Solid Energy placed in voluntary administration

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State-owned coal miner Solid Energy has been placed in voluntary administration by its board of directors, allowing it to trade on under a deal with creditor banks that will see its assets sold over the next two and a half years.

Today's announcements had no detail about the impact on some 800 Solid Energy employees, although it promised worker entitlements were safe and would be paid out on time, as would payments to trade creditors.

Two partners of accounting firm KordaMentha, Brendon Gibson and Grant Graham, have been appointed as administrators. Voluntary administration is a step back from liquidation and is intended to create breathing room for an orderly selldown of the company's assets over two and a half years under a deal that has almost been concluded with Solid Energy's banks.

"In the face of dramatic declines in the price of hard coking coal, the company made significant gains in cost reduction and operating efficiencies but the market has continued to fall and there was still no near-term prospect of any significant recovery," said Solid Energy's acting chairman, Andy Coupe, in a statement ahead of a briefing for media. "As a result, it is no longer sustainable for the business to trade under its current capital structure."

Mr Coupe replaced Pip Dunphy, who resigned in February after disagreeing with Finance Minister Bill English over whether the business, debt-laden from unrealised expansion plans into new energy businesses before the coal price plunge earlier this decade, was salvageable.

The deal outlined with the company's banks, which include Bank of New Zealand, ASB, Australia & New Zealand Banking Group, Westpac Banking Corp, and Bank of Tokyo, has yet to be finally settled but the voluntary administration is intended to allow a conclusion.

Basic terms of the plan are that Solid Energy will "engage an investment bank and undertake an orderly, managed sale of its assets over the next two and a half years," with the current board continuing to manage the company, monitored by and reporting to the administrators and a committee of creditors.

To allow operations to continue, trade debt will continue to be paid promptly, once the voluntary administration proposal has been adopted. Accrued employee entitlements outstanding at the date of commencement of the new agreement, such as holiday pay, will be paid as usual.

Debt held by the banks and medium-term note holders will be effectively be frozen via restructuring as a two and a half year facility, relieving the company of the need to make significant debt repayments.

"All costs incurred in the normal course of ongoing trading are paid when they fall due and rank ahead of all other debt," the company's statement says.

A government guarantee worth about $103 million for mine site rehabilitation costs in the event of closures will be restructured "to provide certainty for affected local authorities and assist the asset sale process."

"Participant creditors get what’s left at the end, after payment of all trade creditors and employees, as settlement of their debt. If the proceeds are less than the outstanding debt, the participant creditors release the shortfall," the statement says. "If any assets cannot reasonably be sold, they will be put into a safe and secure state, all employee entitlements will be fully met, and the asset will be closed."

Mr Coupe said the arrangements were "far preferable to an immediate liquidation."

"We believe the proposal has the necessary support from the shareholder and a majority of creditors to be successful. It allows for a managed selldown of the company's assets and the prompt payment of all trade creditors’ debt. This is a far more favourable scenario for stakeholders than going into immediate liquidation and, for that reason, the board is confident the proposal will be well supported when creditors meet to vote on it,” Mr Coupe said.

From today, the administrators will take full control of the companies for a period of five weeks while the voluntary administration arrangements are finalised.

KordaMentha's Mr Gibson said that "while logic suggests an orderly realisation process would be a preferred solution, some details are still being worked through with a limited number of large creditors."

Bank of Tokyo opposed the 2013 recapitalisation deal that saw banks convert some $75 million of loans into redeemable preference shares and unsuccessfully challenged that arrangement in the New Zealand courts.

"Once those details are finalised, as administrators we will review that proposal and any others we may receive, and prepare an independent report for creditors.

A first meeting of creditors will be held within eight working days, followed by a second, so-called "watershed" meeting within 25 days.

(BusinessDesk)

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