Alpha Natural Resources, which recently entered bankruptcy protection, said in a brief Aug. 28 filing at the SEC that on Aug. 25, Brian D. Sullivan, Executive Vice President and Chief Commercial Officer, notified the company of his intention to resign, effective Aug. 28, in order to pursue another employment opportunity.
The filing didn’t day anything about a replacement for Sullivan.
On Aug. 3, Alpha Natural Resources and certain of its affiliates filed voluntary petitions for relief under Chapter 11 of the federal Bankruptcy Code at the U.S. Bankruptcy Court for the Eastern District of Virginia. Alpha, based in Virginia, is one of the nation’s largest coal producers, with mines in states like Virginia, West Virginia, Pennsylvania, Kentucky and Wyoming.
Alpha trying to stem wholesale losses of key personnel
Ironically, also on Aug. 28, Alpha filed with its bankruptcy court a request to continiue pre-bankruptcy retention programs for certain key personnel. Gary W. Banbury, Alpha Executive Vice President and Chief Administrative Officer, said in support of that motion: “In recent years the Debtors resorted to the increased use of Retention Agreements in an effort to combat attrition of Key Employees in various areas of their business.
“As detailed further below, the significant distress of the coal industry has resulted not only in a reduction in force, but also in a reduced ability of the Debtors to retain their Key Employees. As of the Petition Date, the Debtors maintained separate Retention Agreements with each of their approximately 143 Key Employees, the general terms of which are more fully described below. The compensation provided to the Key Employees through the Retention Program is an important and integral element of their overall wage and benefit packages. Accordingly, the elimination of, or failure to pay obligations under, the Retention Program would amount to a substantial pay cut for these employees.
“In June 2011, in the wake of the Massey [Energy] Acquisition, the Debtors had approximately 14,500 employees. By the Petition Date, the total number of the Debtors’ employees had declined by almost 50% to fewer than 8,000 employees. A substantial portion of those departures were involuntary – that is, initiated by the Debtors as they attempted to respond to the pressures on their business caused by lower prices, weakening demand, oversupply, increased competition from within the industry and alternative sources and escalating regulation.
“In particular, in November 2013 and again in April 2015, the Debtors were forced to lay off significant portions of their workforce in an effort to right-size their business and stem the tide of losses.
“The involuntary departure of many employees, and the depressed conditions of the coal industry in general, precipitated the voluntary departure of others. In fact, during the period between 2012 and the Petition Date, the debtors’ voluntary turnover rate for salaried employees increased on a relative basis by more than its overall turnover rate.
“With significant reductions in workforce over the past two years, the number of personnel throughout the Debtors’ business has been reduced to the bare minimum necessary to operate the business. The increased workload on remaining employees, combined with the well-publicized challenges facing the coal industry as a whole and aggressive recruiting from employers in competition with the Debtors for the transferable skills of their employees, have accelerated the departure of employees.
“Departing employees have become exceedingly difficult, if not impossible, to replace. The challenges facing the Debtors’ industry have led to the disruption of succession planning at all levels of the Debtors’ business and holes in critical skill areas. Moreover, the Debtors’ efforts to replace critical employees through recruitment have been hampered in recent years. The Debtors’ headquarters is located in a relatively remote region of the United States [in southwest Virginia] where the Debtors do not have a deep pool of highly skilled candidates available. Given the current distressed state of the coal industry generally, and the Debtors’ recent restructuring efforts, out-of-town candidates with transferable skills are reluctant to commit to moving to the Debtors’ location where there may not be a wide variety of alternative opportunities for skilled employees.”
UMWA funds object to financing plan
On Aug. 28, various United Mine Workers of America pension and retiree health funds filed an objection with the court over Alpha’s proposed debor-in-possession financing plan, designed to keep the company in operation while it tries to reorganize and emerge intact from Chapter 11.
“While debtor-in-possession financing motions are routine in large chapter 11 cases, the relief sought in this DIP motion is extraordinary,” said the UMWA funds. “Rare is the debtor with such significant cash on the balance sheet on the petition date; rarer still is the debtor with substantial amounts of unencumbered assets. These debtors have both. In this unusual situation, great care must be taken to preserve and protect unencumbered assets for the benefit of unsecured creditors. But that has not happened here. The Debtors, instead, have taken the virtually unprecedented step of gifting unencumbered assets to certain of their pre-petition secured lenders not as adequate protection for diminution in value, as may be appropriate under the Bankruptcy Code, but rather to secure pre-petition obligations in exchange for the “consent” of these lenders to priming of their pre-petition liens – a diversion of estate value that is not permitted by precedent nor by the Code.
“At the same time, the Debtors – without an end game in sight – have ceded control of certain critical business matters to the lenders, including approval of matters relating to employees and retirees pursuant to Sections 1113 and 1114 of the Bankruptcy Code. The required “sign-off” by the lenders abrogates the Debtors’ independence in connection with Sections 1113 and 1114. With a business plan still yet to be developed, it is not yet clear that relief with respect to labor and benefits matters will need to be invoked at all but for the mandate that the Debtors adhere to certain milestones in connection with the DIP financing.”