Horizon Natural Resources starts discussions with lenders to avoid covenant violations

By Sara Rosenberg

New York, Sept. 26 - Horizon Natural Resources Co. has entered into discussions with holders of its credit facility in an attempt to avoid covenant violations due to production shortfalls. Senior secured debt holders will be contacted as well.

Production shortfalls at some of the company's sites are making alternative production plans for the remainder of the year necessary, thereby increasing the cost per ton. While Horizon said it is implementing plans to recover these losses, cost impacts are expected to remain for the near future.

"Although we are diligently reviewing operations and implementing cost controls, it will take some time for these programs to be completed," said Donald Brown, chairman, president and chief executive officer, in a news release. "We are currently addressing production shortfalls with positive action plans. We will present a more complete report at our third quarter conference call on the measures management has undertaken to move operations toward greater cost efficiency."

Under the revised guidance for the remainder of 2002, third quarter EBITDA is expected to decline to a range between $30 to $35 million, and estimated EBITDA for the fourth quarter is anticipated in the same range. The change in EBITDA expectations is largely due to operating difficulties at the Evergreen Mine in West Virginia and by the unavailability of Section 404 permits in certain mines in Kentucky, the news release said.

Furthermore, the cost of coal sold in the third quarter will be higher than previously expected due to higher than expected labor and supply costs and reduced production rates at lower cost sites. Currently, the cost of coal for the quarter is estimated to be in the range of $24.00 per ton and $24.70 per ton.

At Aug. 31, the company had $20 million available under its credit facility. During the summer, the Ashland, Ky. producer of steam coal obtained a $250 million revolving exit-financing facility, with Deutsche Bank as sole lead arranger on the deal.

Horizon, previously known as AEI Resources Holding Inc., emerged from Chapter 11 in May after 10 weeks. Upon emergence, Brown stated the following: "We accomplished a great deal in a very short time. We now have a much stronger capital structure, and we are able to focus on providing a more secure and brighter future for employees, suppliers, customers and shareholders. These will be the primary guideposts from which we will not stray. Safety and loss control will be a top priority of all employees. Management will focus on obtaining maximum cost reductions and productivity improvements. We will seek to further decrease debt and thereby enhance financial flexibility."

Under the restructuring plan, pre-petition debt of about $1.3 billion was reduced to about $925 million of restructured debt.

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