IN RE: MURRAY METALLURGICAL COAL HOLDINGS (2020)

OPINION AND ORDER DENYING THE MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR ENTRY OF AN ORDER GRANTING IT STANDING AND AUTHORIZING IT TO PROSECUTE AND SETTLE CERTAIN CLAIMS ON BEHALF OF THE DEBTORS' ESTATES (DOC. 361)

I. Introduction

The Chapter 11 cases of Murray Metallurgical Coal Holdings, LLC (“Murray Met”) and its affiliated debtors and debtors in possession (collectively, the “Debtors”) have devolved into a contest between warring camps. On one side of the present dispute are the Debtors and the holders of their funded debt, including one of the Debtors' affiliates, Murray Energy Corporation (“Murray Energy”), which is a debtor along with nearly 100 other affiliates in a separate group of Chapter 11 cases. On the other side is the Official Committee of Unsecured Creditors appointed in these cases (the “Committee”). The Committee seeks to recharacterize the secured lenders' debt as equity on the eve of the auction at which the lenders would serve as the stalking horse bidder for the Debtors' Oak Grove mine assets. To achieve its goal of having the funded debt recharacterized as equity, the Committee has filed a motion (the “Motion”) (Doc. 361) requesting derivative standing to file a complaint against Murray Energy, secured lender MC Southwork LLC, and the entity that Murray Energy and MC Southwork have formed for the purpose of bidding for the Oak Grove assets ¹ (collectively, the “Proposed Defendants”). The Committee would allege in the complaint that a prepetition take-back debt facility issued by Murray Met to MC Southwork (the “Take-Back Facility”) and a prepetition bridge loan facility advanced by MC Southwork and Murray Energy (the “Bridge Loan Facility” and, together with the Take-Back Facility, the “Prepetition Funded Debt”) should be recharacterized as equity. The Committee also would ask the Court to recharacterize as equity a roll-up of the Bridge Loan Facility (the “DIP Roll Up Facility”) approved by the Court's final order authorizing the Debtors to obtain debtor in possession financing (the “Final DIP Order”) (Doc. 248).

To obtain derivative standing to bring a claim on behalf of the bankruptcy estate, a committee must show, among other things, that it is proposing to bring “a colorable claim that would benefit the estate if successful ․ based on a cost-benefit analysis performed by the court.” Canadian Pac. Forest Prods. v. J.D. Irving, Ltd. (In re Gibson Grp., Inc.), 66 F.3d 1436, 1438 (6th Cir. 1995). As explained below, the Committee's proposed claims are not remotely colorable, and the Committee has not carried its burden of demonstrating that the claims would benefit the estate even if they had any merit. The Motion accordingly is denied.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine the Motion under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). This dispute is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) & (O). And because the dispute “stems from the bankruptcy itself,” the Court also has the constitutional authority to enter a final order in this matter. Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

III. Procedural History

By the Motion, the Committee requests derivative standing to bring the claims asserted in the complaint attached as Exhibit C to the Motion (the “Proposed Complaint”). The Proposed Complaint includes claims seeking to recharacterize the Prepetition Funded Debt and the debt under the DIP Roll Up Facility as equity and to limit the Proposed Defendants' credit bid on account of that debt to $0. The Proposed Complaint also includes a request to enjoin the Proposed Defendants from credit bidding that debt for the purchase of the Oak Grove assets.

The Committee filed both the Motion and a motion for an expedited hearing on April 9, 2020,² and the next day the Court entered an order scheduling a deadline to object to the Motion and an expedited hearing on it. Objections to the Motion were filed by the Debtors (Doc. 385), Murray Energy (Doc. 387), and the Ad Hoc Group of Prepetition Term Loan Lenders (the “Ad Hoc Group”) (Doc. 388). In light of the emergency caused by COVID-19, the Court entered an agreed order establishing procedures for a virtual hearing on the Motion (Doc. 383), and the hearing was conducted in accordance with those procedures on April 14, 2020.

During the hearing, the parties stipulated to the admission into evidence, solely for the purpose of the Court's ruling on the Motion, of the Committee's Exhibits A–O, the Debtors' Exhibits 1–6, and the Ad Hoc Group's Exhibits A–O. Hr'g on Mot. at 12:45:08–12:45:36.³ Several of those exhibits are particularly relevant to the Court's disposition of the Motion:

• The Ad Hoc Group's Exhibit A: the credit agreement governing the Take-Back Facility (the “Take-Back Credit Agreement”);

• The Committee's Exhibit N: an order (the “Sale Order”) issued by the United States Bankruptcy Court for the Northern District of Alabama (the “Alabama Bankruptcy Court”), which made certain findings regarding the debt issued under the Take-Back Facility; and

• The Committee's Exhibit C: the declaration of Edwin N. Ordway, Jr., a managing director of Berkeley Research Group, the Committee's financial advisor (the “Ordway Declaration”).

The Ordway Declaration was admitted in lieu of his direct testimony on behalf of the Committee. The Court also heard Mr. Ordway's testimony on cross-examination and re-direct. Counsel for the Committee represented during the hearing that the Committee was relying on the declaration and testimony of Mr. Ordway as well as the documents referenced in the Proposed Complaint. Hr'g on Mot. at 1:43:12–1:46:56. That would, of course include the Sale Order and the Take-Back Credit Agreement as well as the amendment to the Take-Back Credit Agreement that gave rise to the Bridge Loan Facility.

IV. Background

Murray Met filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 11, 2020 (the “Petition Date”), followed by the other Debtors on February 12, 2020. Unlike the Murray Energy debtors, which mine thermal coal that is used in the generation of electricity, the Debtors mine and sell metallurgical coal, which is used to produce coke, a product needed to produce steel. As stated above, the Debtors' assets include the Oak Grove in Alabama that employs more than 500 people.

Murray Met was formed in the spring of 2019 for the purpose of acquiring certain of the assets, including the Oak Grove mine, of a metallurgical coal producer known as Mission Coal Company, LLC. Ordway Decl. ¶ 3, 5. Several months earlier, in the fall of 2018, Mission Coal and certain of its affiliates (the “Mission Coal Debtors”) had commenced Chapter 11 cases in the Alabama Bankruptcy Court. Id. ¶ 4. At the time they commenced those cases, the Mission Coal Debtors had approximately $175 million in secured debt, including about $104 million under a first lien secured term loan (the “First Lien Loans”) and $71 million under a second lien secured term loan. Id. ¶ 6. The First Lien Loans arose under a credit agreement between Mission Coal and lenders MC Southwork and Coal Specialty Funding, II (“Coal Specialty Funding” and, together with MC Southwork, the “Mission Coal DIP Lenders”). Id. ¶ 7. The First Lien Loans were secured by senior liens on substantially all the assets of the Mission Coal Debtors. Id.

The Mission Coal DIP Lenders provided a debtor in possession financing facility to the Mission Coal Debtors, which the Alabama Bankruptcy Court approved on a final basis in November 2018. Id. ¶ 8. The Alabama Bankruptcy Court's final DIP financing order provided for the roll-up of the First Lien Loans into the Mission Coal DIP loan along with $54.4 million of additional new money commitments, for a total DIP credit facility of approximately $201 million. Id.

In connection with an auction for the sale of the assets of the Mission Coal Debtors, the Mission Coal DIP Lenders provided an opening bid for certain of those assets, including a credit bid of at least $145 million, plus additional cash consideration of $38 million, the assumption of certain liabilities, and the funding of certain wind-down escrow accounts. Id. ¶ 9. The auction for the Mission Coal assets did not generate a cash bid that would have fully satisfied the Mission Coal DIP Lenders' claims. Id. ¶ 12.

Together with an entity known as Javelin Global Commodities (UK) Ltd. (an affiliate of Murray Energy), MC Southwork and Murray Energy submitted a bid for the acquisition of the Oak Grove mine and other mining assets through an entity that ultimately became Murray Met. Id. ¶¶ 13–14. The bid provided for consideration of $264.7 million, including $160 million in the form of the Take-Back Facility payable to MC Southwork and Coal Specialty Funding and $42.8 million in cash payable to the bankruptcy estates of the Mission Coal Debtors. Id. ¶ 14. In addition, the bid would permit the payment of $31.7 million in estimated cure costs, tax liabilities, postpetition payables and other administrative expenses upon the closing of the sale. Id. The bid also provided for the infusion of $10 million of cash on Murray Met's balance sheet to fund the operation of the metallurgical mining complexes after the closing. Id.

The Mission Coal Debtors ultimately declared Murray Met to be the successful bidder for the Oak Grove mine and other assets. Id. ¶ 15. In short, the Mission Coal DIP Lenders rolled certain of the debt owed them into the Take-Back Facility. Id. The total consideration paid by Murray Met for the Oak Grove and other mining assets was $264.7 million plus the assumption of approximately $70 million in reclamation liabilities. Id. ¶ 16. Of this $264.7 million, about $160 million was in the form of the Take-Back Facility issued by Murray Met to the Mission Coal DIP Lenders. Id. ¶ 17.

The title of Take-Back Credit Agreement is “Credit Agreement,” and the parties to it are Murray Met as borrower, Wilmington Savings Fund Society, FSB as administrative agent, and certain lenders and guarantors. The Take-Back Credit Agreement states that it is secured by: (i) a first priority lien on the Debtors' real and personal property, other than their inventory, coal, as-extracted collateral, accounts receivable, deposit accounts, and contracts and agreements (the “Prepayment Collateral”); and (ii) a third priority security interest in, among other assets, the Prepayment Collateral. The interest rate under the Take-Back Credit Agreement is 8% interest per annum, payable semiannually in cash or, until June 30, 2021, payable in kind by capitalizing the interest (“PIK interest”). Take-Back Credit Agreement §§ 1.1, 2.05(a) & 2.05(c). The Take-Back Credit Agreement has a maturity date of April 29, 2023. Id. §§ 1.01; 2.04. The loans issued under the Take-Back Credit Agreement are secured by substantially all the assets of Murray Met and each of its subsidiaries. Ad Hoc Group's Ex. C, Prepetition Term Loan Guaranty, Pledge and Security Agreement § 3.

The Alabama Bankruptcy Court approved the sale of the Mission Coal assets to Murray Met in April 2019. The Sale Order provided that the loans issued under the Take-Back Facility were “valid, binding, enforceable, extended in good faith and [that] the liens and claims granted therein may not be avoided under the Bankruptcy Code, the Uniform Fraudulent Transfer Act, the Uniform Fraudulent Conveyance Act and any other applicable laws.” Sale Order ¶ I; see also Sale Order ¶ O (providing that “the liens securing the [Take-Back Facility] ․ are valid, binding, enforceable, and in full force and effect”); Sale Order ¶¶ J(5) and 11(c) (providing that the assets acquired by Murray Met “shall be subject in all respects to the liens securing [the Take-Back Facility]”). The Sale Order included a finding that the “Buyer,” which would become Murray Met, had provided adequate assurance of its future performance under contracts to be assumed and assigned to it. In particular, the Alabama Bankruptcy Court found that “compelling testimony was presented at the Sale Hearing that [Murray Met] is an experienced mine operator, particularly of the kind of mines such as Oak Grove and Maple [Eagle]. Based on the testimony, it is likely [Murray Met] will efficiently and successfully operate the mines if the sale closes and the plan is confirmed.” Id. ¶ 7.

Murray Met had significant negative operating cash flow beginning sometime after the acquisition of the Mission Coal assets, leading it to hot idle its Oak Grove and Maple Eagle ⁴ mines in the fall of 2019, Ordway Decl. ¶ 19, which means that Murray Met was not mining coal from the mines but was maintaining them in anticipation that mining operations would resume in the future. Strapped for cash, in November 2019, Murray Met entered into a first amendment to the Take-Back Facility under which Murray Energy provided $3.5 million on the same terms as the original facility. As of the Petition Date, there was approximately $165 million in principal and interest outstanding under the Take-Back Facility. During the weeks leading up to the Petition Date, MC Southwork and Murray Energy advanced funds to Murray Met under the Bridge Loan Facility (the “Bridge Loans”). Id. They advanced these funds in connection with a third amendment to the Take-Back Credit Agreement, which established shorter maturity dates for the Bridge Loans. Take-Back Credit Agreement, Am. No. 3. It is undisputed that, of the total amount of $21.5 million provided under the Bridge Loan Facility, MC Southwork contributed $14.4 million and Murray Energy $7.1 million. Mot. ¶ 50.

The senior DIP facility approved by the Final DIP Order took the form of a $50.4 million term loan from MC Southwork for the repayment of $28.9 million in new money senior DIP loans and a roll-up of the $21.5 million that MC Southwork had advanced under the Bridge Loan Facility. The Final DIP Order also authorized a junior DIP facility provided by Murray Energy up to an aggregate principal amount of $18.2 million in junior DIP loans. In addition, the Final DIP Order's approval of the DIP Roll Up Facility effectuated a roll-up of the Bridge Loan Facility. Mot. ¶¶ 70–71.

V. Legal Analysis

A. Derivative Standing

The Proposed Defendants maintain that the Committee could have asserted its recharacterization claim directly by bringing a claim objection under § 502(a) of the Bankruptcy Code. See 11 U.S.C. § 502(a) (providing that “any party in interest” may object to a claim); Official Comm. of Unsecured Creditors v. Gen. Elec. Capital Corp. (In re Russell Cave Co.), 107 F. App'x 449, 451 (6th Cir. 2004) (“A recharacterization claim and objecting to a claim's allowance are one-in-the-same ․”). Had it done so, the Proposed Defendants argue, the Committee would not have been required to seek derivative standing to bring the recharacterization claim. The Court will address the Committee's request for derivative standing without reaching the issue of whether it would have been permissible for the Committee to assert its claims directly.

Under Sixth Circuit law, a

creditors' committee may [obtain] derivative standing ․ where: 1) a demand has been made upon the statutorily authorized party to take action; 2) the demand is declined; 3) a colorable claim that would benefit the estate if successful exists, based on a cost-benefit analysis performed by the court, and 4) the inaction is an abuse of discretion (“unjustified”) in light of the debtor-in-possession's duties in a Chapter 11 case. [The committee] has met its burden to show standing to file an avoidance action if it has fulfilled the first three requirements and the trustee or debtor-in-possession declined to take action without stating a reason. The burden then shifts to the debtor-in-possession to establish, by a preponderance of the evidence, that its reason for not acting is justified.

Gibson Grp., 66 F.3d at 1446.

There is no question here that the Committee has made a demand on the Debtors to assert a recharacterization claim against the Proposed Defendants and that the Debtors declined to do so. The Committee accordingly has met the first two Gibson Group requirements. But has the Committee satisfied both components of the third requirement? That is, has it shown that its claims are “colorable,” and has it proven that the claims “would benefit the estate if successful based on a cost-benefit analysis” performed by the Court? Before deciding those questions, the Court will first address the standards that should be applied in analyzing whether a colorable claim exists.

The Court, to cut to the chase, will apply the standards applicable to motions to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted. This is consistent with the Sixth Circuit's approach in Gibson Group of determining that “the Chapter 11 creditor committee's proposed complaint ․ stated a colorable claim ․ ‘[o]n the face of the complaint,’ without requiring or considering whether evidence supported the claims stated in the complaint.” In re Dzierzawski, 518 B.R. 415, 419 (Bankr. E.D. Mich. 2014) (quoting Gibson Grp., 66 F.3d at 1439); see also Larson v. Foster (In re Foster), 516 B.R. 537, 542 (8th Cir. BAP 2014) (“A creditor's claim is colorable if it would survive a motion to dismiss.”), aff'd, 602 F. App'x 356 (8th Cir. 2015); In re Thomas, No. 16-27850-K, 2018 WL 10323389, at *3 (Bankr. W.D. Tenn. Aug. 24, 2018) (“To make such a determination, courts look to the face of the complaint.”) (citing Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.), 555 F.3d 231, 245 (6th Cir. 2009)).

In Trailer Source, the Sixth Circuit noted that in determining whether a claim is colorable “courts initially look to the ‘face of the complaint.’ ” Trailer Source, 555 F.3d at 245 (emphasis added). The Trailer Source court's use of the word “initially” could be read to suggest that courts may look beyond the face of the complaint. Along those lines, one bankruptcy court has held that courts assessing colorability “must ensure that the claims do not ‘lack any merit whatsoever.’ ” In re LTV Steel Co., 333 B.R. 397, 406 (Bankr. N.D. Ohio 2005). Or, as another bankruptcy court put it, some courts “engage[ ] in [a] review of disputed facts ․ to satisfy [themselves] that there is some factual support for the Committees' allegations—without determining whether those allegations are true—and to satisfy [themselves] that the proposed litigation would be a sensible application of estate resources.” Adelphia Commc'ns Corp. v. Bank of Am., N.A. (In re Adelphia Commc'ns Corp.), 330 B.R. 364, 369, 386 (Bankr. S.D.N.Y. 2005).

The Court need not decide here whether this arguably looser approach is permissible under Sixth Circuit law, because it is abundantly clear that the Committee has failed to show that its claims are colorable even under the standards applicable to Rule 12(b)(6) motions. When deciding such motions, “[c]ourts must accept as true the factual allegations pleaded in the complaint.” DBI Invs., LLC v. Blavin, 617 F. App'x 374, 380 (6th Cir. 2015). That said, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions,” and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Rather, in order to “survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The Sixth Circuit “take[s] a liberal view of what matters fall within the pleadings for purposes of Rule 12(b)(6). If referred to in a complaint and central to the claim, documents attached to a motion to dismiss form part of the pleadings.” Armengau v. Cline, 7 F. App'x 336, 344 (6th Cir. 2001). The Take-Back Credit Agreement and its amendments are referenced in the Proposed Complaint and are central to the Committee's claims. Further, the sale approved by the Sale Order is discussed at length in the Proposed Complaint, and the Committee itself offered the Sale Order as an exhibit, the admission of which the parties stipulated to along with the Take-Back Credit Agreement and the parties' other exhibits. For all these reasons, the Court may consider the Sale Order and the Take-Back Credit Agreement and its amendments in assessing colorability. And because the Committee itself offered the Ordway Declaration in support of the Motion, the Court may also consider the declaration and Mr. Ordway's testimony.

During the hearing on the Motion, the Committee relied on one decision, Friedman's Liquidating Tr. v. Goldman Sachs Credit Partners, L.P. (In re Friedman's Inc.), 452 B.R. 512, 514 (Bankr. D. Del. 2011), to suggest that it would be unusual for a court to conclude that a recharacterization claim is not colorable if the court were applying the Rule 12(b)(6) standards. As discussed in more detail below, the circumstances in Friedman's—in that case the notes at issue expressly stated that they were unsecured subordinated loans, and there was an “ ‘exact correlation’ between the ownership interests of the equity holders and their proportionate share of the alleged loan,” id. at 522—were so different from the facts before the Court that Friedman's provides absolutely no basis for finding the Committee's claims to be colorable. And, as it turns out, courts have regularly dismissed weak recharacterization claims like the Committee's for failure to state a claim upon which relief can be granted. See, e.g., Miller v. ANConnect, LLC (In re Our Alchemy, LLC), No. 18-50633, 2019 WL 4447535, at *6–11 (Bankr. D. Del. Sept. 16, 2019); Spradlin v. Whitt (In re Licking River Mining, LLC), 572 B.R. 812, 825 (Bankr. E.D. Ky. 2017); Weisfelner v. Blavatnik (In re Lyondell Chem. Co.), 544 B.R. 75, 102–04 (Bankr. S.D.N.Y. 2016); Devices Liquidation Tr. v. Pinebridge Vantage Partners, L.P. (In re Pers. Commc'n Devices, LLC), 528 B.R. 229, 237–39 (Bankr. E.D.N.Y. 2015); Official Comm. of Unsecured Creditors v. Highland Capital Mgmt. L.P. (In re Moll Indus., Inc.), 454 B.R. 574, 581–85 (Bankr. D. Del. 2011); Official Comm. of Unsecured Creditors v. Bay Harbour Master Ltd. (In re BH S & B Holdings LLC), 420 B.R. 112, 160 (Bankr. S.D.N.Y. 2009), aff'd as modified, 807 F. Supp. 2d 199 (S.D.N.Y. 2011); Adelphia Commc'ns Corp. v. Bank of Am., N.A. (In re Adelphia Commc'ns Corp.), 365 B.R. 24, 74–75 (Bankr. S.D.N.Y. 2007), aff'd in part sub nom. Adelphia Recovery Tr. v. Bank of Am., N.A., 390 B.R. 64 (S.D.N.Y. 2008). Likewise, in cases where derivative standing to bring recharacterization claims has been sought, courts have denied the requests using the standards applicable to motions to dismiss. See In re Optim Energy, LLC, No. 14-10262 (BLS), 2014 WL 1924908, at *7 (Bankr. D. Del. May 13, 2014), aff'd, 527 B.R. 169 (D. Del. 2015). As explained below, because the Proposed Complaint would not survive a motion to dismiss, it does not pass muster under the Sixth Circuit's colorability standard, and the Committee cannot be granted standing to bring it.

B. The Committee's Claims Are Not Colorable.

Sixth Circuit law requires courts to consider 11 factors in analyzing recharacterization claims:

(1) the names given to the instruments, if any, evidencing the indebtedness; (2) the presence or absence of a fixed maturity date and schedule of payments; (3) the presence or absence of a fixed rate of interest and interest payments; (4) the source of repayments; (5) the adequacy or inadequacy of capitalization; (6) the identity of interest between the creditor and the stockholder; (7) the security, if any, for the advances; (8) the corporation's ability to obtain financing from outside lending institutions; (9) the extent to which the advances were subordinated to the claims of outside creditors; (10) the extent to which the advances were used to acquire capital assets; and (11) the presence or absence of a sinking fund to provide repayments.

Bayer Corp. v. MascoTech, Inc. (In re AutoStyle Plastics, Inc.), 269 F.3d 726, 749–50 (6th Cir. 2001).

“No one factor is controlling or decisive,” and “[t]he factors must be considered within the particular circumstances of each case.” Id. Courts have rejected recharacterization claims in the context of a motion to dismiss even if some factors may indicate colorability. See Lyondell, 544 B.R. at 102–04 (holding that the trustee failed to state a claim for recharacterization because only four AutoStyle factors supported recharacterization, and “only one of those factors [did] so in more than a minimal way”); BH S & B Holdings LLC, 420 B.R. at 160 (explaining that the court may dismiss a recharacterization claim if the plaintiff “fails ‘to plead facts that trigger the applicability of the AutoStyle factors, or a meaningful subset of them’ ”) (quoting Adelphia, 365 B.R. at 75). Here, the factors weigh heavily in favor of the conclusion that the Prepetition Funded Debt is debt, not equity:

1. The Names Given to the Instruments Evidencing the Indebtedness

The instrument evidencing the Take-Back Facility, the Take-Back Credit Agreement, is denominated a “Credit Agreement,” and the loans under the Bridge Loan Facility were made in connection with amendments to the Take-Back Credit Agreement. This factor therefore weighs against recharacterizing the Prepetition Funded Debt as equity.

2. The Presence or Absence of a Fixed Maturity Date and Schedule of Payments

The Take-Back Credit Agreement has a fixed maturity date of April 29, 2023 and provides for interest to be paid semiannually in cash, or as PIK interest for the first two years. The Bridge Loans have maturity dates before April 29, 2023. The fixed maturity dates and schedule of payments indicate that the Prepetition Funded Debt is in fact debt. Thus, this factor also weighs against recharacterization.

3. The Presence or Absence of a Fixed Rate of Interest and Interest Payments

The Take-Back Credit Agreement has a fixed rate of interest of 8% per annum, which is indicative of debt. The option to pay interest in the form of PIK interest for the first two years does not alter this conclusion. As the Sixth Circuit has held, “deferral of interest payments does not by itself mean that the parties converted a debt transaction to equity since the defendants still expected to be repaid.” AutoStyle, 269 F.3d at 751; see also Official Comm. of Unsecured Creditors of HH Liquidation, LLC, v. Comvest Grp. Holdings, LLC (In re HH Liquidation, LLC), 590 B.R. 211, 293 (Bankr. D. Del. 2018); United States v. State Street Bank & Tr. Co., 520 B.R. 29, 79 (Bankr. D. Del. 2014) (“The Junior PIK Notes reflect all indicia of indebtedness, including the issuance of notes with payment at a fixed interest rate (although payment of interest was deferred).”); Official Unsecured Creditors' Comm. of Broadstripe, LLC v. Highland Capital Mgmt., L.P (In re Broadstripe, LLC), 444 B.R. 51, 96 (Bankr. D. Del. 2010) (“Moreover, the presence of PIK interest is not decisive, especially in a distressed investment context. This factor does not weigh heavily in any direction, but slightly in favor of the Second Lien Investments being categorized as debt.”). In sum, this factor weighs against recharacterizing the Prepetition Funded Debt as equity.

4. The Source of Repayments

Under this factor, “if the expectation of repayment depends solely on the success of the borrower's business, the transaction has the appearance of a capital contribution.” AutoStyle, 269 F.3d at 751. In AutoStyle, the Sixth Circuit noted that source of repayment of the credit facility was “AutoStyle's earnings, secured by a lien on all of [its] assets.” Id. It found that “these facts weigh only slightly in favor of equity.” Id. The AutoStyle court pointed out, however, that “this is balanced to some extent by the security of the lien on all of AutoStyle's assets.” Id. The Take-Back Credit Agreement does not specify a source of repayment. The debt, however, was secured by the Debtors' assets, including a first priority lien on the Debtors' real and personal property other than the Prepayment Collateral. Repayment therefore did not depend solely on the success of the Debtors' business. See In re Aéropostale, Inc., 555 B.R. 369, 421 (Bankr. S.D.N.Y. 2016) (holding that the fact that the debt facility was fully secured by a blanket lien on substantially all of the debtors' assets meant that repayment of the facility was not solely dependent on the success of the debtors' business). Thus, this factor is either neutral or weighs slightly against recharacterization.

5. The Adequacy or Inadequacy of Capitalization

The Committee relies primarily on this factor in seeking to demonstrate the colorability of its claims. In the Sale Order, however, the Alabama Bankruptcy Court found that “compelling testimony was presented at the Sale Hearing that [Murray Met] is an experienced mine operator, particularly of the kind of mines such as Oak Grove and Maple. Based on the testimony, it is likely [Murray Met] will efficiently and successfully operate the mines if the sale closes and the plan is confirmed.” Sale Order ¶ 7, at 21. This finding is entirely inconsistent with the Committee's suggestion here that Murray Met was undercapitalized from its inception. But even if it were not, courts have afforded this factor little weight in distressed lending contexts. Aéropostale, 555 B.R. at 420–21 (Bankr. S.D.N.Y. 2016); Gecker v. Flynn (In re Emerald Casino, Inc.), No. 02 B 22977, 2015 WL 1843271, at *11 (N.D. Ill. Apr. 21, 2015) (“The court ․ is unwilling to assume that every transaction between insiders and [the debtor] that occurred while [the debtor] was struggling financially and was undercapitalized must be deemed a capital investment.”); BH S & B Holdings, 420 B.R. at 159 (stating that “[c]ourts should not put too much emphasis on this factor ․ because all companies in bankruptcy are in some sense undercapitalized”). For these reasons, this factor does not support recharacterizing the Prepetition Funded Debt as equity.

6. The Identity of Interest Between the Creditor and the Stockholder

Under the sixth factor, the Court must examine the identity of interest between the Proposed Defendants and the Debtors' shareholders. This is because “[i]f stockholders make advances in proportion to their respective stock ownership, an equity contribution is indicated.” AutoStyle, 269 F.3d at 751. By contrast, “a sharply disproportionate ratio between a stockholder's percentage interest in stock and debt is indicative of bona fide debt.” Id.

The only Proposed Defendant that is a shareholder of Murray Met is Murray Energy, which indirectly owns a vast majority of Murray Met's stock. As of the Petition Date, there was more than $190 million of Prepetition Funded Debt outstanding. Murray Energy provided only about $10.6 million of this amount, including around $3.5 million under an amendment to the Take-Back Facility and another $7.1 million under the Bridge Loan Facility. In other words, Murray Energy provided only approximately 5% of the overall funding while non-shareholders advanced nearly 95%. This factor accordingly weighs against recharacterization of the Prepetition Funded Debt as equity.

7. The Security, if Any, for the Advances

Under the seventh factor, an absence of a security for the advances suggests a capital contribution. AutoStyle, 269 F.3d at 751. But as previously discussed, the Prepetition Funded Debt is secured by substantially all of the Debtors' assets. Thus, this factor weighs against recharacterization.

8. The Corporation's Ability to Obtain Financing from Outside Lending Institutions

“When there is no evidence of other outside financing, the fact that no reasonable creditor would have acted in the same manner is strong evidence that the advances were capital contributions rather than loans.” AutoStyle, 269 F.3d at 752. But difficulty in finding outside lending is a common characteristic of distressed companies. And “when existing lenders make loans to a distressed company, they are trying to protect their existing loans and traditional factors that lenders consider ․ do not apply as they would when lending to a financially healthy company[.]” Cohen v. KB Mezzanine Fund II (In re SubMicron Sys. Corp.), 432 F.3d 448, 457 (3d Cir. 2006) (internal quotations omitted). As another bankruptcy court held in a decision that also involved a prior bankruptcy case: Because “[e]xisting lenders are often the only source of funding when a debtor faces distress ․ inability to obtain alternative financing is insufficient to support recharacterization.” Moll, 454 B.R. at 584. This factor accordingly does not weigh in favor of recharacterizing the Prepetition Funded Debt as equity.

9. The Extent to Which the Advances Were Subordinated to the Claims of Outside Creditors

Under the ninth factor, the “[s]ubordination of advances to claims of all other creditors indicates that the advances were capital contributions and not loans.” AutoStyle, 269 F.3d at 752 (emphasis added). The Take-Back Facility, however, was not subordinated to all other creditors' claims. The Proposed Defendants had a first priority lien on the assets of the Debtors other than the Prepayment Collateral. Further, although the Proposed Defendants had only a third priority lien on the Prepayment Collateral, that lien would have put the Proposed Defendants ahead of unsecured creditors. Overall, then, the Prepetition Funded Debt was not subordinated to advances of claims of other creditors in a way that would be indicative of equity. See id. (“The advances were not subordinated to the claims of all of AutoStyle's creditors, nor were they subordinated pursuant to any agreement between the defendants and AutoStyle.”); Lyondell, 544 B.R. at 100 (holding that the subordination factor did not weigh in favor of recharacterization of unsecured loan that ranked pari passu with the claims of all other unsecured creditors but was not subordinated below the unsecured level).

10. The Extent to Which the Advances Were Used to Acquire Capital Assets

The Debtors used the funds advanced under the Take-Back Facility to acquire the Mission Coal assets. The Court, however, does not find this factor to be particularly relevant here. Indeed, rather than supporting recharacterization, this factor instead serves only to direct attention to the truly relevant point: The acquisition of the Mission Coal assets was approved by the Alabama Bankruptcy Court, and that court's Sale Order includes a finding that is directly contrary to the Committee's position here. In particular, the Sale Order provides that the notes issued under the Take-Back Facility were “valid, binding, enforceable, extended in good faith and [that] the liens and claims granted therein may not be avoided under the Bankruptcy Code, the Uniform Fraudulent Transfer Act, the Uniform Fraudulent Conveyance Act and any other applicable laws.” Sale Order ¶ I. During the hearing on the Motion, counsel for the Debtors cited authority standing for the proposition that a bankruptcy sale order under § 363 “is a judgment that is good as against the world, not merely as against parties to the proceedings.” In re Veg Liquidation, Inc., 931 F.3d 730, 737 (8th Cir. 2019), cert. denied sub nom. Fulmer v. Fifth Third Equip. Fin. Co., ––– U.S. ––––, 140 S. Ct. 904, 205 L.Ed.2d 463 (2020) (quoting Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 732 (8th Cir. 2004)). The Court need not decide whether that principle applies here, because the Sale Order is nonetheless highly persuasive regarding the fact that the debt issued under the Take-Back Facility was actually debt rather than equity.

11. The Presence or Absence of a Sinking Fund to Provide Repayments

The Prepetition Term Loan Credit Agreement did not provide for a sinking fund,⁵ but the Prepetition Funded Debt was secured by collateral, “which obviated any need for a sinking fund.” AutoStyle, 269 F.3d at 753. See also Lyondell, 544 B.R. at 101 (questioning the analytical value of this factor in distinguishing debt from equity because sinking funds in modern corporate financings do not appear to be “in any way the norm” or “in this day even common” in bona fide loan transactions). Thus, this factor does not weigh in favor of concluding that the Prepetition Funded Debt should be recharacterized as equity.

In sum, as in AutoStyle, the Committee “is unable to demonstrate a single factor that weighs strongly toward recharacterizing the participation loans as equity,” id., and the factors instead confirm without question that the Prepetition Funded Debt indeed is debt. This is not a close call—the Committee's recharacterization claim is simply not colorable.

Recharacterization is the only basis asserted by the Committee in support of its claim seeking to reduce to zero the Proposed Defendants' credit bid on account of the Prepetition Funded Debt and the DIP Roll Up Facility; accordingly, that claim likewise is not colorable. Recharacterization also is the only basis the Committee asserts for enjoining the Proposed Defendants from credit bidding the disputed portion of their debt for the purchase of the Oak Grove assets. In order to obtain an injunction here, the Committee would need to show that there is a likelihood of success on the merits of its recharacterization claim. Because the likelihood of success on a claim that is not even colorable is zero, the Committee could not possibly be entitled to an injunction. In sum, given that the legal predicate for each of the claims set forth in the Proposed Complaint has no merit, none of the claims is colorable.

As the Court will explain below, the Committee also has failed to show that its claims would benefit the estate even if they were colorable. But before proceeding to discuss that issue, the Court pauses to note some troubling aspects of the Committee's attempt to recharacterize the Prepetition Funded Debt—especially the debt issued under the Take-Back Facility—as equity under the circumstances of this case. For one thing, the Committee's financial advisor, Mr. Ordway, also served as the financial advisor to the committee of unsecured creditors in the Mission Coal cases, and both committees shared the same counsel and one member. The financial advisor and counsel for the Mission Coal committee—as representatives for the entity having a fiduciary duty to all unsecured creditors—would have had a central role to play if they believed that Murray Met was indeed going to be insufficiently capitalized from its inception. But as Mr. Ordway's testimony revealed, the Mission Coal committee did not act in the Mission Coal cases as though it believed that Murray Met was undercapitalized. Mr. Ordway conceded that it would have been important to Mission Coal's unsecured creditors—including vendors whose contracts were being assumed and assigned to Murray Met, as well as workers who would be employed by Murray Met going forward—to know whether the company was undercapitalized. Hr'g on Mot. at 1:25:18–1:30:06. Yet the Mission Coal committee did nothing to address what the Committee in this case says was Murray Met's purported undercapitalization from the beginning. Indeed, the Mission Coal committee ultimately supported the sale to Murray Met.

The Committee's efforts to demonstrate Murray Met's inadequate capitalization is disquieting for another reason. During his direct testimony, Mr. Ordway attempted to address the sharp decline in the price of metallurgical coal that followed Murray Met's purchase of the Mission Coal assets. The Debtors have pointed to this decline as the cause of their poor post-closing financial performance. The Committee again attempted to pin the blame on Murray Met's capitalization as of the closing, representing through Mr. Ordway that:

[t]he price of met coal has fluctuated between $200 a short ton to as low as $80 a short ton over the last ten years. What are the reasons for that? Climate change, competition from other sources, especially natural gas—you know, Mr. Moore mentioned some of these things earlier—international competition. All of these things existed prior to the Coronavirus crisis that we are now in, and they are also going to continue. So, prices are always going to continue to fluctuate. I think the Debtor trying to characterize this decline in pricing as an aberration—I would argue—is the nature of the business.

Hr'g on Mot. at 1:37:00–1:38:05. Yet, on cross-examination, Mr. Ordway conceded that the factors he had mentioned during his direct testimony were relevant to the price of thermal coal but were not particularly relevant to the price of the metallurgical coal mined by Murray Met. Id. at 1:40:20–1:41:17.

Because the Mission Coal committee had the same counsel and financial advisor as well as one of the same members, the Ad Hoc Group contends that the Mission Coal committee's failure to challenge the Sale Order judicially estops the Committee from challenging the adequacy of the Debtors' capitalization now. But whether this is so or not, there is certainly a patent inconsistency between the Mission Coal committee's affirmative support of the sale to Murray Met and the Committee's position in this case that Murray Met was undercapitalized at the time of that sale.

On top of all that, the fact that the Committee shares the same counsel and financial advisor as the Mission Coal committee almost certainly means that the Committee knew nothing at the time it filed the Motion that it did not already know when the Final DIP Order was approved. Despite this, the Committee said not a word in opposition to the Court's approval of provisions in the Final DIP Order that treat the DIP Roll Up Facility as debt that gives rise to the right to credit bid, not as equity. Finally, the Committee ignores the fact that recharacterizing debt as equity under the circumstances of this case would deter lenders from participating in debtor in possession financings and from engaging in other distressed lending that is so vital to the rehabilitation of struggling companies.

C. The Committee Has Failed to Establish that Success on Its Recharacterization Claim Would Provide Any Benefit to the Estate.

In addition to asserting a colorable claim, a party seeking derivative standing to bring a claim on behalf of a bankruptcy estate must demonstrate that the claim “would benefit the estate if successful ․ based on a cost-benefit analysis performed by the court.” Gibson Grp., 66 F.3d at 1438. A party seeking derivative standing to bring a claim on behalf of a bankruptcy estate has the burden of proof on each of the required elements for standing. See Foster, 516 B.R. at 542. Thus, a committee's failure to prove that the claim it seeks to bring would benefit the estate provides an additional basis for denying its request for derivative standing. For example, the bankruptcy court in Sabine Oil held that a “key consideration in determining whether [a committee's] bringing certain claims is in the best interests of the estates ․ is the question of how much of any litigation recoveries would” be available to pay the claims of unsecured creditors. In re Sabine Oil & Gas Corp., 547 B.R. 503, 515 (Bankr. S.D.N.Y.), aff'd, 562 B.R. 211 (S.D.N.Y. 2016). The fact that any litigation recoveries likely would not have been available for unsecured creditors counseled in favor of denying the unsecured creditors' committee's request for derivative standing. Id. at 574–78; see also In re Applied Theory Corp., 493 F.3d 82, 86 (2d Cir. 2007) (holding that “[r]equiring bankruptcy court approval conditioned upon the litigation's effect on the estate helps prevent committees and individual creditors from pursuing adversary proceedings that may provide them with private benefits but result in a net loss to the entire estate”); Official Comm. of Unsecured Creditors of Sunbeam Corp. v. Morgan Stanley & Co. (In re Sunbeam Corp.), 284 B.R. 355, 375 (Bankr. S.D.N.Y. 2002) (denying derivative standing to the creditors' committee after finding that the committee's claims would not benefit the estate but instead would “delay resolution of this reorganization proceeding by impeding approval of the pending plan of reorganization”).⁶

Here, the only potential benefit to which the Committee points is the elimination of the purported bid-chilling effect of the Proposed Defendants' credit bid. Mot. ¶ 1. According to the Committee: “The Debtors' acquiescence in allowing the Proposed Defendants to credit bid ․ leaves the Committee as the sole independent fiduciary that can properly act for the Debtors' estates. Thus, the Committee should be granted standing ․ [i]n order to preserve potentially valuable assets of the Debtors' estates.” Mot. ¶¶ 4, 6.

If the Committee had any evidence that the Proposed Defendants' credit bid would chill bidding, it could have presented it during a hearing on the Debtors' motion for approval of the bidding procedures for the Oak Grove assets. And it would have had to present evidence if it had sought to reduce the amount of the Proposed Defendants' credit bid based on the alleged bid-chilling effect of the credit bid. For although courts have reduced the amounts of credit bids that would chill bidding, the mere argument that “credit bidding generally chills the bidding process” does not establish cause to reduce the amount of a credit bid. In re River Rd. Hotel Partners, LLC, No. 09 B 30029, 2010 WL 6634603, at *2 (Bankr. N.D. Ill. Oct. 5, 2010), aff'd sub nom. River Rd. Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011), aff'd sub nom. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 132 S.Ct. 2065, 182 L.Ed.2d 967 (2012). Rather, cause exists to reduce the amount of a credit bid only if there is “specific evidence” demonstrating the allegation of bid chilling “to be true in th[e] [particular] case.” Id.; see also In re Fisker Auto. Holdings, Inc., 510 B.R. 55, 57–58 (Bankr. D. Del. 2014) (capping secured creditor's credit bid under § 363(k) based on evidence presented by the creditor's committee establishing “a strong likelihood that there would be an auction that has a material chance of creating material value for the estate over and above the [secured creditor's] present [credit] bid”); Aéropostale, 555 B.R. at 417 (“[T]he Court is unaware of any cases where the chilling of bidding alone is sufficient to justify a limit on a credit bid.”); Am. Bankr. Inst., Comm'n to Study the Reform of Chapter 11, 2012–2014 Final Report and Recommendations 147 (2014), http://commission.abi.org/full-report (noting that “all credit bidding chills an auction process to some extent”). Despite this, the Committee has never offered a shred of evidence that the Proposed Defendants' credit bid might actually chill the bidding in this case. In lieu of doing so, the Committee entered into the agreed order establishing the submission of bids for the Oak Grove mine assets (the “Agreed Order”) (Doc. 394). This resulted in the cancellation of the hearing on the Debtors' bidding procedures motion and effectively made the Committee's success on its recharacterization gambit the only potential impediment to a credit bid by the Proposed Defendants. See Agreed Order ¶ 14.

As already noted, the Committee had the burden of proving that bringing the Proposed Complaint's recharacterization claim would benefit the estate by eliminating the alleged bid-chilling effect of the Proposed Defendants' credit bid. The Committee, through its financial advisor, might have introduced evidence of the value of the Oak Grove assets, which would have been relevant to the issue of whether the Proposed Defendants' credit bid might deter other potential purchasers from bidding for those assets. But while the Committee offered evidence on other points during the hearing on the Motion, neither Mr. Ordway's declaration nor his testimony during the hearing—nor any other evidence presented by the Committee—went to the issue of whether the Proposed Defendants' credit bid would deter other potential purchasers from bidding for the Oak Grove assets. Although counsel for the Committee argued during the hearing that the Proposed Defendants' credit bid would chill bidding, Hr'g on Mot. at 1:03:17–1:04:58, it is well established that “arguments of counsel are not evidence,” e.g., Semper v. Santos, 845 F.2d 1233, 1237 (3d Cir. 1988).

In its attempt to persuade the Court that the credit bid would deter other bidders, the Committee apparently preferred to just say that it was so rather than being put to the task of proving it. As a result, the Committee's suggestion that bids will be chilled—and that its Proposed Complaint will benefit the estate by avoiding that result—is entirely speculative and unsupported by any evidence whatsoever. This is far from sufficient to carry the Committee's burden of proving that success on the Proposed Complaint would benefit the estate.

Prosecuting the Proposed Complaint would cost the Debtors' bankruptcy estates significant resources. For one thing, because Murray Energy is one of the Proposed Defendants, and because the Debtors and Murray Energy have much of the same management team, the Proposed Complaint would divert the attention of management from the sale and plan confirmation process in these cases. The prosecution of the Proposed Complaint also would require substantial funds to be tapped to pay for the attorneys' fees and expenses of counsel for the Committee, fees and expenses that would be borne by the bankruptcy estate if approved by the Court. The Court cannot find that it would benefit the bankruptcy estate to allow the expenditure of considerable estate resources avoiding a result—the chilling of bids—that there is no evidence would have happened in the first place.

And that is all the Committee has to say of any substance regarding the subject of benefit to the estate. Other than the entirely unsupported allegation that the Proposed Defendants' credit bid would chill bidding, the Committee merely contends in an amorphous fashion that “prosecuting the Claims will likely benefit the estates.” Mot. at 19. The salient point is this: The sole benefit the Committee contends would result from the Proposed Complaint is solving a problem the Committee has twice declined to show would ever in fact have been a problem.

The Committee might have taken the position that recharacterizing the Proposed Defendants' claims would benefit the estate by increasing the payout to unsecured creditors, which is currently estimated to be zero. But the Committee did not argue the point either in the Motion or during the hearing on the Motion. And there is not a trace of evidence to support the notion that success on the Committee's asserted recharacterization claim would inure to the benefit of unsecured creditors under the circumstances of this case. Even if the Committee's recharacterization stratagem were successful, unsecured creditors would still be behind millions of dollars of secured debtor-in-possession financing debt that the Committee is not challenging, and they also would be behind millions more in administrative expenses and priority claims. Evidence of the value of the Oak Grove assets would have been relevant to the question of whether there is any possibility of a recovery for unsecured creditors here. During the hearing on the Motion, counsel for the Committee stated that the Committee was not challenging the Proposed Defendants' right to credit bid the debt arising from the new funds advanced by MC Southwork and Murray Energy under the Final DIP Order (nor could it under the terms of that order). The Committee might be in the money if there were any chance that the sale of the Oak Grove assets would generate sufficient proceeds to pay the undisputed portion of the Proposed Defendants' credit bid and also satisfy other secured claims and administrative expense and priority claims. The Committee, however, failed to present any evidence whatsoever in this regard or any other evidence establishing that the pursuit of the recharacterization claim would benefit the estate.

It is perhaps because unsecured creditors are so far out of the money that the Committee presented no evidence that recharacterizing the Proposed Defendants' debt as equity would result in any increased payout to unsecured creditors. Nor did the Committee put on any evidence to ameliorate the concern that its recharacterization strategy could harm parties in interest, including certain unsecured creditors. There is a risk that the Committee's strategy could lead to a liquidation in which administrative and priority creditors are not paid in full as they would be under a Chapter 11 plan. Liquidation also could result in a loss of jobs for the Debtors' hundreds of employees, as well as the loss of a business partner for multiple counterparties to contracts with the Debtors and numerous other parties who do business with the Debtors. In other words, this is not a case where there is a “no-risk chance of recovering additional money.” Dzierzawski, 518 B.R. at 423. Nor is this case one in which there is evidence that success on the claim the Committee seeks to bring would result in a recovery for creditors that they would not otherwise receive. Cf. Official Comm. Unsecured Creditors of Grand Eagle Cos., Inc. v. ASEA Brown Boverie, Inc., 313 B.R. 219, 232 (N.D. Ohio 2004) (finding that “[i]f successful, the recovery will be sufficient to fund all of the administrative expense claimants and priority creditors and some unsecured creditors' claims”). There is absolutely no evidence in the record that unsecured creditors or other estate constituencies would fare better if the Committee were granted standing. The Committee may hope to squeeze something out of these estates by bringing an adversary proceeding and then extracting a settlement from the Debtors. But the nuisance value of a suit is not a basis for granting derivative standing.

In sum, in conducting the cost-benefit analysis required by Gibson Group, the Court has no evidence to place on the benefit side of the scale. The Committee also has failed to present required evidence regarding the costs the Proposed Complaint would impose on the estates. For all these reasons, the Court concludes that Committee has failed to establish that its claims would benefit the estate even if they were successful.

VI. Conclusion

In assessing requests for derivative standing, “[t]he role of the court as gatekeeper is to protect the estate and to ensure that the proposed litigation ‘reasonably can be expected to be a sensible expenditure of estate resources ․ [that] will not impair reorganization.’ ” Sabine, 547 B.R. at 516 (quoting Adelphia, 330 B.R. at 386). Here, the Committee's proposed claims have no chance of success, and there is no evidence that the claims would inure to the benefit of the estate even if they were successful. The Motion therefore is DENIED.

IT IS SO ORDERED.

FOOTNOTES

1.   The Oak Grove assets include an underground, long-walled metallurgical coal mine located in Bessemer, Alabama that employs over 500 workers.

2.   Under the Final DIP Order, the Committee was required to request an expedited hearing on any motion it filed seeking derivative standing to challenge the Prepetition Funded Debt. Final DIP Order ¶ 28(d).

3.   A transcript of the hearing on the Motion has not yet been prepared. References to the electronic recording of the hearing will be cited as “Hr'g on Mot. at [timestamp].”

4.   The Maple Eagle assets included a surface/underground mining complex located in Powellton, West Virginia. The Court entered an order approving the sale of the Maple Eagle assets free and clear of liens on April 1, 2020. See Doc. 326.

5.   A sinking fund is “[a] fund consisting of regular deposits that are accumulated with interest to pay off a long-term corporate or public debt.” Black's Law Dictionary (11th ed. 2019).

6.   There might be another alternative under the right circumstances. See, e.g., In re Centaur, LLC, No. 10-10799 KJC, 2010 WL 4624910, at *5 (Bankr. D. Del. Nov. 5, 2010). In Centaur, the bankruptcy court found the committee's proposed claims to be plausible, but also found that the court was “left, on this record, without an adequate basis for quantifying, with any reasonable certainty (even within a range), potential benefit to the estate from prosecution of the [c]laims.” Id. Because the committee's claims were plausible, the court granted the committee's request for standing to prosecute the claims. But in light of the lack of any evidence regarding the benefit that would accrue to the estate, the court ordered that the committee's recovery of professional fees incurred in pursuing the claims would be limited “to any cash proceeds or other quantifiable value received by the estate as a result of the litigation.” Id. This option is not available here for at least two reasons. First, the Committee's claims are not plausible. And, second, even if the Committee's counsel were willing to accept what is essentially a contingency-fee arrangement, this would not address the value-destructive risks posed by the Committee's pursuit of the Proposed Complaint.

John E. Hoffman, Jr., United States Bankruptcy Judge