Kaye Scholer Successfully Represents Majority Lenders in Defeating TRO for Arch Coal Debt Swap

Kaye Scholer litigators successfully represented a group of lenders in defeating the efforts of another lender to impose, by court order, a restructuring of Arch Coal Inc.’s multibillion dollar debt over their objection. On October 16, Judge Saliann Scarpulla of the New York State Supreme Court denied a request by an affiliate of GSO Capital Partners for a temporary restraining order (TRO) that would have prevented our clients from exercising their rights in regard to a debt exchange proposed by Arch Coal, one of the world’s largest coal producers.

Arch sought to engage in a transaction which would have increased its secured debt and diluted the interests of our clients. These clients, lenders comprising several families of funds holding approximately $1 billion of Arch Coal’s $1.9 billion in senior loan debt, took action under their senior loan agreement on the basis that the proposed exchange offer negated certain protections afforded them by that same agreement.

Plaintiff GSO owns a small percentage of the senior loan but is apparently a large holder of the unsecured debt issued by Arch Coal. GSO claimed that the majority lenders’ blockage of the exchange transaction was a breach of the loan agreement and argued that Arch Coal would land in bankruptcy if the debt exchange was blocked.

In our opposition to GSO’s TRO request, we argued that, to find for GSO, the court would have to find that our client’s actions would cause “irreparable harm” and that there was no such harm here. Judge Scarpulla adopted our argument, holding that: “Because I find that Plaintiff’s alleged harm can be fully compensated by money damages by the Directing Defendants, Plaintiff’s harm is not irreparable.”

The Kaye Scholer team representing the group of majority lenders in court include Litigation Department co-chair Jim Herschlein, special counsel Hon. James Catterson, associates Margaret Rogers and Jessica Heller. Bankruptcy & Restructuring Department co-chair Mark Liscio and partners Michael Messersmith and Scott Talmadge set the strategy to oppose GSO’s actions and assisted in preparing the winning papers.