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Case 1:20-bk-12043 Doc 3 Filed 07/22/20 Entered 07/22/20 17:38:25 Desc Main <br /> Document Page 15 of 42 <br /> II. CIRCUMSTANCES GIVING RISE TO THESE CHAPTER 11 CASES <br /> A. Declining Performance Leading to Liquidity Issues <br /> 30. The North American coal industry is intensely competitive and over the past <br /> several years, market forces in the industry have affected a number of coal companies, many of <br /> which have filed for chapter 11. While the metallurgical coal market has been favorable until <br /> approximately the third quarter of 2019, the market has declined substantially since the fourth <br /> quarter of 2019, resulting in a sustained low-price environment. In addition, coal mining requires <br /> a high level of capital expenditure to sustain production and to maintain safety requirements. <br /> 31. The Debtors have experienced declines in coal production, coal sales, and coal <br /> revenues over the previous three years. For example, in 2017, the Debtors produced 4.25 million <br /> tons of coal and sold 4.18 million tons of coal, resulting in coal revenue of$216 million. By <br /> 2019, the Debtors produced 4.0 million tons of coal and sold 3.87 million tons of coal, resulting <br /> in coal revenues of $213.9 million. During this time, the Debtors divested their Sands Hill <br /> thermal coal surface mine operation in Ohio and their Pennyrile mining complex in the Illinois <br /> Basin. <br /> 32. For the year ended December 31, 2018, the Debtors recorded a net loss of $16 <br /> million, and for the year ended December 31, 2019, the Debtors recorded a net loss of $99 <br /> million. The Debtors' adjusted EBITDA for the year ended December 31, 2019 was negative <br /> $5.7 million. With production and related costs significantly higher than expected and coal <br /> prices significantly lower than expected leading to a liquidity crunch, the Debtors have triggered <br /> financial covenant and other defaults under the Financing Agreement. The Debtors are unable to <br /> service the Financing Agreement. <br /> 15 <br />