Walter Energy on Jan. 5 filed with its bankruptcy court an “omnibus” reply to various objections lodged against its plans to sell various assets, including coal mines in Alabama and southern West Virginia.
On Nov. 5, 2015, faced with no ability to confirm a chapter 11 reorganization plan, Walter Energy and subsidiaries filed with the U.S. Bankruptcy Court for the Northern District of Alabama a sale motion seeking authority to enter into a stalking horse asset purchase agreement (APA) and sell the Alabama Coal Operations to Coal Acquisition LLC (called the “Proposed Buyer”), subject to higher or otherwise better offers. Coal Acquisition has been the prohibitive favorite to win any asset auction, since it is backed by Walter Energy creditors and can credit bid what is owed by the company, where other parties would have to offer just money.
The Stalking Horse APA contains a number of conditions that must be satisfied prior to closing, two of which are of particular relevance here.
- First, like virtually every other Section 363 sale in bankruptcy, the Stalking Horse APA requires that the order approving the sale transfer the assets to the proposed buyer “free and clear” of any liens, claims, encumbrances and interests (other than Assumed Liabilities and Permitted Encumbrances under the Stalking Horse APA).
- Second, the Stalking Horse APA requires that the Walter Energy companies obtain relief from all successorship clauses (and similar provisions) in their collective bargaining agreements.
The debtors have already satisfied the second condition. In its ruling approving the end of the United Mine Workers of America (UMWA) obligations, the court found, among other things, that the debtors “could not survive absent a sale in the near term,” also that “the Proposed Buyer had emerged as the only viable bidder that would purchase the Alabama Coal Operations as a going-concern,” and that “the sale of the Alabama Coal Operations as a going-concern provides the best chance for future employment of the Debtors’ employees.”
Said the Jan. 5 omnibus reply. “The Courts’ findings remain true today. The bid deadline for the Alabama Coal Operations has passed, and no other buyer has come forward expressing any interest in these assets. Given the Debtors’ rapidly diminishing liquidity, their only alternative to the Sale is to liquidate and immediately shut down the Alabama mines, with little hope that they would ever reopen. To avoid that outcome, the Debtors now seek approval of the Sale ‘free and clear’ of any claims, liens, encumbrances and interests, other than those expressly assumed under the Stalking Horse APA. Although a number of objections to the Sale Motion have been filed, no one really contends (much less points to a single fact indicating) that the Sale should not be consummated or that there is any viable alternative transaction, purchaser or financing source outside the Stalking Horse APA. To the contrary, the overwhelming evidence shows that, given the Debtors’ liquidity situation, time is of the essence, the need for prompt approval of the Sale has only intensified, and the Proposed Buyer is the only party interested in buying the Alabama Coal Operations.”
The objections to the sale motion fall into these principal categories:
- Successor Liability and Jurisdictional Objections – The UMWA, the United Mine Workers of America Combined Benefit Fund (the “Combined Fund”) and the United Mine Workers of America 1992 Benefit Plan (the “1992 Plan” and together with the Combined Fund, the “Coal Act Funds”) object to the sale on the basis that the court should not and cannot transfer the assets “free and clear” of the debtors’ obligations under the National Labor Relations Act or the Coal Industry Retiree Health Benefit Act (the “Coal Act”) because, among other things, the court allegedly lacks jurisdiction to do so;
- Environmental Objections – The West Virginia Department of Environmental Protection and the U.S. Environmental Protection Agency and U.S. Office of Surface Mining Reclamation and Enforcement object to the sale on the basis that the debtors’ post-sale wind-down plan purportedly fails to provide adequately for the debtors’ continued compliance with their environmental obligations under non-bankruptcy law;
- Executory Contract Objections – A number of executory contract counterparties object to the sale on the basis that the Stalking Horse APA impermissibly transfers their contracts to the proposed buyer without their consent, or without satisfying unpaid cure amounts; and
- Objections by Individuals – Certain individuals, which are mainly employees or former employees of the debtors, but also various personal injury claimants, object on the basis that the sale will adversely affect their rights to benefits or wages or tort claims, or is otherwise unfair for that reason.
Said Walter Energy in its Jan. 5 filing: “The Objections lack merit and should all be overruled. First, well-settled authority recognizes that this Court has jurisdiction to enter the Sale Order transferring the Acquired Assets to the Proposed Buyer ‘free and clear’ of liens, claims, encumbrances and interests, including any successor liability claims under the NLRA and the Coal Act. The Sale Order’s ‘free and clear’ provisions related thereto are permitted by Section 363(f) of the Bankruptcy Code and are appropriate under the circumstances.”