Agrees to Acquire the General Partner of
Oxford Resource Partners
Commits to contribute royalty bearing
Kemmerer Mine coal reserves and plans to resume quarterly
distributions
Westmoreland Coal Company (NasdaqGM: WLB, “Westmoreland”),
Oxford Resource Partners, LP (NYSE: OXF, “Oxford”) and Oxford
Resources GP, LLC, the general partner of Oxford (“Oxford GP”),
today announced that Westmoreland will acquire Oxford GP and
contribute certain royalty bearing coal reserves to Oxford in
return for Oxford common units. As a result, it is believed that
Oxford will be able to resume quarterly distributions at $0.2000
per common unit (post-reverse split, as discussed below) and has
secured a commitment to refinance its existing credit facilities on
better terms, including additional credit capacity to fund future
acquisitions. Following these transactions, Oxford will continue to
operate as a stand-alone, publicly-traded master limited
partnership (“MLP”) and Westmoreland will own 77% of the
fully-diluted limited partner interests in Oxford.
“Westmoreland has long felt that our long-term cost-plus and
cost-protected contracts make us ideally suited for a MLP
structure,” stated Keith E. Alessi, Chief Executive Officer. “We
have explored various ways to take advantage of the benefits of a
MLP. The Oxford transactions provide us with an expeditious path to
enter the MLP space and immediately recognize the advantages of
owning a general partner. Additionally, the existing Oxford
business has many of the characteristics of Westmoreland’s business
and we feel that we are well positioned to partner with its
customers. We look forward to Oxford’s employees joining the
Westmoreland family.”
“Oxford is very excited about this opportunity with
Westmoreland,” said Oxford’s President and Chief Executive Officer,
Charles C. Ungurean. “Since early in 2012, we have been
pursuing various strategic alternatives in an effort to bring
increased value to our unitholders. This transaction represents the
culmination of that effort and we believe that this represents a
great opportunity for our company, unitholders, employees and
customers, as well as providing a MLP vehicle for Westmoreland and
its shareholders. This transaction is a win for all
stakeholders.”
The board of directors of Oxford GP unanimously approved the
transactions, including the equity restructuring of Oxford through
the amendment and restatement of Oxford’s partnership agreement
described below. The transactions have also been unanimously
approved by Westmoreland’s board of directors.
Process Steps and Expected Timeline
The series of contemplated transactions are cross-conditioned
upon each other and the transactions involving Oxford must be
approved by a majority of the outstanding Oxford common unitholders
that are not owned by Oxford GP and its affiliates and by a
majority of the outstanding subordinated units. In addition, the
transactions are conditioned upon Westmoreland either amending its
existing credit facility and bond indenture or refinancing all of
its existing debt, and also upon the refinancing of Oxford’s
existing debt. Oxford intends to promptly file a proxy statement
with the SEC for review and it is anticipated that the unitholder
vote will be held in December. Upon receiving unitholder approval,
all of the transactions are expected to be closed concurrent with
the debt transactions. It is anticipated that the transactions will
be completed during the fourth quarter of 2014.
Strategic Rationale
- Platform to unlock inherent value in
Westmoreland’s business model: Assuming control of Oxford
provides Westmoreland with a platform to implement a drop-down
strategy of certain U.S. and Canadian coal assets into a MLP
structure, allowing it to unlock significant value that is inherent
in its stable cash flow generating business model.
- Strong sponsorship to drive Oxford
unitholder value: The acquisition of Oxford GP by Westmoreland
transforms Oxford into a “sponsored” MLP with a parent that holds a
stable of potential drop-down assets, providing it with a visible
path to sustainable growth in distributable cash flow backed by
long-term, cost-protected contracts with high-quality
customers.
- Restart of Quarterly
Distributions: The transactions, including the equity
restructuring, are expected to allow Oxford to restart quarterly
distributions to its common unitholders.
- Increased size, scale and
diversity: Asset diversification into the eastern U.S. provides
Westmoreland an entry into a major coal producing and consuming
region with opportunities for organic and acquisitive growth.
- Complementary business models:
Oxford’s coal operations are complementary to Westmoreland’s low
cost surface mining competencies, existing mine-mouth business
model, and customer partnering expertise.
- Operations are safe and environmentally
responsible;
- Operations have good relationships with
employees;
- Operations are strategically located
close to customer generating facilities; and
- Operations have long-term contracts
with high-quality utility customers.
Transaction Details
Oxford GP Acquisition
Westmoreland has entered into a purchase agreement with AIM
Oxford Holdings, LLC (“AIM”), C&T Coal, Inc. (“C&T”),
certain present and former executives, and affiliates of Oxford’s
existing second lien term loan lenders (such parties, the
“Warrantholders”). Under the purchase agreement, Westmoreland will
acquire 100% of the outstanding units of Oxford GP, the general
partner of Oxford, from AIM, C&T and such executives, 100% of
the outstanding GP unit warrants from the Warrantholders, 100% of
the outstanding subordinated units of Oxford from AIM and C&T,
and 100% of the outstanding subordinated unit warrants of Oxford
from the Warrantholders. The cash purchase price for these
interests is $30.0 million, plus an additional $3.5 million if a
specified coal acquisition is consummated within one year of the
date of the purchase agreement.
Name Changes
As part of the transactions, the parties will take the necessary
steps to change the name of Oxford to Westmoreland Resource
Partners, LP (“Westmoreland LP”) and to change the name of Oxford
GP to Westmoreland Resources GP, LLC (“Westmoreland GP”).
Accordingly, we refer to the changed names below for matters that
relate to periods from and after the closing of the
transactions.
Contribution of Kemmerer Mine Coal
Reserves
Westmoreland and Oxford have entered into a contribution
agreement pursuant to which Westmoreland will, directly or
indirectly, contribute to Westmoreland LP certain fee simple
interests in coal reserves and related surface lands at
Westmoreland’s Kemmerer Mine in Lincoln County, Wyoming in exchange
for the issuance to Westmoreland of 4.5125 million post-reverse
split common units of Westmoreland LP, resulting in Westmoreland
holding a pro forma fully-diluted common unit ownership of 77% of
Westmoreland LP. Westmoreland LP will concurrently enter into a
coal mining lease with Westmoreland with respect to these coal
reserves pursuant to which Westmoreland will pay Westmoreland LP a
per-ton royalty as it mines the leased reserves.
Through the coal lease arrangement, the Kemmerer Mine coal
reserves are expected to generate approximately $5.8 million in
average annual cash flow for Westmoreland LP over the 2015-18
period. In order to further enhance the stability of cash flows to
Westmoreland LP, the leasing Westmoreland subsidiary will commit to
a minimum royalty structure such that payment of at least $1.0
million per quarter is made to Westmoreland LP through December 31,
2020. This minimum payment amount will be reduced to $500,000 per
quarter for the subsequent period ending December 31, 2025, with no
further minimum payment amounts due in the years thereafter.
Westmoreland intends to drop down additional assets in the future
that are expected to be accretive to Westmoreland LP, although it
is not obligated to do so.
Oxford Equity Restructuring
The transactions are conditioned on the successful equity
restructuring of Oxford, which will consist of the adoption of an
amended and restated limited partnership agreement that will, among
other things:
- Effect a 12-to-1 reverse split of
common and general partner units;
- Convert all outstanding subordinated
units to liquidation units (with no non-liquidating distribution or
voting rights) and cancel all subordinated unit warrants;
- Waive and eliminate the current
cumulative common unit arrearages;
- Reset the minimum quarterly
distribution to $0.1333 per common unit;
- Restructure the incentive distribution
rights (“IDRs”) held by Westmoreland GP as the general partner to
provide that the IDRs will be entitled to receive (i) 13% of
quarterly distributions over $0.1533 per unit and up to $0.1677 per
unit, (ii) 23% of quarterly distributions over $0.1667 per unit and
up to $0.2000 per unit (iii) 48% of quarterly distributions over
$0.2000 per unit;
- Suspend distributions on the IDRs for
six quarters, provided that such suspension may be reduced to no
less than three quarters if, during the suspension period,
additional drop-down transactions aggregating greater than $35.0
million in enterprise value are undertaken by Westmoreland GP or
affiliates of Westmoreland GP that are reasonably expected to
provide accretion to per unit common unitholder distributions;
and
- As described below, provide for a
distribution of additional common units to the common unitholders
of Oxford excluding AIM, C&T, the Warrantholders and
Westmoreland.
Distribution to Certain Oxford
Unitholders
In connection with the transactions, there will be a one-time
special distribution to the common unitholders of Oxford excluding
AIM, C&T, the Warrantholders and Westmoreland. The distribution
will be made to such common unitholders, on a pro rata basis, and
will consist of an approximately 25% “unit dividend” of an
aggregate of 202,184 additional post-reverse split common
units.
Refinancing of Oxford Credit
Facilities
In conjunction with the transactions, Westmoreland LP will enter
into a new credit agreement with certain lenders to replace
Oxford’s existing $175 million of credit facilities consisting of
(i) a first lien $75 million term loan and $25 million revolving
credit facility and (ii) a second lien $75 million term loan. The
new credit agreement will provide for up to $295 million of senior
secured first lien term loans, with $175 million funded at close
and maturing four years after closing, and the remaining $120
million available in the form of delayed draw term loans, which can
be used to fund acquisitions up to 12 months after closing.
Additionally, there is an accordion feature that takes effect when
the delayed draw feature expires which makes a further $150 million
available for use to fund acquisitions during the remaining three
loan years.
Conditions Precedent to Transactions
The Oxford GP acquisition, the contribution of Kemmerer Mine
coal reserves and the refinancing of Oxford’s credit facilities are
cross-conditioned upon each other. In addition to customary
conditions, these transactions are also contingent on Westmoreland
either amending its existing credit facility and bond indenture or
refinancing all of its existing debt, and Oxford receiving approval
from a majority of the unaffiliated Oxford unitholders of the
Oxford equity restructuring as well as approval by a majority of
the Oxford unitholders of the contribution of Kemmerer Mine coal
reserves in exchange for common units of Oxford.
Advisors
BMO Capital Markets Corp. acted as financial advisor and Holland
& Hart LLP and Baker Botts, LLP acted as legal counsel to
Westmoreland.
Evercore acted as financial advisor to Oxford GP and Vinson
& Elkins LLP acted as legal counsel to Oxford GP’s majority
unitholders.
Citi acted as financial advisor to Oxford’s management and
Squire Patton Boggs (US) LLP and Latham & Watkins LLP acted as
legal counsel to Oxford.
Conference Call
Westmoreland will hold a conference call on October 16th at 5:00
p.m. EDT to review the transactions. To access the conference call
by telephone, dial 844-922-2625 (844-WCC-COAL) or 201-689-8584 for
international participation. Please connect approximately 10
minutes prior to the beginning of the call to ensure participation.
The conference call will be archived for replay until October 30,
2014. To access the archived conference call, dial 1-877-660-6853
or 1-201-612-7415 internationally and enter the Conference ID #:
13593290.
About Westmoreland Coal Company
Westmoreland Coal Company is the oldest independent coal company
in the United States. Westmoreland’s coal operations include
sub-bituminous and lignite coal mining in the Western United States
and Canada. Its power operations include ownership of the two-unit
ROVA coal-fired power plant in North Carolina. For more
information, visit: www.westmoreland.com.
About Oxford Resource Partners, LP
Oxford Resource Partners, LP is a low-cost producer of
high-value steam coal in Northern Appalachia. Oxford markets its
coal primarily to large electric utilities with coal-fired,
base-load scrubbed power plants under long-term coal sales
contracts. For more information, visit:
www.oxfordresources.com.
For the year ended December 31, 2013, Oxford generated revenues
of $346.8 million on sales of 6.6 million tons of coal, of which
6.1 million tons were produced from Oxford’s mining activities and
0.5 million tons were purchased from third parties for resale by
Oxford. It had Adjusted EBITDA of $42.1 million. Oxford’s
management estimates that, as of December 31, 2013, Oxford owned or
controlled approximately 81.6 million tons of proven and probable
coal reserves, of which 24.3 million tons are underground reserves
subleased to a third party. As of December 31, 2013, Oxford
operated 16 active surface mines and managed these mines as six
mining complexes located in eastern Ohio. These mining facilities
include two preparation plants which receive, wash, blend, process
and ship coal produced by Oxford at these mines. As of December 31,
2013, Oxford employed 638 full-time employees, including 494
employees involved in active mining operations, 112 employees in
other operations, and 32 corporate employees.
Cautionary Note Regarding Forward-Looking Statements
This release may contain “forward-looking statements.”
Forward-looking statements can be identified by words such as
“anticipates,” “intends,” “plans,” “seeks,” “believes,”
“estimates,” “expects” and similar references to future periods.
These statements involve known and unknown risks, which may cause
actual results to differ materially from results expressed or
implied by the forward-looking statements. These risks include
factors such as the uncertainty of negotiations to result in
agreements or completed transactions, the uncertain nature of the
expected benefits from the actual or expected transactions, the
uncertain nature of the announced transactions, the ability to
complete such transactions, risks associated with the integration
of acquired assets, risks associated with the coal industry or the
economy generally, and other such matters discussed in the “Risk
Factors” sections of both Westmoreland’s and Oxford’s 2013 annual
reports on Form 10-K and their subsequent quarterly reports on Form
10-Q filed with the SEC. The forward-looking statements in this
release speak only as of the date of this release. Although either
or both of Westmoreland and Oxford may from time to time
voluntarily update their prior forward-looking statements, they
disclaim any commitment to do so except as required by securities
laws.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication may be deemed to be
solicitation material in respect of the proposed Oxford equity
restructuring and the contribution of Kemmerer Mine coal reserves
in exchange for common units of Oxford (collectively, the “Proposed
Oxford Transactions”). In connection with the Proposed Oxford
Transactions, Oxford intends to file a proxy statement with the
SEC. UNITHOLDERS OF OXFORD ARE URGED TO READ ALL RELEVANT DOCUMENTS
FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT, BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED OXFORD
TRANSACTIONS. Oxford unitholders will be able to obtain copies of
the proxy statement as well as other filings containing information
about Oxford and Westmoreland, without charge, at the SEC’s
website, http://www.sec.gov. Copies of documents filed with the SEC
by Oxford will be made available free of charge on Oxford’s website
(www.oxfordresources.com) under “Investor Relations.” Copies of
documents filed with the SEC by Westmoreland will be made available
free of charge on Westmoreland’s website (www.westmoreland.com)
under “Investors.”
Participants in Solicitation
Westmoreland and its directors and executive officers, and
Oxford GP’s directors and executive officers, may be deemed to be
participants in the solicitation of proxies from the Oxford
unitholders in respect of the Proposed Oxford Transactions.
Information about the directors and executive officers of
Westmoreland is set forth in the proxy statement for Westmoreland’s
2014 Annual Meeting of Stockholders, which was filed with the SEC
on March 26, 2014. Information about the directors and executive
officers of Oxford GP is set forth in Oxford’s Annual Report on
Form 10-K for the year ended December 31, 2013, which was filed
with the SEC on March 4, 2014. Investors may obtain additional
information regarding the interest of such participants by reading
the proxy statement regarding the Proposed Oxford Transactions when
it becomes available.
WestmorelandKevin Paprzycki,
855-922-6463orOxfordBradley W. Harris, 614-643-0314