Solid Energy’s banking backers can expect to get back between 35 cents and 40 cents per dollar of debt from the insolvent state-owned coal miner.
Under a Deed of Company Arrangement (DOCA), the coal miner will be wound up and its saleable assets disposed of over the next two and a half years says BusinessDesk.
Contingent liabilities on leased equipment are about $16 million.
The staged sell down would ensure there was not a flood of heavy machinery onto the market at once.
Kiwirail, Fonterra and Port of Lyttelton have agreed in principle to the proposal, which will be put formally to a “joint watershed meeting” to be held on Thursday next week.
Among those agreeing to the arrangement is Bank of Tokyo, which previously resisted bailout attempts because it believed its lending to Solid Energy to be government guaranteed.
The alternative to the proposed DOCA would be an immediate liquidation, which the company’s administrators, from accounting firm Korda Mentha, say would likely yield between 15 cents and 20 cents on the dollar.
The DOCA envisages all obligations to staff and trade creditors being paid in full.
A mine rehabilitation indemnity was negotiated last year with the government, with a cost cap minimising risk to local councils.
The company was placed in voluntary administration last month after concluding that it had no realistic prospect of refinancing $239 million of debt facilities that are due to mature in September next year.
The spiral began in 2013 when slumping global coal costs exposed its commercial error in carrying substantial debt on its balance sheet.
This debt was raised to pursue a variety of energy projects that a previous board believed would give the business a future beyond coal extraction.
Korda Mentha reports the company is insolvent, with $95 million in negative equity on its balance sheet at June 30, compared with positive equity of $12.5 million on its books in June 2014.
That compared with equity on the balance sheet of $423 million in June 2012 before the depth of the company’s difficulties and a string of major losses were revealed. By June 2013, equity had fallen to $92 million prior to a debt restructuring in 2013 and the extension of the rehabilitation commitment last year.
Solid Energy reacted to falling export coal prices by cutting production at the Stockton mine to the minimum required to service customers, at 925,000 tonnes a year, compared with 1.8 million tonnes in the previous financial year.
It has cut its workforce at the site from 800 to 246.
National headcount has fallen to 524, compared to 1,658 in June 2012.
A summary of the company’s current financial position also shows that the value of its realisable assets has fallen to $298.7 million from $576 million between June 2014 and June 2015.
The report paints a bleak picture not only for Solid Energy but the mining sector globally.
Solid’s three largest North Island customers have been Genesis Energy, New Zealand Steel and Fonterra. However, Genesis triggered a contract cancellation when Solid Energy went into voluntary administration while NZ Steel is exercising a right to renegotiate its contract and can import coal if it chooses.
In the South Island, Solid supplies to a variety of users, where natural gas is not available as an alternative fuel, but the coal market is fragmented. The dairy industry constitutes about half of total demand in the South Island.
The report estimates contingent liabilities for staff redundancies at some $20.1 million and contingent liabilities to contractual counterparties “in the region of $145 million”.
