Submitted: April 16, 2019
from United States District Court for the Eastern District of
Missouri - St. Louis
SHEPHERD, MELLOY, and GRASZ, Circuit Judges.
MELLOY, CIRCUIT JUDGE.
April 2016, Peabody Energy Corporation and its affiliates
(the "Debtors") filed a voluntary reorganization
petition under Chapter 11 of the Bankruptcy Code. In March
2017, over the objection of the Ad Hoc Committee of
Non-Consenting Creditors (the "Ad Hoc Committee"),
the bankruptcy court confirmed a reorganization plan proposed
by the Debtors. The Ad Hoc Committee appealed to the district
court,  which dismissed the appeal as equitably
moot. Alternatively, the district court approved the plan on
the merits, holding that the plan: (1) comported with the
requirement in 11 U.S.C. § 1123(a)(4) that all claims in
a particular class be treated the same; and (2) was proposed
in good faith. We, too, affirm on the merits.
Debtors are an American coal company and some of its
subsidiaries. Over the middle years of this decade, a variety
of factors decreased the demand for and price of
American-produced coal. The decreased demand and lower prices
resulted in a sharp decline in the Debtors' revenues.
Impacted by these falling revenues and weighed down by what
the Debtors call "substantial debt obligations,"
the Debtors filed for reorganization under Chapter 11.
filing their reorganization petition, however, a dispute
arose between several of the Debtors' secured and
senior-unsecured creditors (the "security-interest
dispute"). The creditors disagreed over the extent to
which the Debtors' assets served as collateral for the
secured creditors' debts. The Debtors filed their
petition and then, to resolve the security-interest dispute,
commenced an adversary proceeding seeking a declaratory
judgment on the matter.
mediation followed. Negotiations in the mediation gradually
expanded from resolving the security-interest dispute to
formulating a reorganization plan. The negotiating parties
included the Debtors and a group of seven holders of the
Debtors' second-lien and senior-unsecured notes. On
appeal, the parties refer to this group as the
"Noteholder Co-Proponents." Members of the Ad Hoc
Committee did not participate in the mediation, though they
did receive notice. Eventually, the negotiating parties
crafted a complex plan for reorganization as part of a global
settlement. The plan was expressly conditioned on approval by
the bankruptcy court.
general, the plan that emerged from the mediation provided a
way for the Debtors to raise $1.5 billion in new money to pay
for distributions under the plan and fund operations
following reorganization. This was to be accomplished by two
sales. The first was a sale of common stock at a discount to
certain classes of creditors. The second was an exclusive
sale of discounted preferred stock to qualifying creditors.
As will be discussed in greater detail below, creditors could
qualify to buy the preferred stock by executing certain
agreements that obligated them to: (1) buy a set amount of
preferred stock; (2) agree to backstop (i.e., purchase shares
of common and preferred stock that did not sell) both sales;
and (3) support the plan in the confirmation process. The
amount of preferred stock qualifying creditors could and were
required to buy depended on the portion of the prebankruptcy
debt they owned and also on when they became qualifying
creditors (i.e., how quickly they took action to qualify).
Qualifying creditors also received several premiums for
executing the agreements.
specifically, the plan included the following elements.
First, the plan required the reorganized Debtors to engage in
a $750 million "Rights Offering" following
reorganization. The Rights Offering allowed holders of
certain unsecured notes known as Class-5B claims and
second-lien note holders to purchase common stock in the
reorganized company at a 45% discount to the value the
negotiating parties agreed the common stock should be worth
(what the Ad Hoc Committee refers to as "Plan Equity
Value"). The parties agree that this element of the plan
is not contested.
the plan required the reorganized Debtors to engage in a $750
million "Private Placement" whereby qualifying
creditors could purchase preferred stock in the reorganized
Debtors at a 35% discount to the Plan Equity Value. A
creditor qualified to participate in the Private Placement if
it: (1) held a second-lien note or Class-5B claim; (2) signed
a "Private Placement Agreement" that committed the
creditor to purchase a certain amount of preferred stock
based on when it signed the agreement; (3) agreed to backstop
the Rights Offering; and (4) agreed to support the
reorganization plan throughout the confirmation process.
negotiating parties developed an intricate three-phase system
for determining who could and must buy what in the Private
Placement. In Phase One, the Noteholder Co-Proponents were
given the exclusive right and obligation to purchase the
first 22.5% of preferred stock at the discounted price. The
Noteholder Co-Proponents also had to purchase what remained
of the 77.5% of preferred stock that did not sell in the next
two phases. In Phase Two, the Noteholder Co-Proponents plus
any creditor who took action to qualify by an initial
deadline (the "Phase-Two investors") received the
exclusive right and obligation to purchase the next 5% of the
preferred stock at the discounted price. The Phase-Two
investors were also obligated to purchase whatever remained
unsold of the 72.5% of preferred stock in the next phase.
Finally, in Phase Three, the Noteholder Co-Proponents, the
Phase-Two investors, plus any creditor who took action to
qualify after Phase Two but before the close of the sale
received the exclusive right and obligation to purchase the
remaining 72.5% of preferred stock at the discounted price.
Debtors agreed to pay creditors who participated in the
Private Placement certain premiums "in consideration
for" their agreements. For agreeing to backstop the
Rights Offering, the creditors were promised a "Backstop
Commitment Premium" worth $60 million (i.e., 8% of the
$750 million raised). They were also promised a "Ticking
Premium" worth $18, 750, 000, which was to be paid
monthly through a designated closing date. Corresponding
commitment and ticking premiums were paid to creditors who
agreed to buy their portion of ...