v3.26.3
DEBT
 9 Months Ended
Sep. 30, 2026
Long-Term Debt, Unclassified [Abstract]  
DEBT DEBT
KLIM Facility
On September 15, 2026 (the “KLIM Closing Date”), the Company and its wholly owned subsidiary, Turtle Creek Gas Holdings, LLC (“Turtle Creek”), each as a co-borrower, jointly and severally liable for all obligations thereunder (and
together, the "KLIM Borrowers"), entered into a Credit Agreement (the “KLIM Credit Agreement”) with U.S. Bank Trust Company, National Association, as administrative agent, U.S. Bank National Association, as collateral agent, Kennedy Lewis Investment Management LLC ("KLIM"), acting for certain managed or advised funds and accounts, and the other lenders from time to time party thereto. The KLIM Credit Agreement provides for a senior secured term loan facility (the “KLIM Facility”) to finance the development and construction of a 460 MW natural gas-fired peaking generation facility in Sullivan County, Indiana (the “Turtle Creek Project”) to be owned and operated by Turtle Creek Gas Generation, LLC (“Turtle Creek Gas”), a wholly owned subsidiary of Turtle Creek.
The KLIM Facility provides for term loans in an aggregate principal amount of up to $600.0 million, consisting of a $550.0 million initial term loan, which was funded in September 2026, and a $50.0 million delayed draw term loan commitment, which is available until September 15, 2027, subject to an agreed draw schedule and funding conditions. The delayed draw term loan may only be used to fund the Turtle Creek Project. As of September 30, 2026, no amounts had been drawn under the delayed draw term loan commitment. Amounts repaid or prepaid under the KLIM Facility may not be re-borrowed. The KLIM Facility matures on September 15, 2029, and may be extended for two additional years with the consent of the lenders upon payment of an extension fee equal to 3.0% of the then-outstanding principal amount. The KLIM Credit Agreement also permits the Company to obtain, on a post-closing basis, a separate revolving credit facility of up to $75.0 million from one or more commercial banks. Any such revolving facility would not be documented under the KLIM Credit Agreement, but would be secured by a first-priority lien on the Company’s collateral, senior to the lien securing the KLIM Facility, and would be subject to an inter-creditor agreement between the lenders. As of September 30, 2026, no such revolving credit facility had been established.

Turtle Creek Gas and certain other subsidiaries of the Company, including Hallador Power and Sunrise Coal, guarantee the obligations under the KLIM Facility. The obligations are secured by a first-priority perfected security interest in substantially all real and personal property of the Company, Turtle Creek and the subsidiary guarantors, including the equity interests of their subsidiaries (other than subsidiaries designated as unrestricted subsidiaries under the KLIM Credit Agreement), the Turtle Creek Project, the Merom Station, and certain mining assets of Sunrise Coal, subject to customary exceptions and, upon establishment of the revolving credit facility described above, an inter-creditor agreement.

Prior to the date the Turtle Creek Project achieves commercial operation (the “Commercial Operation Date”), borrowings bear interest at (i) a fixed rate of 3.5% per annum, payable in cash, plus (ii) Term SOFR plus 4.5% per annum, which is paid-in-kind ("PIK") by adding such interest to the outstanding principal balance. On and after the Commercial Operation Date, borrowings bear interest at Term SOFR plus 8.0% per annum, payable in cash. Term SOFR is subject to a floor of 3.5%. As of September 30, 2026, the interest rate on borrowings under the KLIM Facility was 11.9%, and the effective interest rate, including the amortization of debt issuance costs, was 14.7%. On the KLIM Closing Date, Turtle Creek made an intercompany loan of $19.7 million to the Company to fund cash collateral for the Company’s outstanding letters of credit (the “Closing Date Intercompany Loan”). Under the KLIM Credit Agreement, the PIK interest rate on the KLIM Facility increases by 1.0% per annum if the Closing Date Intercompany Loan remains outstanding after October 31, 2026, and by an aggregate of 3.0% per annum if it remains outstanding after January 15, 2027, in each case until the loan is repaid in full. The Closing Date Intercompany Loan was not repaid by October 31, 2026, and as a result, effective November 1, 2026, the PIK interest rate on the KLIM Facility increased by 1.00% per annum. As of the date of this Quarterly Report, the loan remains outstanding. The Company is required to pay its excess cash flow for fiscal year 2026 and each fiscal year thereafter (calculated excluding Turtle Creek and its subsidiaries and including the net proceeds of equity issuances and permitted convertible indebtedness) into the construction account to repay the Closing Date Intercompany Loan until it is repaid in full.

Upon repayment in full of the term loans, whether at maturity, upon acceleration, or otherwise, the Company is required to pay a premium to the extent necessary for each lender to have received cash payments and outstanding principal (including PIK interest) equal to at least 1.35 times its funded term commitment, increasing to 1.50 times if the maturity date is extended (the “MOIC Premium”). The MOIC Premium is not accrued as of September 30, 2026 because payment is contingent on a repayment or acceleration event that was not probable at the balance sheet date.

Prior to the Commercial Operation Date, no scheduled principal payments are required. Beginning with the first full fiscal quarter after the Commercial Operation Date, the Company is required to make quarterly principal payments equal to 0.25% of the original principal amount of the term loans. Beginning with the first full fiscal year ending after the Commercial Operation Date, the Company is required to prepay the term loans with 100.0% of Consolidated Excess Cash Flow, as defined in the KLIM Credit Agreement. The KLIM Facility also requires mandatory prepayments from the net proceeds of certain asset dispositions and casualty events in excess of $2.5 million, subject to reinvestment rights, and from the proceeds of indebtedness not permitted under the KLIM Credit Agreement.

Proceeds from the initial term loan were used to (i) repay in full and terminate the TCB Credit Facility, including $100.9 million of outstanding principal and interest, as described below, (ii) reimburse the Company for $41.0 million of Turtle Creek Project costs previously funded by the Company, (iii) fund $19.7 million of cash collateral supporting the
Company’s outstanding letters of credit, (iv) fund the costs of developing and constructing the Turtle Creek Project, including payments due under the Company’s Asset Purchase Agreement (the "APA") with Energy World Corporation Ltd. (the “Seller”) as described in "Note 15 - Commitments and Contingencies," and (v) pay transaction fees and expenses and fund general corporate purposes. Turtle Creek Project funds are held in a construction account subject to a deposit account control agreement in favor of the collateral agent, from which disbursements may be made only upon approval of the administrative agent. Amounts held in the construction account and the letter of credit cash collateral accounts are presented as restricted cash in the condensed consolidated balance sheet.

In connection with the KLIM Facility, the Company incurred debt issuance costs of $26.2 million, consisting of $15.0 million of fees paid to the lenders, including a 2.5% commitment fee, and $11.2 million of third-party costs, including financial advisory, legal, and agency fees. These costs are presented as a reduction of the carrying amount of the debt and are amortized to interest expense using the effective interest method over the term of the KLIM Facility.


TCB Credit Facility

On March 5, 2026, Hallador entered into a credit agreement with Texas Capital Bank, as administrative agent, and Old National Bank, among others, (the "TCB Credit Agreement") that replaced the credit agreement with PNC Bank, National Association, (“PNC”) and included a $75.0 million senior secured revolving credit facility (the "TCB Revolving Credit Facility") and a $45.0 million senior secured term loan facility (the "TCB Delayed Draw Term Loan", and together with the TCB Revolving Credit Facility, the "TCB Credit Facility").
On April 21, 2026 and June 25, 2026, the Company entered into the First and Second Amendments to the TCB Credit Agreement, respectively, which among other things made certain administrative and technical modifications and modified certain financial covenants.
On the KLIM Closing Date, the Company used proceeds from the KLIM Facility to repay in full the TCB Credit Facility, including $100.2 million of outstanding principal, consisting of $45.0 million under the term loan and $55.2 million under the revolving credit facility, and $0.7 million of accrued interest, and the TCB Credit Facility was terminated. The repayment was accounted for as a debt extinguishment. The Company recognized a loss on extinguishment of debt of $5.7 million during the three months ended September 30, 2026, largely consisting of the write-off of unamortized debt issuance costs related to the TCB Credit Facility, and $5.9 million during the nine months eneded September 30, 2026, which also includes $0.2 million related to the the PNC credit agreement recognized in the first quarter.

PNC Credit Agreement
The Company was party to a credit agreement with PNC, in its capacity as administrative agent, which consisted of a revolving credit facility of up to $75.0 million and a term loan ("PNC Credit Agreement").
On June 27, 2025, the Company executed the Third Amendment (“Third Amendment”) to the PNC Credit Agreement, which was accounted for as a debt modification. The primary purpose of the Third Amendment was to provide additional operating flexibility for the remainder of 2025 by redefining covenants and deferring certain covenants until the third quarter of 2025. During the third quarter of 2025, the Company entered into a $35.0 million prepaid forward power sales contract of which $19.0 million of the proceeds were deposited into a money market account with the administrative agent as a compensating balance. The compensating balance was utilized to fully repay the outstanding term loan during the fourth quarter of 2025. As of March 5, 2026, the Company fully repaid its revolving credit facility with PNC.
Liquidity
Liquidity consists of our additional borrowing capacity and unrestricted cash and cash equivalents. As of September 30, 2026, we did not have additional borrowing capacity under the KLIM Facility for general corporate purposes, as the undrawn delayed draw term loan commitment is available only to fund the Turtle Creek Project. Total liquidity was $103.2 million.
Fees
Bank fees and other costs incurred in connection with the KLIM Facility totaled $26.2 million and are amortized over the term of the KLIM Facility. Unamortized bank fees as of September 30, 2026, and December 31, 2025, were $26.0 million and $0.3 million, respectively.
Unamortized bank fees and other costs incurred in connection with our prior credit agreements of $5.9 million were recorded as a loss on extinguishment of debt on the condensed consolidated statements of operations for the nine months ended September 30, 2026.
Debt, less debt issuance costs, is presented below (in thousands):
September 30,
2026		December 31,
2025
Total debt$551,924 $30,000 
Less total unamortized debt issuance cost(25,959)(322)
Net debt$525,965 $29,678 
All debt was classified as long-term at September 30, 2026 and December 31, 2025.
Future maturities of debt as of September 30, 2026, are as follows (in thousands):
2026$— 
2027— 
2028— 
2029551,924 
Total$551,924 
The amounts above reflect scheduled amortization based on the Company’s expected Commercial Operation Date in the second half of 2028 and exclude any mandatory prepayments from Consolidated Excess Cash Flow, additional PIK interest to be accrued after September 30, 2026, the MOIC Premium, and the Company’s potential refinancing of the KLIM Facility prior to its scheduled maturity.

Covenants

The KLIM Credit Agreement contains financial covenants that require the Company, beginning with the test period ending December 31, 2026, to maintain (i) unrestricted cash of not less than $10.0 million and (ii) a Consolidated Debt Service Coverage Ratio (as defined in the KLIM Credit Agreement) of not less than 1.15 to 1.00. Beginning with the first full fiscal quarter ending after the Commercial Operation Date, the Company is also required to maintain a Consolidated Leverage Ratio (as defined in the KLIM Credit Agreement) not to exceed 9.00 to 1.00 for the first tested period and 8.00 to 1.00 for each period thereafter. The debt service coverage ratio and leverage ratio covenants are subject to equity cure rights, which may be exercised in no more than two of any four consecutive fiscal quarters and no more than three times over the term of the KLIM Facility. The minimum unrestricted cash covenant is not subject to a cure right.

The KLIM Credit Agreement also contains customary affirmative and negative covenants, including limitations on the occurrence of indebtedness and liens, investments, asset sales, restricted payments, and affiliate transactions, and requires Turtle Creek to maintain an independent manager. Events of default include, among others, nonpayment, covenant breaches (subject to applicable cure periods), cross-default to other indebtedness in excess of $15.0 million, judgments in excess of $25.0 million, a change of control, and the failure of the Turtle Creek Project to achieve the Commercial Operation Date on or before June 30, 2029. Upon an event of default, the lenders may accelerate the outstanding obligations, and the MOIC Premium would become payable.

The KLIM Credit Agreement restricts the ability of Turtle Creek and its subsidiaries to pay dividends, make distributions, or make loans or advances to the Company, other than certain permitted payments, including the reimbursement of up to $43.0 million of Turtle Creek Project costs and an intercompany loan of up to $20.0 million made at closing. As of September 30, 2026, the Company was in compliance with all covenants under the KLIM Credit Agreement. The test period for financial covenants does not begin until December 31, 2026.
Interest Expense

Interest expense from the KLIM Facility consisted of the following (in thousands):

Three and Nine Months Ended September 30, 2026
Cash interest$801 
PIK interest1,924 
Amortization of debt issuance costs234 
Less: capitalized interest(233)
Interest expense included in the condensed consolidated statements of operations$2,726 

Interest incurred on the KLIM Facility during the construction of the Turtle Creek Project is capitalized as part of the cost of the Turtle Creek Project. PIK interest of $1.9 million and the repayment of the TCB Facility directly by the lenders on behalf of the Company of $100.2 million were noncash activities during the nine months ended September 30, 2026.

Interest capitalized to the Turtle Creek Project totaled $0.5 million on the TCB Credit Facility and $0.2 million on the KLIM Facility, or $0.7 million in total, for the three and nine months ended September 30, 2026.

Fair Value

The KLIM Facility was funded on September 15, 2026 at interest rates, including a floating Term SOFR-based component, negotiated at arm’s length with unrelated lenders. Accordingly, the Company believes the fair value of its debt approximates its principal amount as of September 30, 2026. The fair value of the Company’s debt is classified within Level 2 of the fair value hierarchy.