Inmet Mining aims to sell assets in Chapter 11 backed by DIP financing after lender removes CEO

Legal Analysis 10 April

Inmet Mining aims to sell assets in Chapter 11 backed by DIP financing after lender removes CEO

Inmet Mining will look to sell its assets in Chapter 11, backed by debtor-in-possession (DIP) financing from its secured lender, Debtwire reported in its Case Profile. 

The bankruptcy filing comes weeks after lender Black Mountain Marketing and Sales (BMMS) exercised its right to remove owner Charles Hobson from his CEO petition, alleging that he made an “unauthorized distribution” of debtor funds for his benefit. Running low on liquidity with the lender unwilling to provide additional financing, Inmet sought bankruptcy protection to sell its assets.

BMMS has agreed to fund the case with USD 50m in new money DIP financing plus a rollup of USD 34.4m in prepetition debt. A first day hearing to consider the DIP motion and other operational motions was scheduled for 11 April at 10am ET before Judge Gregory Schaaf of the US Bankruptcy Court for the Eastern District of Kentucky.

The company

Founded in 2019, the Knoxville, Tennessee-based company has coal mining assets in Kentucky and Virginia but idled the Virgin operations shortly before the petition date, according to court documents.

The company’s five mines produced 945,905 tons of coal in 2022 and forecasts the production of 1.16 million in 2023. At the petition date, the company has three active mines in Kentucky: Kentucky, Darby, Tyree and Panther.

Inmet acquired the mining assets out of the 2019 bankruptcy sale of Blackjewel. Industrial Minerals Group LLC owns 100% of Inmet’s equity and is itself fully owned by Hobson.

The debt

Inmet enters Chapter 11 owing USD 29.75m plus interest on a 2019 credit agreement with BMMS, used to fund the company’s acquisition of the mining assets.

The descent

BMMS exercised its option under the credit agreement in March to remove Hobson from his post as CEO, alleging an “unauthorized distribution” to him or for his benefit and the “continuing risk” of acts “in contravention of his duties of loyalty to the debtor,” specifically relating to its main coal lease, Chief Restructuring Officer Jeffrey Strobel said in his first day declaration.

BMMS informed the debtor it would no longer provide funding unless the company filed for Chapter 11. Unable to pay its bills, Inmet filed for Chapter 11 on 5 April.

The lender has agreed to provide a DIP consisting of USD 50m in new money plus a rollup of USD 34.4m in prepetition debt. The company will move to sell its assets and has secured a bid for its Virginia mine that would take on a “significant amount of reclamation liability.” The company has not indicated whether it has an offer for the main Kentucky operations.

The company is also proposing a key employee incentive plan (KEIP) for its deep mine general manager, vice president of deep mines, the processing plant general manager, the manager of mining engineering, the manager of environmental engineering, the manager of safety, the vice president of financing accounting, and its three officers.

The proposed KEIP does not state how much the program participants could earn but states that the bonuses are dependent on five metrics: safety, environmental compliance, EBITDA, cash mining cost, and mine production.

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