Strategy Report - Arch Coal

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- Stringent environmental regulations

The company's operations are subject to regulation by federal, state, and local authorities on matters such employee health and safety and the environment, including protection of air quality, water quality, wetlands, special status species of plants and animals, land uses, cultural and historic properties, and other environmental resources identified during the permitting process. In addition, materials used and generated by mining operations must also be managed according to applicable regulations and law. These laws have, and will continue to have, a significant impact on the company's production costs and competitive position.

Restructuring

Arch anticipates its mining operations and customer shipments to continue nonstop throughout the reorganization process. The company deems it has enough cash to continue its normal mining activities and to meet its debts in the ordinary way. Arch had more than $600 million in cash and short term investments as of January 11, 2016, and anticipates to receive $275 million in debtor-in-possession (DIP) funding from members of the ad hoc unit of lenders on terms and conditions set out in the DIP term sheet and DIP credit agreement filed with the Bankruptcy Court and considered by the restructuring support agreement between the company and the lenders. In addition, Arch believes that its securitization financing providers will keep the company’s $200 million trade accounts receivable securitization facility, subject to normal conditions, which supports Arch’s letters of credit program. Upon agreement by the Bankruptcy Court and fulfillment of normal conditions, these financings, as well as the company’s current liquidity and cash generated from current operations, will be used to help the business during the restructuring process.

Arch Coal has filed various motions with the Bankruptcy Court in care of its reorganization. The company intends to continue to pay employee wages and keep healthcare and other benefits without a break in the ordinary course of business and to pay suppliers and vendors in full under normal conditions for goods and services delivered on or after the Chapter 11 filing date. The company anticipates to receive Bankruptcy Court endorsement for these requests.

Stocks

Arch’s arrangement with the bulk of the company’s senior lenders provides that, upon the company’s emergence from Chapter 11, Arch’s current stock will be cancelled and the senior lenders will receive the substantial majority of the new stock in the restructured Arch Coal. Any recovery to existing stockholders will in the end be determined in relation with the company’s Plan of Reorganization upon coming out of Chapter 11. We do not expect existing Arch stockholders to get any recovery at the end of the restructuring process. On January 11, 2016 the New York Stock Exchange (NYSE) put a hold on Arch’s common stock from trading and started proceedings to delist the stock. Upon delisting from the NYSE, Arch common stock may still be traded over the counter in the Pink Sheets or on the OTCBB, but we cannot promise you this will be the case. A delisting from the NYSE could end in considerably lower trading volumes and decrease cash for investors seeking to buy or sell shares of the common stock. As part of the reorganization process, it will be required for us to periodically disclose certain financial results. We will not issue earnings press releases or hold quarterly conference calls during the reorganization proceedings. We plan to continue to file quarterly and annual reports with the Securities and Exchange Commission. It typically takes a company between 12 and 18 months to complete the Chapter 11 process. There are many things that are out of our control, it is our intent to move through this court-supervised procedure as quickly and efficiently as possible. We believe we are well-positioned for a quick and successful restructuring in Chapter 11, and we intend to come out a stronger and more competitive company.

As we look ahead in a still-challenging coal market environment, I feel good about where we stand. We expect to build upon what we have achieved so far and will continue to execute on the plans we have strategically crafted. By leveraging our exceptional asset base, proactively managing our cash flows, delivering stronger financial results and relying on our exceptional workforce, we will endure current market headwinds and emerge as an even stronger competitor ready to capitalize on an improving market environment.

References

(2015). Arch Coal, Inc. Marketline .

ARCHCoal. (2016, June 20). Retrieved from ARCHCoal: www.archcoal.com

Best, D. (2016, January 5). Green Peace. Retrieved from Green Peace: www.greenpeace.org

KEN Research. (2016, June 8). Retrieved from Ken Research: www.kenresearch.com