN (DOC. 691)

John E. Hoffman, Jr., United States Bankruptcy Judge

Table of Contents

I. Introduction...––––

II. Jurisdiction and Constitutional Authority...––––

III. Factual and Procedural Background...––––

A. The Debtors' Corporate Structure...––––

B. The Debtors' Business...––––

C. The Mission Coal Acquisition...––––

D. Events Leading to the Debtors' Chapter 11 Filings...––––

E. The Debtors' Prepetition Capital Structure...––––

F. The RSA...––––

G. Significant Events in the Chapter 11 Cases...––––

1. DIP Financing...––––

2. The Critical Vendor Dispute...––––

3. Appointment of the Committee...––––

4. The Maple Eagle Sale...––––

5. The Oak Grove Sale...––––

6. The Bay Point Litigation...––––

a. Valuation of Bay Point's Collateral...––––

b. Bay Point's § 1111(b) Election...––––

7. Filing of the Plan and Disclosure Statement...––––

623 B.R. 450

H. Sources of Plan Funding...––––

I. The Structure of the Plan...––––

1. Unclassified Claims...––––

2. Classification and Treatment of Claims and Interests...––––

a. Non-Voting Classes...––––

b. Class 3–Prepetition Term Loan Claims...––––

c. Class 4–Bay Point Secured Claim...––––

3. The Wind-Down Trust and Plan Administrator...––––

4. Treatment of Avoidance Actions...––––

5. The Exculpation Clause...––––

J. Exit Capital Structure...––––

K. The Confirmation Hearing...––––

L. Confirmation Testimony...––––

1. Robert D. Moore...––––

2. Franklind Lea...––––

3. Jeremy Matican...––––

IV. Legal Analysis...––––

A. Section 1129(a)(1)...––––

1. The UST Objection...––––

2. The Funds Objection...––––

a. The Oak Grove Avoidance Actions Are Property of the Estate...––––

i. Section 541(a)(1)...––––

ii. Sections 541(a)(3) and (a)(4)...––––

iii. Section 541(a)(7)...––––

iv. Abandonment...––––

b. The Sale of the Oak Grove Avoidance Actions Benefits the Debtors' Estates...––––

c. The Debtors May Sell Their Contingent Interest in the Proceeds of the Oak Grove Avoidance Actions...––––

B. Section 1129(a)(3)...––––

C. Section 1129(a)(7)...––––

D. Section 1129(a)(11)...––––

E. Section 1129(b) and the Bay Point Objection...––––

1. Unfair Discrimination...––––

2. Fair and Equitable Treatment...––––

V. Conclusion...––––

I. Introduction

This contested matter arises in the jointly administered Chapter 11 cases of Murray Metallurgical Coal Holdings, LLC ("Murray Met") and its affiliated debtors and debtors in possession (collectively, the "Debtors"). Murray Met filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 11, 2020, followed by the other Debtors on February 12, 2020 (the "Petition Date"). After having obtained approval of their disclosure statement (the "Disclosure Statement") (Doc. 516), the Debtors now seek confirmation of their third amended Chapter 11 plan, which they filed on August 14, 2020 (the "Plan") (Doc. 691). The Debtors' major constituencies, including the Official Committee of Unsecured Creditors (the "Committee"), the United Mine Workers of America ("UMWA"), and MC Southwork LLC ("MC Southwork")—in its roles as the Debtors' principal prepetition secured creditor, senior DIP lender, co-owner of the entity purchasing substantially all of the assets of Debtor Murray Oak Grove Coal, LLC ("Murray Oak Grove") and exit lender—support confirmation of the Plan. Multiple parties filed objections to confirmation, most of which were resolved consensually.¹ Three parties went forward

623 B.R. 451

with their objections to confirmation of the Plan: the United States Trustee (the "UST"), the UMWA 1974 Pension Plan and Trust and the UMWA 1993 Benefit Plan (collectively, the "UMWA Funds"), and Bay Point Capital Partners II, LP ("Bay Point"). See Docs. 617 (the "UST Objection"), 610 (the "Funds Objection") & 699 (the "Bay Point Objection"). The Debtors filed a brief in support of confirmation (Doc. 707) and an omnibus reply to the objections (the "Omnibus Reply") (Doc. 709). The Court issued an oral ruling on confirmation on November 25, 2020 and entered an order confirming the Plan (Doc. 798) that same day, stating that a written opinion further explaining the rationale for its decision would follow. This is that opinion.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(L), (N). Because disputes over plan confirmation and the sale of assets "stem[ ] from the bankruptcy itself," the Court also has the constitutional authority to enter a final judgment in this contested matter. Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

III. Factual and Procedural Background

A. The Debtors' Corporate Structure

Murray Met is the parent debtor in these jointly administered Chapter 11 cases, and is an unrestricted subsidiary of Murray Energy Corporation ("Murray Energy").² Murray Energy, along with its parent, Murray Energy Holdings Co., and nearly 100 other affiliates (the "Murray Energy Debtors"), are debtors in a separate group of Chapter 11 cases, which were filed on October 29, 2019. At the time they filed their Chapter 11 cases, the Murray Energy Debtors together comprised the largest privately-owned coal company in the United States, producing in 2018 about 53 million tons of thermal coal used by the electric utility industry and employing nearly 4,000 workers, including approximately 2,000 employees covered by a collective bargaining agreement with the UMWA. The following chart illustrates the Debtors' corporate structure and how they fit into the overall corporate structure of the Murray Energy Debtors:

623 B.R. 452

Disclosure St. at 20.

B. The Debtors' Business

While the Murray Energy Debtors engaged in the mining and sale of thermal coal,³ the Debtors mine and sell metallurgical coal. Metallurgical coal is used to produce coke, which in turn is used in the production of steel. The Debtors' assets include a mining complex located in Bessemer, Alabama (the "Oak Grove Mine") that employs 511 people, including 389 union workers, and contains approximately 40 million tons of recoverable coal. Disclosure St. at 21. The Oak Grove Mine is an underground longwall mining operation.⁴

623 B.R. 453

The Debtors also own a mine known as the Maple Eagle No. 1 Mine (the "Maple Eagle Mine") in Powellton, West Virginia. The Maple Eagle Mine is a surface and underground continuous mining complex that, as of the Petition Date, employed 18 workers and contained approximately 18 million tons of recoverable coal. Id.

The Debtors sell their coal exclusively to Javelin Global Commodities (UK) Ltd. ("Javelin Global"), an affiliate of Murray Energy that is a "global commodities trading, logistics, operations, and investment company focusing on thermal and metallurgical coal, iron ore, steel and steel scrap, oil and gas, and related markets." Doc. 4 (Declaration of Robert D. Moore in Support of Chapter 11 Petitions) ¶ 42. Javelin Global markets and sells coal purchased from the Debtors to third-party customers. Disclosure St. at 22.

C. The Mission Coal Acquisition

In the spring of 2019, Murray Metallurgical Coal Properties, LLC, a subsidiary of Murray Energy ("Murray Met Properties"), and Javelin Investment Holdings LLC ("Javelin Investments") formed Murray Met as a new unrestricted joint venture subsidiary for the purpose of acquiring certain assets, including the Oak Grove Mine, of a metallurgical coal producer known as Mission Coal Company, LLC ("Mission Coal"). Id. at 20. Several months earlier, in the fall of 2018, Mission Coal and certain of its affiliates (the "Mission Coal Debtors") had commenced Chapter 11 cases in the United States Bankruptcy Court for the Northern District of Alabama (the "Alabama Bankruptcy Court"). At the time they commenced those cases, the Mission Coal Debtors had approximately $175 million in secured debt, including about $104 million under a first lien secured term loan (the "First Lien Loans") and...