Walter Energy on Dec. 11 filed with its bankruptcy court proposed findings of fact and conclusions of law related to its Nov. 23 request to get rid of collective bargaining agreements and other United Mine Workers of America-related liabilities ahead of a planned sale of its assets, including unionized coal mines in Alabama.
The No. 4 and 7 mines of unionized subsidiary Jim Walter Resources, which operate at underground depths over 2,000 feet, are the “heart” of the company’s operations, Walter noted.
“However, despite the high quality of met coal that the Debtors sell, the Debtors, like many other U.S. coal producers, were unable to survive the sharp decline in the global met coal industry and filed for chapter 11 relief on July 15, 2015 (the ‘Petition Date’), commencing the instant cases (the ‘Chapter 11 Cases’),” it wrote in the filing at the U.S. Bankruptcy Court for the Northern District of Alabama. “After a failed attempt to restructure pursuant to a chapter 11 plan process and a restructuring support agreement, the Debtors are now liquidating their assets pursuant to a going concern sale to an entity owned by their first lien creditors (the ‘First Lien Creditors’). The proposed buyer, however, will not take the Debtors’ assets subject to their legacy and current labor costs.
“Accordingly, pursuant to sections 1113 and 1114 of the Bankruptcy Code, the Debtors are seeking to reject their collective bargaining agreements (the ‘CBAs’ as further defined below) to eliminate the successorship provisions and to implement their final proposals pursuant to which, upon the closing of the proposed sale, the Debtors will terminate their retiree benefit obligations and any other obligations remaining under the CBAs.
“The proposed going concern sale is the best chance for selling the Debtors’ Alabama mines and future employment for the Debtors’ represented employees. If the sale does not close, the Debtors will have no choice but to convert to chapter 7, thereby destroying the going concern value of the mines and eliminating future employment opportunities. Under these circumstances, the Debtors’ requested relief is necessary and is granted.” Notable again is that this is a proposed finding for the judge to consider.
“The Debtors are party to two collective bargaining agreements and a memorandum of understanding. Specifically, (a) Jim Walter is party to the June 2011 Contract between the United Mine Workers of America (the ‘UMWA’) and the Bituminous Coal Operators Association (the ‘BCOA’) (together with any side letters of agreement and closing agreements and the memorandum of understanding between Jim Walter and the UMWA, the ‘UMWA CBA’); and (b) Walter Coke, Inc. (‘Walter Coke’) is party to an Agreement dated March 25, 2010, between the USW on behalf of Local Union No. 12014 and Walter Coke (the ‘USW CBA,’ and, together with the UMWA CBA, the ‘CBAs’). The UMWA CBA covers approximately 700 active employees.
“In addition, the Debtors owe retiree benefits (as such term is defined by section 1114 of the Bankruptcy Code, the ‘Retiree Benefits’) to approximately 3,100 retirees and spouses represented by either the UMWA or the USW, together with approximately 100 non-Union retirees and spouses represented by the statutory committee of retirees appointed in these Chapter 11 Cases (the ‘Section 1114 Committee’). These Retiree Benefits include those owed under: (i) the UMWA CBA (the ‘UMWA Retiree Medical Plan’) which, as of December 31, 2014, had approximately $579.2 million in unfunded liabilities; (ii) a collective bargaining agreement that does not cover any active employees with the UMWA (the ‘Taft Retiree Medical Plan’) that, as of December 31, 2014, had approximately $3.4 million in unfunded liabilities; (iii) the USW CBA (the ‘Walter Coke Retiree Medical Plan’ and the ‘Walter Coke Retiree Life Plan’) that, as of December 31, 2014, had approximately $11.0 million and $0.5 million in unfunded liabilities, respectively; and (iv) the medical plan for non-Union retirees (the ‘Salaried Retiree Medical Plan’) that, as of December 31, 2014, had approximately $4.3 million in unfunded liabilities.
“The Debtors are also responsible for numerous forms of pension liabilities and retiree benefit obligations arising from the Debtors’ relationship with the UMWA, including, as defined below, the 1974 Pension Plan, the Coal Act Funds, the 1993 Benefit Plan, the Account Plan, and the CDSP (collectively, the ‘UMWA Funds’). Specifically, in 2014, Jim Walter Resources contributed approximately (a) $17.9 million to the 1974 Pension Plan; (b) $81,000 to the CDSP3 ; and (c) $3.6 million to the 1993 Benefit Plan.
“The Debtors also have an annual premium of approximately $162,000 (payable monthly) owed to the Combined Benefit Fund, and currently administer a Coal Act individual employer plan (an ‘IEP’) that provides retiree health benefits to approximately 572 retirees and their dependents. Finally, in 2014, Jim Walter contributed approximately $5.1 million to a retiree bonus Account Plan.
“In aggregate, the Debtors pay approximately $25-30 million per year on account of their Retiree Benefits.”
Walter says the only interested buyer wants the union obligations terminated
After two months of negotiations, on Nov. 5, the Walter companies executed an asset purchase agreement (the “Stalking Horse APA”) with Coal Acquisition LLC, an entity owned by the First Lien Creditors. Under the Stalking Horse APA, Walter will sell the core Alabama mining operations (i.e., the Jim Walter No. 4 and 7 mines, related methane gas operations, and certain additional assets), called the “Alabama Coal Operations,” to the proposed buyer for $1.15 billion. The consideration for the purchase price will be a credit bid by the First Lien Creditors of their prepetition liens and their adequate protection claims. The Stalking Horse APA is subject to higher or better offers and an open auction at which other qualified bidders may seek to purchase the Alabama Coal Operations and other assets on higher or better terms.
The Stalking Horse APA requires a sale “free and clear” of legacy union liabilities. It requires the elimination of any clause or provision imposing on the debtors the requirement that any buyer assume the debtors’ CBAs or any of the debtors’ liabilities or obligations under their CBAs.
“Despite extensive efforts, the Debtors did not find any buyer willing to purchase the Debtors’ assets subject to the CBAs,” said Walter. “In fact, no buyer other than the Proposed Buyer expressed any interest in the Alabama Coal Operations at all. This was true even though, as of the date of the Section 1113/1114 Motion, the Debtors’ investment banking advisor PJT Partners LP (‘PJT’) had contacted 47 strategic acquirers (including domestic coal producers, international coal producers and integrated steel companies) and 37 financial sponsors. Throughout the marketing process, PJT did not receive a single indication of interest to purchase all of the Debtors’ Alabama Coal Operations although PJT did receive a few proposals with respect to certain of the Debtors’ other assets.
“Today, the Debtors continue to rapidly lose cash, even excluding interest expenses and notwithstanding substantial cash conservation initiatives the Debtors implemented. If the Stalking Horse APA is not approved, and if no alternative successful bidder emerges, the Debtors will run out of cash by early 2016 and will have no choice but to liquidate. In addition, if the proposed 363 Sale is consummated, the Debtors will be left with insufficient funds to make payments on the Retiree Benefits and any ongoing obligations under the UMWA CBA.”