Representation of Lender in Disputed Sale-Leaseback Transaction in Bankruptcy of Coal Company

Industry: Energy & Sustainability

Key Facts

The client provided financing for a prepetition sale-leaseback transaction related to a coal mining company’s bankruptcy case
Investigations threatened to strip the client of its collateral and require payment of over $8 million into the bankruptcy estate
Mintz negotiated a settlement that protected the client’s interests and effectively made the client whole

In the bankruptcy case of coal mining company Mission Coal Company, LLC pending in the Northern District of Alabama, Bay Point Capital Partners, LP became the target of parallel investigations led by the debtors and the Official Committee of Unsecured Creditors.

The investigation related to a prepetition sale-leaseback transaction between the debtors and a non-debtor, insider special purpose entity. Bay Point had provided the non-debtor party the financing necessary to complete the transaction, and, in return, received a security interest on the assets — long-wall mining shields — purchased from the debtors. The transaction provided needed liquidity to the debtors in their attempt to avoid the bankruptcy filing and had received the express approval of the debtors’ senior secured lenders.

As part of the investigation, the debtors and the Committee received court approval to conduct a Rule 2004 examination of Bay Point, as well as a number of other parties, relating to the transaction and other issues. Following the investigation, the Committee sought leave from the bankruptcy court to file a complaint against, among others, Bay Point, asserting claims allegedly held by the debtors against Bay Point for fraudulent conveyance, funding of a holdback in the original financing, recharacterization of the lease as a “disguised” financing, and avoidance of any lien on the shields in favor of Bay Point.

If the Committee’s claims had succeeded, Bay Point would have been stripped of its collateral and required to pay in excess of $8 million into the bankruptcy estate. Mintz represented Bay Point in connection with the debtors’ and the Committee’s investigations, as well as in negotiations related to the alleged claims against Bay Point.

A team of Mintz bankruptcy and litigation lawyers worked with Bay Point through weeks of pre-litigation investigations by the debtors and the Committee, providing thousands of pages of documents and sitting for an informal interview, while simultaneously working to reach a global settlement with the debtors, the Committee, and various other parties. We ultimately reached a settlement with all parties except the Committee, and the debtors incorporated the settlement into their Chapter 11 plan of reorganization. When the Committee opposed confirmation of the plan, Mintz worked with counsel for the debtors and others to argue and present evidence over a five-day confirmation trial.

The bankruptcy court confirmed the plan and approved the settlement. Together, the plan and settlement provided Bay Point with a full release of all alleged claims — and avoided the possibility of extended, costly litigation. The settlement gave Bay Point title to the shields that Bay Point leased to the purchaser of the debtors’ assets, and Bay Point collected on guarantees related to the transaction. Ultimately, as a result of the settlement, Bay Point’s interests in the transaction were protected and effectively made whole.