Debt and Financing Arrangements



	December 31, 2012		December 31, 2011
	(In thousands)
Indebtedness to banks under credit facilities	$	—	$	481,300
Term loan ($1.65 billion face value) due 2018	1,627,384		—
6.75% senior notes ($450.0 million face value) due 2013	—		450,971
8.75% senior notes ($600.0 million face value) due 2016	590,999		588,974
7.00% senior notes due 2019 at par	1,000,000		1,000,000
9.875% senior notes ($375.0 million face value) due 2019	360,042		—
7.25% senior notes due 2020 at par	500,000		500,000
7.25% senior notes due 2021 at par	1,000,000		1,000,000
Other	40,350		21,903
	5,118,775		4,043,148
Less current maturities of debt and short-term borrowings	32,896		280,851
Long-term debt	$	5,085,879	$	3,762,297

The current maturities of debt include contractual maturities and amounts borrowed under our revolving credit facility and accounts receivable securitization program that the Company does not intend to refinance on a long-term basis, based on cash projections and management’s plans.

On May 16, 2012, the Company entered into an amendment to its senior secured revolving credit facility that amended certain financial maintenance covenants, suspending the Company’s compliance with the debt-to-EBITDA ratio, easing other financial covenants through September 2014 and adding defined minimum EBITDA targets. The maximum borrowing capacity of the revolving credit facility was reduced from $2 billion to $600 million. In conjunction with the amendment, the Company borrowed $1.4 billion under a six-year secured term loan facility, issued at a 1% discount. The term loan contains no financial maintenance covenants, is prepayable and is secured by the same assets as borrowings under the revolving credit facility. The amendment reduced the quarterly dividend the Company may pay on its common stock to $0.03 per share.

Quarterly principal payments of $3.5 million began in September 2012, plus interest at a rate of the greater of a LIBOR-based rate or 1.25%, plus 450 basis points. The proceeds of the term loan were used to retire all outstanding borrowings under the revolving credit facility and the outstanding $450.0 million principal amount of 6.75% Senior Notes due 2013 issued by Arch Western Finance, LLC (“Arch Western Finance”), the Company’s indirect subsidiary.

On May 16, 2012, Arch Western Finance accepted for purchase an aggregate of approximately $304.0 million principal amount of its 6.75% Senior Notes due 2013 in an initial settlement pursuant to the terms of its tender offer and consent solicitation, which commenced on May 1, 2012, and called for redemption all of the remaining notes outstanding after the completion of the tender offer. The consideration for each $1,000 of principal purchased under the tender offer and consent solicitation was $1,002.50, for a total purchase consideration of $304.8 million. On May 30, 2012, the remaining notes with an outstanding principal amount of $146.0 million were redeemed at par value.

On November 21, 2012, the Company issued $375.0 million aggregate principal amount of 9.875% senior unsecured notes due 2019 (the “9.875 % Notes”) at an issue price of 95.934% of the face amount. Also on November 21, 2012, the Company borrowed an incremental $250.0 million on the term loan facility at a 1% discount at the same rate as the initial borrowing discussed previously. The principal payments on the loan increased to $4.125 million per quarter as a result of the incremental borrowing. Under the terms of the credit agreement, the incremental term loan reduced the size of Arch’s revolving credit facility to $350 million from $600 million.

At the same time, the Company amended its senior secured revolving credit facility to relax financial maintenance covenants and eliminate the minimum EBITDA targets until December 31, 2015.

The Company wrote off $23.4 million of deferred financing costs relating to the reduction in capacity of the senior secured revolving credit facility and $1.1 million related to the redemption of the 6.75% Senior Notes due 2013, offset by $(0.8) million of unamortized issue premium on the notes. The write-off of deferred financing fees, along with other transaction fees associated with these transactions, is reflected in “Loss on extinguishment and refinancing of debt” in the consolidated statements of operations.

The Company paid financing costs of $50.6 million, $114.8 million and $12.8 million in conjunction with its financing activities during the years ended December 31, 2012, 2011 and 2010, respectively. The Company's financing fees are generally deferred, however, the Company incurred a fee of $49.5 million in 2011 in conjunction with the acquisition of ICG that was expensed, as the related bridge financing facility was not used.

Credit Facilities

Borrowings under the Company's senior secured revolving credit facility bear interest at a floating rate based on LIBOR determined by reference to the Company's leverage ratio, as calculated in accordance with the underlying credit agreement. The credit facility has a five-year term that expires on June 14, 2016 and is secured by substantially all of the Company's assets as well as its ownership interests in substantially all of its subsidiaries. Commitment fees of 0.50% to 0.75% per annum are payable on the average unused daily balance of the revolving credit facility.

The Company maintains an accounts receivable securitization program under which eligible trade receivables are sold, without recourse, to a multi‑seller, asset‑backed commercial paper conduit. The entity through which these receivables are sold is consolidated into the Company's financial statements. The Company may borrow and draw letters of credit against the facility, and pays facility fees, program fees and letter of credit fees (based on amounts of outstanding letters of credit). The total aggregate borrowings and letters of credit are limited by eligible accounts receivable, as defined under the terms of the agreement. The credit facility supporting the borrowings under the program is subject to renewal annually, and expires on December 10, 2013.

Financial covenant requirements may restrict the amount of unused capacity available to the Company for borrowings and letters of credit.

On June 14, 2011, the Company terminated its commercial paper placement program and the supporting credit facility.

Since May, when borrowings under the revolving credit facility were retired with the proceeds of the term loan, we have borrowed only under the accounts receivable securitization program. At December 31, 2012, the available borrowing capacity under our lines of credit with financial institutions was approximately $333 million.

2016 Senior Notes

The Company has outstanding $600.0 million in aggregate principal amount of 8.75% senior unsecured notes due 2016 (“2016 Notes”). The 2016 Notes were issued at an initial issue price of 97.464% of the face amount. Interest is payable on the notes on February 1 and August 1 of each year. At any time on or after August 1, 2013, the Company may redeem some or all of the notes. The redemption price, reflected as a percentage of the principal amount, is: 104.375% for notes redeemed between August 1, 2013 and July 31, 2014; 102.188% for notes redeemed between August 1, 2014 and July 31, 2015; and 100% for notes redeemed on or after August 1, 2015.

2020 Senior Notes

On August 9, 2010, the Company issued $500.0 million in aggregate principal amount of 7.25% senior unsecured notes due in 2020 (“2020 Notes”) at par. Interest is payable on the 2020 Notes on April 1 and October 1 of each year. At any time on or after October 1, 2015, the Company may redeem some or all of the notes. The redemption price reflected as a percentage of the principal amount is: 103.625% for notes redeemed between October 1, 2015 and September 30, 2016; 102.417% for notes redeemed between October 1, 2016 and September 30, 2017; 101.208% for notes redeemed between October 1, 2017 and September 30, 2018; and 100% for notes redeemed on or after October 1, 2018. In addition, at any time and on one or more occasions prior to October 1, 2013, the Company may redeem an aggregate principal amount of senior notes not to exceed 35% of the original aggregate principal amount of the senior notes outstanding with the proceeds of one or more public equity offerings, at a redemption price equal to 107.250%.

2019 and 2021 Senior Notes

On June 14, 2011, the Company issued $1.0 billion of 7.00% unsecured senior notes due 2019 (“2019 Notes”) and $1.0 billion of 7.25% unsecured senior notes due 2021 (“2021 Notes”) at their face amount. These notes were used to finance, along with an issuance of common stock discussed in Note 15, "Capital Stock", the acquisition of ICG. Interest is payable on the 2019 Notes and 2021 Notes on June 15 and December 15 of each year.

At any time prior to June 15, 2014, the Company may redeem up to 35% of the original aggregate principal amount of each of the 2019 Notes and 2021 Notes, plus accrued and unpaid interest, with the net proceeds from certain equity offerings, at a redemption price, reflected as a percentage of the principal amount, equal to 107.0% and 107.25%, respectively. The Company may redeem the 2019 Notes prior to June 15, 2015 and the 2021 Notes prior to June 15, 2016 at the respective make-whole prices set forth in the indenture. On or after June 15, 2015, the Company may redeem the 2019 Notes at redemption prices, reflected as a percentage of the principal amount, of: 103.5% from June 15, 2015 through June 14, 2016; 101.75% from June 15, 2016 through June 14, 2017; and 100% beginning on June 15, 2017. On or after June 15, 2016, the Company may redeem the 2021 Notes at redemption prices, reflected as a percentage of the principal amount, of: 103.625% from June 15, 2016 through June 14, 2017; 102.417% from June 15, 2017 through June 14, 2018; 101.208% from June 15, 2018 through June 14, 2019 and 100% beginning on June 15, 2019. In each case, accrued and unpaid interest at the redemption date is due upon redemption.

9.875% Notes

Interest is payable on the 9.875%9.875% Notes annually on June 15 and December 15, beginning on June 15, 2013. At any time on or after December 15, 2016, the Company may redeem some or all of the notes. The redemption price, reflected as a percentage of the principal amount, is: 104.938% for notes redeemed between December 15, 2016 and December 14, 2017; 102.469% for notes redeemed between December 15, 2017 and December 14, 2018; and 100% for notes redeemed on or after December 15, 2018. In addition, at any time and on one or more occasions prior to December 15, 2015, the Company may redeem an aggregate principal amount of senior notes not to exceed 35% of the original aggregate principal amount of the senior notes outstanding with the proceeds of one or more public equity offerings, at a redemption price equal to 109.875%.

The unsecured senior notes are guaranteed by substantially all of the Company's subsidiaries, except for Arch Receivable Company, LLC, which is the conduit for the accounts receivable securitization program, and the Company's subsidiaries outside the U.S.

Debt Retirements

Upon the closing of the ICG acquisition, the Company gave a 30-day redemption notice to the Trustee of ICG's 9.125% senior notes and legally discharged its obligation under the 9.125% senior notes by depositing the required funds with the Trustee to redeem the debt. On July 14, 2011, all of the outstanding 9.125% senior notes were redeemed at an aggregate price of $251.4 million, including the required make-whole premium, plus accrued interest of $5.2 million.

At the acquisition date, ICG's 4.00% convertible senior notes with a fair value of $298.5 million and 9.00% convertible senior notes with a fair value of $1.7 million (“convertible notes”) became convertible into cash, pursuant to the amended indentures governing the convertible notes, at a calculated conversion rate of $2,614.6848 for each $1,000 in principal amount surrendered for conversion for the 4.00% convertible notes and $2,392.73414 for the 9.00% convertible notes for conversions occurring prior to August 17, 2011.

At the acquisition date, other ICG debt had a fair value of approximately $54.0 million and consisted mainly of equipment notes and insurance notes payable.

The Company recognized a net loss of $2.0 million during the year ended December 31, 2011 on the early extinguishment of ICG's debt, including the conversions of the 4.00% and 9.00% convertible notes described above. Any remaining amounts outstanding under the convertible notes and other ICG debt is included in “other” in the debt table above.

The Company redeemed $500.0 million aggregate principal amount of the 6.75% Senior Notes due 2013 on September 8, 2010. The Company recognized a loss on the redemption of $6.8 million, including the payment of the $5.6 million redemption premium and the write-off of $3.3 million of unamortized debt financing costs, partially offset by the write-off of $2.1 million of the original issue premium.

Debt Maturities

Expected aggregate maturities of debt for the next five years are $34.7 million in 2013, $20.6 million in 2014, $20.8 million in 2015, $620.9 million in 2016 and $21.1 million in 2017.

Terms of the Company's credit facilities and leases contain financial and other covenants that limit the ability of the Company to, among other things, acquire, dispose, merge or consolidate assets; incur additional debt; pay dividends and make distributions or repurchase stock; make investments; create liens; issue and sell capital stock of subsidiaries; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or advances to the Company; engage in transactions with affiliates and enter into sale and leaseback transactions. In addition, the covenants require the Company to pledge assets to collateralize the revolving credit and term loan facilities. The assets pledged include equity interests in wholly‑owned subsidiaries, certain real property interests, accounts receivable and inventory of the Company. Failure by the Company to comply with such covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on the Company.