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[strutt12] 12/8/2013 12:37

Coal producer rejected mines bid in favour of restructuring

By Andrew Bounds

UK Coal rejected a bid to buy its surface mines and run its deep mines under contract in favour of a restructuring that could cost British companies millions in pension payments, documents show.

The revelation is contained in the report to creditors compiled by PwC, which handled the administration and liquidation of Britain's largest coal producer, hiving most of its assets into linked businesses.

Hargreaves Services, the listed coal miner and importer, is believed to have made the bid on June 5, a month before UK Coal entered administration on July 9. It could not be reached for comment.

UK Coal, struggling with a £888m pension liability, was further hit by a fire at Daw Mill colliery in February that led to its closure and the loss of 280 jobs, costing more than £38m and destroying £160m worth of equipment.

Had the bid been accepted the Pension Protection Fund, which rescues insolvent schemes and is paid for by a private sector levy, would have received about £23m, the report implies. Instead the PPF has reduced its claim to £37.7m, and will receive about 7.15p in the pound along with other creditors, about £2.2m.

However, it has also been given a £60m loan note by the new company and will receive dividends beyond that until the shortfall is made up.

The PPF said it expected to get higher returns through the restructuring than insolvency or sale.

The bidder offered £20m for the six surface mines and to run the two remaining pits under a management agreement with the creditors. The administrators said that it would have given creditors a 2.61 per cent dividend, similar to that offered by insolvency "with any further return to creditors dependent on future earnings from the deep mines business", essentially sharing the risk with the PPF.

"The proposal .R01;. . was considered to represent a greater risk for creditors [other than the PPF]," it concludes.

The other big difference is that the 1,900 miners would have been made redundant, with a minority being rehired to reduce pension liabilities. The scheme has 1,200 current members and 6,800 beneficiaries in total, with up to 90 per cent of their pension protected by the PPF.

Within 48 hours of administration UK Coal was liquidated and its assets, except for Daw Mill, had been sold to subsidiaries, with creditors owed £189m expected to receive 7.15p in the pound. The taxpayer, through the Coal Authority, faces millions of pounds in clean-up costs for the Warwickshire pit.

Big unsecured creditors include Hargreaves, owed more than £2.6m, and Coalfield Resources, which owns UK Coal's former property assets after an earlier restructuring, owed £3.7m.

The report also shows:

The government refused to give an emergency loan because it would have breached European Union state aid rules.

HM Revenue & Customs would not allow extra time to pay £12m in tax because of "doubts about the future viability of the company".

The company sought a loan to cover £24m in redundancy costs from the Redundancy Payments Service but was refused.

The mines continue to be lossmaking – an income statement for the four months to April 27, 2013 showed the mines losing £700,000 on £4.2m revenue.

Some £15m of a £30m insurance claim for Daw Mill will be used to pay creditors and the advisers working on the restructuring. The rest has been transferred to the new business.

John Ralfe, the pensions expert, said the PPF would have "no choice but to increase the levies it charges to pension schemes".

"Given the high risk of company defaulting, in truth, the market value of the loan notes is negligible," he said.

The PPF has denied this, saying it was confident of its financial position. "The size of these [loan] payments will depend on how the company performs in the future but we expect to receive substantially more than we would have recovered through insolvency."

UK Coal said: "The restructuring has not only preserved 2,000 jobs and put the company in a far more stable position, but the intervention of the PPF has also safeguarded the viability of the pension schemes."

PwC declined to comment.

Hargreaves offered £20 Million and the PPF expects to get higher returns from the restructuring, looks like the value is going to be in the future dividends ;-)

[freddie ferret] 10/8/2013 15:50

This whole matter comes down to trust. Do we trust "them" CRES mgmt and Peel to do the right thing for shareholders? Or are "they" going to favor themselves?

[badger1963] 10/8/2013 13:33

thanks for your reply , you are indeed right about the management and what they have achieved recently , perhaps I was too harsh in my thinking , However past relationships with UK coal and the markets understanding of what Cres became was unclear , it was not positively identified as a property business till recently and that was after the AGM where I spoke to the BOD and pointed out the need to clarify the situation and get Cres some positive publicity and update their web site to identify progress and to identify them as not part of the mining problem that led to the share price panic and almost a Sp claps for Cres , however if this position was already on the cards in respect of a possible squeeze out by Peel it would make sense for the management etc to have done what they did ,kept the share price low for the issue of new shares to be so high in amount to double the dilution , almost handing it over to PEEL for pennies..

[jeffian] 10/8/2013 12:37

Yes, of course it's a risk and likely to take time to realise the asset value (though remember that current NAV does not reflect the full development potential of the land so one would expect realised values in the future to be substantially higher), but I'm always more attracted to the idea of buying £1 for 30p than the other way round. Your question was 'what was the likely outcome' and I think that the take-up is likely to be quite good for the reasons given. Even if Peel do proceed to stitch up minority holders in the future, it is unlikely to be at less than the RI price, so the downside looks negligible and the upside quite good.

As for your final comment, I think it's harsh to refer to "poor management". Jonson Cox was brought in relatively recently to do a job. He's done it, and has brought in some Peel expertise to take it forward. He may well argue that, without the steps he took to split the mining and property sides and re-structure the business, we wouldn't have anything at all. The damage was done before current management took over. The Daw Mill fire just brought things to a conclusion quicker than anyone had foreseen.

[badger1963] 10/8/2013 11:42

o forgot about the poor management at present

[badger1963] 10/8/2013 11:41

1 lack of funds
2, share price drops to 3p
3, no interest from traders or PIs.
4. time scale for any S P rise unpredictable
5, possible buy out from PEEL at what share price
6 , PPF involvement
7, 9p a share unreachable short /mid term
8, costs involved in running the company after 2014
Although I will take up the rights issue I believe there may be years before a return on investment , but Harworth are in process of gaining planning permissions on V sites so a sell off is possible across the board , but what Cres would get out of it is questionable in my opinion , I am open to other opinions on any outcome predicted to compare with my own thoughts

[jeffian] 10/8/2013 00:14

Current NAV is around 16p/share.

Post-Rights Issue NAV would be around 9p/share

You are being offered the chance to buy at 2p/share.

Why wouldn't you?

[badger1963] 09/8/2013 07:56

Would anyone like to predict their thinking of the probable outcome ,

[badger1963] 09/8/2013 07:21

52 week high 8.85 pence in ref to page 152

[badger1963] 09/8/2013 07:11

I hope everyone reads the prospectus f , PAGE 151 and 152 this could be Vital

[dazzaa] 08/8/2013 21:57

As I see it strutt 12 is the most articulate post here! can we just take up the rights issue and be done, then ----- wait.

[freddie ferret] 08/8/2013 13:06

Potentially this is a great deal for shareholders, putting the company on a sound footing for the future with the possibility of developing the properties and buying out the pension fund.

On the other hand we finance the paying off of the bank loan, then Peel buy up the company cheap and kiss us goodbye with very little. Peel would then buy out the pension fund and develop the properties. Very nice for them.

As Jeffian said it comes down to a matter of trust, do we trust them to do the right thing for us? Or are they out to bend us over?

[badger1963] 08/8/2013 07:45

If the rights issue is not fully taken up by PI s and PEEL make a move to take the company private , can they force me to sell my shares at any share price level

[jeffian] 07/8/2013 22:36

Like the irishman, 'I wouldn't have started from here'.

"If I owned 360,000 shares and paid £36000 I'd need the company to be worth £30 Million / 10p a share."

If you owned 360,000, they're worth £13968 (3.88p/share). Get over it!

[strutt12] 07/8/2013 21:12

If I owned 360,000 shares and paid £36000 I'd need the company to be worth £30 Million / 10p a share.

After the rights issue I'd own 720,000 shares and paid £43200 I'd need the company to be worth £36 Million / 6p a share I'd be worse off??

If I didn't subscribe and take the rights £4050 I'd need the company to be worth £53.25 Million / 8.875p a share

I don't see why the company needs to be worth £6 Million more after the rights issue??

The other worry is Currently the company is valued at £11.6 Million after the rights issue if we were valued the same the share price would be £1.93P

Any thoughts on the above???

Edit,
Of course we'd have just over £1 Million in cash!!!

[jeffian] 07/8/2013 19:07

None. If the Rights issue "fails" (you mean, no other shareholders take up their shares?), Peel have undertaken to take them all up and would end up owning up to 65% of the company (as per my post above). There is no obligation on them to make an offer for the whole company.

[badger1963] 07/8/2013 17:57

any speculation of what the offer Peel could make if the rights issue fails

[greatwhitefunkmaster] 07/8/2013 17:16

Although it does mean that a Peel offer for the company at NAV is unlikely now!

[greatwhitefunkmaster] 07/8/2013 17:15

I feel very comfortable being involved in a company with Peel at the helm. Let's be right, it can't be much worse than the past decade, and it could be a lot worse for us shareholders - we could easily have been left with nothing.

Taking up my rights, and looking forward to Peel unlocking the value.

Shirley nobody has a significant part of their portfolio in CRES anyway, so might as well go along for the ride.

GLA

[badger1963] 07/8/2013 16:59

page127 is interesting of document f

[jeffian] 07/8/2013 16:07

Had a quick skim of the Prospectus and that answers my previous question about a mandatory offer if Peel go above 30% (they are seeking a waiver of the rule). The risk, therefore, as they state themselves is that -
"In the event that the Rights Issue proceeds, and there is insufficient take-up of the Nil Paid Rights, the Peel Group's shareholding in the Company may increase up to 64.70% pursuant to the Underwriting Agreement and up to 56.74% if the Committed Shareholders take up their entitlements pursuant to the irrevocable undertakings. Existing shareholders could thus be minority shareholders in a Company in which the Peel Group could be deemed to have control. Furthermore, if the Peel Group has a shareholding greater than 50 per cent., then under the City Code, the Peel Group could increase its shareholding without being subject to the Rule 9 mandatory bid obligations as summarised above."

In an ideal world, the obvious thing is for all shareholders to take up their Rights and thereby all parties retain their respective proportional holdings and Peel stay at 29%. The rationale for doing so is that CRES already trades at a significant discount to NAV and the new shares are being offered at a significant discount to current market value. There will be some nominal dilution but the extra shares on one side are counterbalanced to some extent by the additional £5m cash on the balance sheet. Of course, that isn't going to happen; some shareholders will be unwilling or unable to take up their Rights and others may choose to cash-in whatever premium is available on the Nil Paid Rights, so it seem inevitable that Peel will end up in a stronger position than they are now. I suppose it comes down to - do you trust Peel and Chairman Jonson Cox? I would be inclined to - JC has quite a reputation which I doubt he'd want to trash. If Peel do end up with 65% of the company at 2p/share, it's a fantastic deal for them without the need to shaft the remaining minority shareholders.

Thanks to the trajectory of the share price graph since I bought, my own holding is pretty modest now and I will probably take up the Rights for the hell of it - not much to lose and something to gain!

[freddie ferret] 07/8/2013 15:34

The danger is not one of being a minority shareholder but Peel will be allowed to acquire further shares in the market without offering the same terms to all holders and take the company private.
There is to be a vote on the resolutions the question which way to vote?
There is a good weeks reading here. :-{{

[the troll] 07/8/2013 15:25

are you referring to the risk we could end up minority shareholders in a Co. controlled by Peel Freddie ?

as if that's not enough, you'll have to cough up your cash WITHOUT knowing if that's actually going to happen, ie they won't announce the RI result until it's closed & too late to subscribe; a difficult decision indeed.