LMEs Arrive in Canada, as Majority Noteholders of Coal Producer Uptier Holdings Into Priming Bonds

Conuma Resources executed a non-pro-rata notes uptiering that boosted the coal producer’s liquidity while giving some bondholders a superior claim on the company’s collateral compared with that of their peers, according to sources.

Conuma’s liability management exercise represents potentially the first non-pro-rata LME for a Canada-based company, though it has dollar-denominated debt. The LME also harks back to the LME 1.0 version where minority lenders’ existing holdings are completely subordinated instead of being offered to participate on less attractive terms. However, Conuma’s deal allows for every noteholder to participate in the new money, in addition to other lender-friendly terms, the sources said.

Conuma Resources, advised by Moelis as financial advisor, transacted with holders of a majority of the $215 million 13.125% secured notes due 2028 for $190 million of new priming 13.125% secured notes due 2028, the sources said. The majority bondholders got to swap $140 million of their holdings for the new bonds, and Conuma secured $50 million of new money through the issuance of the remainder of the notes, the sources said. The new-money opportunity was offered to all noteholders, they added.

Even though minority noteholders are essentially subordinated, the company’s owners wrote a $25 million preferred equity check and committed to fund an additional $25 million if liquidity falls below 40 million Canadian dollars, according to an S&P Global Ratings note. The existing and new notes’ collateral will also be enhanced by the addition of a subsidiary guarantee from Peach River Coal Inc., a coal mine operation in British Columbia acquired by Conuma in February, the credit ratings agency said.

The transaction provides Conuma with liquidity to manage its short-term working capital needs, but it is not transformational for the capital structure and it does not address the high leverage of the company, Moody’s Investors Service said in a note on April 16. The company depends on sustainably stronger metallurgical coal prices and the successful ramp up of production at its Quintette mine to meet its financial obligations, S&P said.
 

Conuma Resources did not respond to a request for comment. Moelis declined to comment.