Case Summary: Heritage Coal & Natural Resources Chapter 11

Business Description

KTRV LLC ("KTRV"), a Delaware-registered investment holding company, serves as the parent entity for Heritage Coal & Natural Resources, LLC ("HCNR" or "Heritage Coal," and together with KTRV, the "Debtors"). KTRV was established as a platform to acquire and manage assets in the mining and natural resources sector, with the acquisition of HCNR in early 2024 marking its initial transaction in the industry.

• KTRV's primary role involves providing strategic direction and financing to its operating subsidiaries, leveraging management experience in metals and mining finance.

Heritage Coal & Natural Resources, LLC, headquartered in Meyersdale, PA, is a coal mining operator founded in 2008. HCNR conducts surface coal mining operations across Pennsylvania (primarily Somerset County) and western Maryland, producing both metallurgical coal for steelmaking and thermal coal for power generation.

• As of the Petition Date, HCNR owned and operated five producing coal mine sites, although several were operating with substantially reduced crews or were not actively mining or shipping. These include:
  • The Carlos site (Frostburg, MD): Mining and shipping coal (reduced crew).
  • The Cabin Run site (Frostburg, MD): Mining and shipping coal (reduced crew).
  • The Summit #2 site (Meyersdale, PA): Not currently mining or shipping.
  • The Fisher #3 site (Meyersdale, PA): Not currently mining or shipping.
  • The Saylor Hill #2 site (Meyersdale, PA): Mining coal (reduced crew).
• HCNR also owns an operating coal wash plant in Meyersdale, PA, and holds permits for additional sites currently in cessation or reclamation phases.

Prior to workforce reductions in late February 2025, HCNR employed over 100 full-time workers. Post-reduction, the workforce comprised approximately 44 employees (12 salaried, 32 hourly) across mining operations, wash plant operations, and administration.

The Debtors filed for Chapter 11 protection on March 30, 2025, in the U.S. Bankruptcy Court for the District of Delaware. As of the Petition Date, KTRV reported $50 million to $100 million in both assets and liabilities, while HCNR reported $100 million and $500 million.

Corporate History

Heritage Coal was established in 2008 by members of the Svonavec family, leveraging local mining heritage in Somerset County, PA. Under the leadership of Jason R. Svonavec, the company developed and operated surface mines in Pennsylvania and Maryland over 15 years, building a regional reputation for producing metallurgical and thermal coal and engaging in land reclamation.

• The company remained privately held by the Svonavec family (through Heritage Holding Co., LLC, owned by Angela Svonavec) until early 2024.

Acquisition by KTRV and Financing

On February 5, 2024, KTRV LLC acquired all membership interests in HCNR from Heritage Holding Co., LLC ("Heritage Holding") pursuant to a Membership Interest Purchase Agreement ("MIPA").

• The acquisition was financed by Bedrock Industries Investco 1 LLC ("Bedrock"), which provided KTRV with $10 million in bridge financing on February 2, 2024, guaranteed by HCNR and secured by substantially all of HCNR's personal property assets, including equipment.
• Contemporaneously, KTRV and Heritage Holding executed an Earn Out Agreement, obligating KTRV to make payments to Heritage Holding based on HCNR's gross profits from coal and rock sales, subject to adjustments, conditions, and set-off rights. The MIPA also included provisions for KTRV to reimburse Heritage Holding for certain incremental tax liabilities related to the sale structure.
• The MIPA and Earn-Out Agreement included covenants restricting HCNR from allowing liens on specified equipment (beyond pre-existing filings) until permanent financing was obtained by June 30, 2024 (limited to $20 million debt), and stipulated that Heritage Holding could file a subordinate UCC-1 financing statement only after such financing was secured.

On June 27, 2024, Bedrock and the Debtors entered into an Amended and Restated Loan Agreement, converting the bridge loan into permanent and working capital financing with a total revolving credit commitment of $20 million ($15 million drawn after this date). Bedrock subsequently filed UCC-1 financing statements against KTRV (Delaware) and HCNR (Pennsylvania) to perfect its security interests.

Operations Overview

HCNR's primary business involves surface coal mining in the Appalachian coalfields of Pennsylvania and Maryland, alongside coal processing.

Mining Operations

Pennsylvania Sites: Operations are centered in Somerset County, notably in the Shaw Mines area. Mining targets seams like the Pittsburgh and Redstone, producing both metallurgical and thermal coal. Activities include overburden removal, coal extraction via drilling and blasting, and land reclamation.

Maryland Sites: The company operated in western Maryland's coal district, extracting similar bituminous coal as an extension of its Pennsylvania operations.

Coal Processing and Logistics

HCNR operates a coal wash plant in Meyersdale, PA, used to process coal from its mines and potentially third parties by removing impurities to meet customer specifications.

Coal is typically transported from mine sites via truck to rail loadouts or directly to customers.

Equipment and Suppliers

Operations rely on a fleet of owned or leased heavy machinery (bulldozers, haul trucks, excavators, highwall miners, drills).

Key operational creditors listed in bankruptcy filings highlight operational inputs:

• Cleveland Brothers Equipment Co., Inc. (Caterpillar dealer): Owed approx. $318,872, indicating significant equipment leasing or servicing.
• Wampum Hardware Co.: Owed approx. $281,615, likely for blasting explosives and mine supplies.
• Glassmere Fuel Service: Owed approx. $203,911, likely for diesel fuel and lubricants.

Other secured parties include Caterpillar Financial Services Corporation ("Caterpillar") and Cleveland Brothers Equipment Co., Inc. ("Cleveland Brothers"), holding senior liens on specific equipment.

Workforce

As of late February 2025, after significant layoffs, HCNR employed approximately 44 staff (down from over 100), including miners, equipment operators, wash plant personnel, and administrative staff.

Recent Asset Divestitures

In an effort to raise liquidity prior to filing, HCNR undertook asset sales:

• January 31, 2025: Sold its wash plant in Lonaconing, MD to Cobra Mining, Inc. for $2.5 million ($1.5 million retained as cash collateral, $1 million paid to Bedrock).
• March 25, 2025: Executed agreements (pending finalization and bankruptcy court approval) to sell permits, lease rights, and associated surety bond collateral for the Walker Site (Carlos, MD) and Beechwood Site (Lonaconing, MD) to Cobra Mining. These sites were either in temporary cessation with significant estimated reclamation costs (Walker) or already in reclamation with negative estimated value (Beechwood). Cobra would assume surety bond obligations, with HCNR transferring related cash collateral held by Rockwood Casualty Insurance.

Prepetition Obligations

Top Unsecured Claims

Events Leading to Bankruptcy

A convergence of market pressures, operational challenges, legacy issues, and disputes between current and former ownership led to the Debtors' Chapter 11 filings.

Market Conditions and Operational Challenges

Coal Market Deterioration: Following price peaks in 2022, thermal and metallurgical coal prices declined through 2023 and into 2025. Index metallurgical coal prices fell from approx. $265/metric ton (MT) in Feb. 2024 to $177.50/MT by Mar. 2025, reducing HCNR's estimated realized price from $159/short ton (ST) to $98-99/ST, rendering mining operations economically unviable at current levels.

Coal Quality Issues: Post-acquisition, KTRV discovered HCNR's produced coal quality was inferior to representations made by the former owners (Seller Parties), allegedly due to a scheme by Mr. Svonavec to misrepresent quality to customers. This exposed HCNR to legal/financial risk, required significant extra costs to potentially fulfill contracts, rendered some contracts unachievable, and necessitated finding alternative outlets for the inferior product.

Acquisition Fallout and Financial Distress

Disputes with Former Owners: By late 2024, disputes escalated between KTRV and Heritage Holding/Svonavecs over the MIPA and related agreements.

• Heritage Holding filed an unauthorized UCC-1 financing statement against HCNR assets in July 2024, despite HCNR allegedly not granting a security interest and conditions under the MIPA potentially not being met.
• Multiple lawsuits commenced in late 2024/early 2025, draining resources and creating uncertainty (detailed below).

Liquidity Crisis and Default: Mounting operational costs, declining revenue, litigation expenses, and potential acquisition-related debt service led to a severe liquidity crisis.

• Bedrock issued a Notice of Default and Acceleration to the Debtors on January 20, 2025.
• A Forbearance Agreement was entered on January 31, 2025, but the Debtors subsequently defaulted.
• On February 12, 2025, HCNR executed a Strict Foreclosure agreement with Bedrock under UCC § 9-620, transferring title to certain "Foreclosed Equipment" to Bedrock in satisfaction of $10 million of debt. Bedrock then leased this equipment back to HCNR.
• Post-strict foreclosure, Bedrock was owed at least $5.65 million in principal plus interest and fees. Total secured debt pre-petition was estimated at approx. $11.8 million (including Bedrock, Caterpillar, Cleveland Bros.).

Sabotage and Litigation Escalation

Equipment Sabotage: On or about February 22-24, 2025, agents allegedly authorized by Angela Svonavec (including former HCNR employees Timothy Hunt and Anthony Boyer) unlawfully entered multiple HCNR mine sites in MD and PA, removing Electronic Control Modules (ECMs) and causing over $200,000 in damage, rendering equipment inoperable and forcing operations to substantially cease at affected sites. Approximately 32 ECMs remained missing as of the Petition Date.

Rapid Litigation: The conflict generated a "maelstrom" of litigation:

• Banshee Action (Oct. 2024): Banshee Industries (Svonavec entity) sued HCNR over alleged breach of a nut coal supply agreement after HCNR terminated it, alleging fraudulent weight manipulation by Banshee.
• HCNR Action vs. Former Owners (Feb. 25, 2025): HCNR sued Heritage Holding, Angela Svonavec, Hunt, and Boyer for trespass, conversion, and replevin related to the sabotage, seeking a TRO. Voluntarily dismissed Feb. 28, 2025.
• Bedrock NY Action (Feb. 28, 2025): Bedrock sued Heritage Holding, the Svonavecs, and the Debtors, seeking damages for slander of title, tortious interference, conversion related to the sabotage, and declaratory judgments affirming its liens and the invalidity of Heritage Holding's UCC filing and challenging the Svonavecs' actions.
• Heritage Holding Somerset Action (Mar. 6, 2025): Heritage Holding sued Bedrock, alleging the Strict Foreclosure was a fraudulent conveyance and seeking damages and injunctive relief to prevent disposal of the equipment. A mutual TRO restricting disposal of equipment was entered on Mar. 13 and extended.

Chapter 11 Filing

• KTRV and Heritage Coal filed for Chapter 11 protection on March 30, 2025, in the U.S. Bankruptcy Court for the District of Delaware, citing liquidity constraints driven by declining coal prices, coal quality issues, costly litigation with former owners (the Seller Parties), and alleged operational sabotage.
• Concurrently, the Debtors sought interim court approval to use cash collateral provided by prepetition lender Bedrock, stating the funds were necessary to maintain operations, pay critical expenses, and support efforts to maximize estate value through potential asset sales or settlements.

Initial Budget

Stay informed on every Chapter 11 bankruptcy case with liabilities exceeding $10 million. Subscribe for free to have our coverage delivered directly to your inbox, and explore our full archive of past summaries.

If you're already a subscriber and would like to receive timely filing alerts, please reach out and we'll add you to the distribution list.