Walter Energy says stay sought by UMWA could kill asset sale deal

Walter Energy on Jan. 18 told its bankruptcy court that the stay requested by United Mine Workers of America-related entities of the sale of many of its Alabama coal assets while an appeal is argued will trash that sale, since the sale is based on there not being in place what the UMWA is trying to salvage.

The UMWA Combined Benefit Fund and the UMWA 1992 Benefit Plan (together referred to as the “Coal Act Funds”) want an emergency stay of a bankruptcy court order approving the sale of the Alabama assets, including two longwall-equipped coal mines with UMWA-represented workforces, while the funds pursue an appeal of an earlier bankruptcy court decision to sever those assets from their UMWA obligations.

Said Walter’s Jan. 18 objection to that stay request: “On January 8, 2016, the Court authorized the going-concern sale of substantially all of the Debtors’ Alabama mining operations to Coal Acquisition, LLC pursuant to the Asset Purchase Agreement. The Sale, which is currently scheduled to close in late February, will preserve the jobs of many of the Debtors’ current employees, and provide for the assumption of $185.5 million in cash, trust funding, and assumed liabilities, including Black Lung and environmental claims. In total, the Sale will bring upwards of $1.3 billion dollars of value to the Debtors’ estates, maximizing the value of the estates for the Debtors’ creditors. As recognized by the Court—and by the numerous creditor constituencies who support the Sale—the Sale is in the best interest of the Debtors, their estates, their creditors and other parties in interest.

“Staying the Sale Order risks liquidating the Debtors and triggering a conversion of these cases to Chapter 7. The Buyer would not have entered into the Stalking Horse Agreement, and will not consummate the Sale, if the Acquired Assets are not sold free and clear of all claims, liens, interests and encumbrances pursuant to section 363(f) of the Bankruptcy Code, including Coal Act liabilities.

“There is nothing unusual or extraordinary about the Sale Order. Bankruptcy courts routinely authorize the sale of a debtor’s assets free and clear of a debtor’s liabilities related to those assets under section 363(f). If they did not, or could not, the very purpose of section 363—maximizing the value of the debtor’s assets for the benefit of all stakeholders—would be gutted.

“The Coal Act Funds’ appeal is rooted in the argument that Coal Act liabilities are not an ‘interest in property’ and are therefore excluded from free and clear sales under section 363(f). But there is nothing unique about the Coal Act that justifies its exclusion from the ordinary operation of section 363(f). Many courts have authorized the sale of a debtor’s assets free and clear of Coal Act liabilities. Despite the Coal Act Funds’ protests to the contrary, no court has held that a sale of a debtor’s assets cannot be made free and clear of its Coal Act liabilities. The Coal Act Funds, therefore, have no likelihood of success on the merits of their appeal.

“Moreover, the record shows the Coal Act Funds will not suffer any harm if the Sale closes. The Debtors are current on their premium payments under the Coal Act, and there are $4.2 million in letters of credit that will pay premiums for a year following closing. Multiple sources fund Coal Act liabilities, including supplemental federal funding from reclamation assessments and payments by Federal agencies. Furthermore, under the Coal Act, the Coal Act Funds can adjust premiums charged to employers required to contribute to the 1992 Plan in order to discharge their obligation to provide benefits for retirees. Without any evidence of possible irreparable injury, the Coal Act Funds have failed to meet their burden for establishing the second prerequisite for a Rule 8007 stay.”

The Coal Act Funds said in their Jan. 13 request for the emergency stay about a measure passed by Congress: :The Coal Act was enacted to stabilize retired coal miners’ healthcare benefits with a tax-based financing system. Only one federal Court of Appeals has had the chance to reconcile the Coal Act with the free-and-clear sale provisions of Section 363 of the Bankruptcy Code, and in the twenty years since, the underpinnings of that court’s opinion have eroded, if they were ever solid. The Eleventh Circuit should have the opportunity to address the legal questions the Coal Act Funds’ appeal presents and to reconcile the Coal Act with Section 363. Likewise, the UMWA Funds’ appeal of the 1113/1114 Order raises significant questions of statutory interpretation which are unresolved in this Circuit and which should be heard by an appellate court. So that the Coal Act Funds can pursue their appeals without hindrance, and because of the public interest in resolution of these issues, this Court should stay the Sale Order pending appeal.

The funds added: “The equity holders of Coal Acquisition LLC (‘Coal Acquisition’ or the ‘Purchaser’), the buyer here, are the Debtors’ First-Lien Creditors. They did not bid new money. They bid their own secured credit − the money they already spent to acquire their debt claims. To recover on that investment, these creditors have nowhere else to turn except to the collateral they would be buying in the sale. Regardless of when—or even whether—the sale closes, these creditors will have precisely the same economic interest in preserving the mines and in maintaining business operations. A stay pending appeal is not going to alter the First-Lien Creditors’ economic interests or rational behavior.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.