On April 29, 2022, the ABI Asset Sales Committee announced that the 2021 Asset Sale of the Year was awarded to In re Lighthouse Resources, Inc., et al. (Bankr. D. Del. Consol. Case No. 20-bk-13056- JTD), for the sale of its Wyoming real property assets. The Asset Sales Committee received many nominations and selected a winner based on the following criteria (dollar amount not being a factor):
- completion of a distressed sale (“Sale”) that was strategic and provided stakeholders with value;
- a display of excellence across the full spectrum of the Sale process, from the initial targeting through pursuit, structuring and financing, to completion of a transaction;
- a Sale reflecting a high level of professional expertise in the design of the transaction, and/or creativity and skill in completing the transaction; and/or
- a Sale of strategic or legal significance and impact, including overcoming challenges to completion, innovative financial engineering, and/or motivating agreement across multiple stakeholders.
Lighthouse Resources and 13 affiliates filed for chapter 11 relief in Delaware on Dec. 3, 2020. The debtors were involved in the coal mining industry in Montana and Wyoming, operated at an overall loss, and were unable to secure debtor-in-possession financing. Neither chapter 7 nor state law dissolution were options because of the complications to the sureties and states that would arise if the debtors themselves did not complete their environmental reclamation obligations.
The debtors’ sureties and pre-petition secured lenders supported the chapter 11 filing via a restructuring support agreement outlining a plan to reorganize, sell assets and begin the reclamation of coal mines located in Big Horn County, Mont., known as the Decker Mines. The plan included prospective payments of up to $750,000 to unsecured creditors. To achieve a confirmable plan, the debtors had to (1) sell a coal export terminal in Washington to stop the bleeding of cash necessary to run that facility, and (2) raise enough cash from the sale of real property in Wyoming to satisfy priority tax claims of over $10 million.
The real property to be sold was complex as to use, location and other factors. Debtor Big Horn Coal Co. owned about 2,900 acres of surface property, formerly a coal mine, outside of Sheridan, Wyo., that was primarily leased to third parties for grazing. Most of the Big Horn property had been reclaimed and received final bond release from Wyoming. Complete bond release, however, hinged on the approval of a land use change for a rail spur and shop affecting about 24 acres. Big Horn also owned a city lot in Sheridan, Wyo. Debtor KCP Properties, Inc. owned approximately 3,500 acres of surface property directly adjacent to Big Horn. About four hours south of Sheridan, debtor Rosebud Coal Sales Co. owned 219 acres of rangeland in Hanna, Wyo., that was the site of a fully reclaimed coal mine. Rosebud also owned an acre of vacant lots and alleys in Elmo, Wyo. (adjacent to Hanna).
In addition to the diverse locations, there were other complications. Big Horn was subject to permitting and final reclamation obligations, subsidence issues and underground coal fires, as well as third-party claims (e.g., mineral rights, surface-use rights, rights of first refusal) that had to be litigated. Due to timing constraints of the overall case, the properties had to be marketed and auctioned in less than 60 days. Even determining how to divide such disparate property interests into marketable bidding lots was its own challenge. For example, the property subject to the permit and bond had to be separated into its own bidding lot, and property subject to rights of first refusal also warranted separate bidding lots to allow for the possible exercise of those rights. Finally, as elsewhere in the country, COVID-19 complicated the process, prohibiting most in-person interactions and requiring the auction be held via Zoom.
The auction was equally complex, requiring bidders to bid creatively on one or more lots or, in some instances, all the lots as a package. To evaluate the bids, the debtors received bids for all of the bidding lots (“package” bids) first, then took bids on the lots individually, then compared the total value of the individual lot bids with the highest package bids. This comparative bidding process continued for several rounds over a span of approximately five hours. In the end, one of the original package-bidders dismantled its bid and joined a group of bidders on other individual lots in order to create a value that was higher than the remaining package bid. The group of four winning bidders generated a total sale price of $8,495,000.
The sale was approved on March 8, 2021. The chapter 11 plan, with the agreement of the priority tax claimholders to accept the net proceeds from the sale and other consideration, was confirmed on March 10 and became effective on April 7, 2021. The Reclamation Trust is currently in the process of supervising the reorganized debtor entities, including the entity reclaiming the Decker Mines. Without the successful Wyoming property sale, the debtors would not have been able to confirm a plan providing for the efficient reclamation of the Decker Mines, a meaningful recovery to the secured creditors, or any recovery for the unsecured creditors.
The Lighthouse sale team included the debtors’ Co-Counsel, Jackson Kelly PLLC (Charles Compton, Kevin Halter, Chacey Malhouitre, Mary Elisabeth Naumann) and Potter Anderson & Corroon, LLP (Katherine Good, Aaron Stulman); debtors’ CRO, Robert Novak of BDO USA, LLP; support services for the CRO, BDO Consulting Group, LLC and BDO USA, LLP (Ross Sheil); and real estate brokers, Keen-Summit Capital Partners LLC (Harold Bordwin, Matthew Bordwin, Chris Mahoney, Heather Milazzo) and Century 21 BHJ Realty, Inc. (Bruce Garber, Paul Wallop).