After what it called failed compromise talks with the United Mine Workers of America union, and a lack of interest by asset bidders for any property with a union agreement, Alpha Natural Resources on March 28 asked its bankruptcy court to reject collective bargaining agreements (CBA) for ten of its operations.
In August 2015, Alpha, one of the nation’s top coal producers, sought Chapter 11 protection at the U.S. Bankrupty Court for the Eastern District of Virginia.
Besides the rejection of the CBAs, Alpha is also asking for authorization to modify certain retiree healthcare obligations (collectively, the “Retiree Healthcare Obligations” and together with the CBA Obligations, called the “Labor and Legacy Obligations”), which modifications consist of: the termination of certain retiree medical programs and the replacement of such programs with a subsidy consistent with the benefits provided to the Debtors’ non-union retirees; and the termination of the Debtors’ liabilities under the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”).
“The Debtors have no alternative but to seek this relief, which is necessary for (a) the sale of certain assets as going concerns, (b) a successful restructuring of their remaining businesses and (c) to avoid an otherwise piecemeal liquidation of their assets, all for the benefit of all stakeholders (including active and retired UMWA-represented employees),” Alpha told the court.
Alpha: coal industry sustains ‘historic collapse’
Alpha added: “The historic collapse of the domestic coal industry is a matter of record before this Court. Over the past five years, American coal producers have encountered a confluence of macroeconomic headwinds, regulatory obstacles and competitive pressures that have decimated the coal industry and led to numerous bankruptcies. The Debtors have not been spared. The relentless and rapid decline of the markets for thermal and metallurgical coal not only compelled the Debtors’ bankruptcy filing, but have continued to drain their cash reserves at an alarming rate (currently approaching $10 million per week). During the first two months of this year, the Debtors incurred a net book loss of $126 million, compounding a further $1.47 billion of losses during 2015.
“In response to deteriorating market conditions and financial performance, over the past several years, the Debtors implemented aggressive cost cutting measures across their operations, and they redoubled these efforts since the commencement of these chapter 11 cases on August 3, 2015 (the “Petition Date”). Cost-savings measures have included the imposition of substantial benefit reductions on the Debtors’ unrepresented hourly and salaried employees (collectively, the “Non-Union Employees”) as well as other reductions across virtually all operational areas.
“The active and retired employees to whom the Debtors owe the Labor and Legacy Obligations consist of approximately: (a) 610 active employees (collectively, the “Active Union Employees”), representing approximately 11% of the Debtors’ workforce; and (b) 2,600 retired Union Employees (collectively, the “Retired Union Employees” and, collectively with the Active Union Employees, the “Union Employees”).
“The scale of the Debtors’ obligations to the Union Employees is daunting. The Debtors spent approximately $52.9 million on healthcare benefits for the Union Employees in 2015, inclusive of approximately $17.8 million for the Active Union Employees and $35.1 million for the Retired Union Employees. As an example of the aggregate annual cost to the Debtors for wages, employment benefits and retirement benefits, in 2015, the Debtors were required to spend an average of approximately 34% more on each Union Employee than each Non-Union Employee. As of the Petition Date, the Debtors had approximately $872 million in accrued retiree healthcare obligations to their Union Employees.
“The Debtors’ business plan – modified during these chapter 11 cases to account for the continuing decline in market conditions – contemplates that they must achieve an additional $200 million in annual cost savings across their businesses to maintain their operations and to accomplish a successful restructuring in the face of unprecedented market adversity. Of that $200 million, approximately $60 million must be realized through savings in labor costs related to Union Employees.
“In addition, each of the Debtors’ discrete mining complexes must achieve sufficient savings on an individual basis to mine and process coal at competitive rates and thereby remain operational. If adequate labor savings cannot be achieved on a local level, then the Debtors will be forced to idle less efficient mines to the detriment of affected Active Union Employees, Retired Union Employees and Non-Union Employees. If such cost savings cannot be achieved globally, then the Debtors may be forced to liquidate their assets, to the detriment of all stakeholders, including all Union Employees.
“To maximize the value of their estates, the Debtors are in the process of conducting a going-concern sale of their most valuable assets (collectively, the “Core Assets”) while retaining any remaining assets that cannot be sold (collectively, the “Reclamation Assets”) for the principal purpose of conducting environmental reclamation. The sale of the Core Assets is supported by a stalking horse credit bid from the Debtors’ prepetition first lien lenders (collectively, the “Stalking Horse Bidder”).
“The Core Assets cannot be sold subject to the Labor and Legacy Obligations. In light of the challenging environment facing domestic coal producers, only a limited number of parties have even expressed any interest in the Core Assets, notwithstanding the diligent marketing efforts of the Debtors and their professionals. Pursuant to the Court’s order approving procedures for the sale of the Core Assets (the “Sale Procedures Order”), the deadline for indications of interest in the Core Assets expired on March 18, 2016. As of the date hereof, however, the expressions of interest in the Core Assets received by the Debtor – including the Stalking Horse Bidder – indicate that there is essentially no chance that the Debtors will receive a qualifying bid to purchase the Core Assets subject to the Labor and Legacy Obligations.
“The ongoing Labor and Legacy Obligations associated with the Core Assets also cannot be carried by the Debtors following a sale. Certain of the CBAs potentially impose liability on the Debtors if related mining assets are sold to a party who will not assume the Debtors’ obligations thereunder. For all of the reasons discussed herein, the Debtors cannot support these CBA Obligations even while they remain in possession of the more profitable Core Assets. It is self-evident that the Debtors will be unable to support such obligations once the Core Assets have been sold. Accordingly, the CBA Obligations associated with the Core Assets must be rejected, and the applicable Retiree Healthcare Obligations must be substantially modified. The situation is no different with respect to the Reclamation Assets, which are unprofitable and have proven to be unsalable. The Reclamation Assets thus will be retained – and, in certain cases, operated by the Debtors – for the principal purpose of conducting reclamation activities. There is no realistic scenario in which the Reclamation Assets could support the ongoing payment of the Labor and Legacy Obligations. Thus, they must be eliminated.”
Alpha says union failed to bargain in ‘good faith’
Alpha said that starting Jan. 4 it tried to bargain with the union, adding: “The UMWA has failed to bargain in good faith with respect to the January 4th Proposals and has continually and without good cause refused to seriously discuss – much less accept – the January 4th Proposals.
“The Debtors made themselves available to the UMWA at all times for further discussions and consistently attempted to arrange additional meetings. By contrast, the UMWA often claimed to be unavailable to meet. In total, the UMWA agreed to meet with the Debtors only four times following the Debtors’ delivery of the January 4th Proposals (covering seven days of meetings). At each of these meetings, the UMWA generally dismissed the Debtors’ proposals out of hand and failed to provide any counterproposals, thus frustrating any possibility of back-and-forth exchanges of proposals typical of good faith negotiations.
“Ultimately, the UMWA delivered its first and only counterproposal to date, a copy of which is attached hereto as Exhibit H (the “UMWA Counterproposal”), on March 9, 2016 – over two months after it received the January 4th Proposals. The UMWA Counterproposal was presented as a “take it or leave it” document, lacked supporting data and, as far as the Debtors are able to determine, likely would achieve only approximately $2 million of the $60 million in savings the Debtors must obtain. Moreover, acceptance of the UMWA Counterproposal would substantially facilitate the UMWA’s ability to organize the Debtors’ non-union operations and would require that any newly-organized employees be covered by the same burdensome CBAs covering Active Union Employees. Thus, the UMWA Counterproposal ultimately would promise to impose prospective labor and legacy costs on the Debtors well in excess of the nominal savings contemplated therein.
“The Debtors’ Cumberland, Emerald, Dickenson-Russell and Power Mountain operations – all of which are Core Assets – are covered by four of the nine CBAs that the Debtors seek to reject.
“The Debtors have not sat idly by as their cash (and their lenders’ cash collateral) has been depleted. To the contrary, the Debtors undertook significant measures to control costs and preserve the value of their estates. Among other things, the Debtors closed, idled or converted to contract-mining status a total of ten mines, including: (a) the Emerald mine in Pennsylvania; (b) two Paramont mines and one Knox Creek deep mine in Virginia; and (c) three Elk Run mines, two Edwight mines and the BRM North mine in West Virginia. In addition to the outright idling of mining operations at these locations, the Debtors have decreased mining activities or closed portions of various other mines.
“The costs to the Debtors of the CBAs are not limited to wage and benefit obligations paid directly to Union Employees. The CBAs further saddle the Debtors with numerous significant obligations relating to scheduling and paid time-off that benefit Active Union Employees. For example, the Cumberland, Emerald, Goals, Litwar, Bandmill, Power Mountain and Dickenson-Russell CBAs provide for (a) ten or 11 paid holidays, (b) up to 30 paid vacation days, (c) double- and triple-time wages for weekend or holiday work and (d) overtime rates after seven and a quarter or eight hours in a day (without regard to whether the employee works 40 hours for the week). The substantial amount of paid time-off and overtime and premium pay available to Active Union Employees inhibits productivity and increases operating costs at the Debtors’ facilities.”