Corporate split of coal producer Alpha Natural Resources now up to creditors

A federal bankruptcy judge on May 26 approved coal producer Alpha Natural Resources (ANR) to take to creditors for approval a plan of reorganization that would see part of the company sold off to certain creditors under an entity provisionally known as “Newco,” and for other assets to stay with a “Reorganized ANR.”

That May 26 approval by a judge at the U.S. Bankruptcy Court for the Eastern District of Virginia was of a Second Amended Disclosure Statement and Plan of Reorganization filed with the court on May 25.

All ballots filled out by creditors four or against the plan are to be received by the Solicitation and Tabulation Agent no later than 5:00 p.m., Eastern Time, on June 29, or such other date established by the Alpha debtor companies that is at least 28 days after the commencement of the solicitation period.

The confirmation hearing is scheduled to be held before Judge Kevin R. Huennekens on July 7 at 10:00 a.m., Eastern Time. The confirmation hearing may be continued from time to time by the court.

Objections to confirmation of the plan must be received no later than June 29, or such other date established by the debtors that is at least 28 days after service of the Solicitation Packages.

Since the August 2015 petition date, the debtors have closed, idled or converted to contract mining status a total of ten mines, including: the Emerald longwall mine in southwest Pennsylvania; two Paramont and one Knox Creek deep mines in Virginia; and three Elk Run mines, two Edwight mines and the BRM North mine in West Virginia. In addition to the outright discontinuation of mining operations at these locations, the debtors have decreased mining activities or closed portions of various other mines.

Alpha noted: “Decreased demand, lower prices and the resulting slowdown in operations, including mine idling and closures, has caused substantial attrition to the Debtors’ workforce since the Petition Date. As a result of these factors, in part, the Debtors were compelled to lay off approximately 1,250 employees between the Petition Date and January 31, 2016, in addition to the more than 440 employees who departed voluntarily over the same period. Among the involuntary terminations were approximately 985 hourly employees and 266 salaried employees.”

Said Alpha’s May 25 disclosure statement: “The coal industry has faced unprecedented and well documented market and regulatory headwinds in recent years that together compelled the Debtors to commence these Chapter 11 Cases on August 3, 2015 (the ‘Petition Date’). Since the Petition Date, conditions in the Debtors’ industry have continued to deteriorate to the extent that coal production, pricing and exports during the second half of 2015 all declined year-on-year from the same period in 2014. As a result, and despite the Debtors’ continuing efforts to maximize efficiency, certain of their operations have remained cash-flow negative and a burden on their other valuable assets. The Debtors therefore determined that it was in their best interests and the best interests of their creditors and other stakeholders to preserve and maximize the value of their estates by commencing a process for the sale of their core assets.

“To facilitate this sales process, the Debtors’ prepetition First Lien Lenders (as defined herein) agreed to serve as a stalking horse bidder by credit bidding $500 million of the secured debt due to them for certain of the Debtors’ assets (the ‘Reserve Price Assets’). As a ‘stalking horse bid,’ the First Lien Lenders’ credit bid on the Reserve Price Assets (the ‘Stalking Horse Bid’) has been subject to higher or otherwise better offers pursuant to a marketing and sale process approved by the Bankruptcy Court. The First Lien Lenders’ participation in the sale process as stalking horse bidders has ensured that the Debtors will recover maximum value for their assets in this challenging environment by subjecting the assets to a competitive marketing process, thereby providing considerable benefit to the Debtors’ estates.

“The amount of the Stalking Horse Bid has already been reduced by $175 million as a result of the Bankruptcy Court’s approval of a $200 million alternative stalking horse bid for the Debtors’ natural gas business in the Marcellus Shale in southwestern Pennsylvania (the ‘PLR Assets’), as expressly contemplated by the terms of the asset purchase agreement entered into by the First Lien Lenders.

“The Debtors and their advisors have thoroughly marketed the Reserve Price Assets, including by: (a) contacting more than 150 strategic, financial and other investors; (b) executing non-disclosure agreements with, and providing key information to, many such investors; and (c) providing potentially interested bidders with marketing and due diligence information. In response, the Debtors received 17 preliminary indications of interest, of which 5 were for the Reserve Price Assets other than the PLR Assets, and a total of nine final bids by the bid deadline of May 9, 2016, of which one included the Reserve Price Assets. Nevertheless, the Board of Directors of ANR did not qualify any competing bids for the Reserve Price Assets other than the PLR Assets because all of the alternative proposals that the Debtors received, as applicable: (a) provided no additional value to the Debtors’ estates; (b) were not economically viable, in the Debtors’ business judgment; (c) contained speculative financing or other unacceptable contingencies; and/or (d) represented a material increase in risk related to completing the Debtors’ restructuring. As a result, except with respect to the PLR Assets, the proposed auction of the Reserve Price Assets was cancelled and, on May 13, 2016, the Debtors filed a notice designating the Stalking Horse Bid as the successful bid for such assets.”

Effort to auction some ‘Non-Core Assets’ failed

Last October, Alpha asked the court to let it sell certain “Non-Core Assets,” which were basically shut mines or mines about to be shut. The approved that sale process. Alpha contacted approximately 139 potentially interested parties. In response, 57 such parties executed non-disclosure agreements in connection with the proposed sales, and Alpha received indications of interest from 27 such parties. “Although the Debtors received 5 bids for certain of the Non-Core Assets, the Debtors have not qualified any bidders pursuant to the terms of the Non-Core Asset Bidding Procedures Order,” said the May 25 filing. “The Debtors therefore adjourned the originally scheduled hearing regarding approval of Non-Core Asset sales. The Debtors continue to negotiate the sale of certain Non-Core Assets with interested parties in accordance with the Non-Core Asset Bidding Procedures Order.”

On Feb. 8, Alpha filed a motion (the “Core Asset Sales Motion”) seeking an order:

  • establishing procedures relating to the bidding for, and potential sale of, certain key mining properties, assets and related infrastructure (collectively, the “Core Assets”);
  • approving a credit bid of the debtors’ First Lien Lenders (the “Stalking Horse Bid”) for certain designated assets (collectively, the “Reserve Price Assets”);
  • scheduling auctions and final sale hearings, as necessary; and
  • establishing procedures for the assumption and potential assignment of executory contracts and unexpired leases in connection with any sale of Core Assets.

On March 11, the Bankruptcy Court approved the sale process. In connection with the marketing of the Core Assets, the debtors and their advisors: contacted 154 strategic, financial and other investors (e.g., other domestic and foreign coal producers, mining focused investment vehicles, private equity firms with mining interest, distressed asset investors and environmental funds); and executed non-disclosure agreements with, and established data room access with key information related to the debtors’ assets for, numerous such investors.

The Reserve Price Assets initially were comprised of all assets (including, but not limited to, all mineral rights, fixed and mobile equipment and logistics assets) used or held for use primarily in connection with:

  • the Eagle Butte and Belle Ayr surface mine complexes of Alpha Coal West in Wyoming;
  • the natural gas business in the Marcellus Shale in southwestern Pennsylvania (which has since been split off into a separate sale);
  • the McClure, Nicholas and Toms Creek mine complexes in West Virginia and Virginia;
  • all coal operations and reserves located in Pennsylvania, including the Cumberland mine complex, the Emerald mine complex, the Freeport seam reserves, the Sewickley seam reserves and all assets used or held for use primarily in connection therewith, including all logistics-related assets;
  • the debtors’ interest in Dominion Terminal Associates, a coal export terminal in Newport News, Virginia, in which the debtors own a 41% interest; and
  • certain other designated assets, including certain working capital.

In total, the Alpha debtors received approximately 15 preliminary expressions of interest for some or all of the Reserve Price Assets. The debtors received a total of six final bids for some or all of the Reserve Price Assets by the bid deadline of May 9. The Board of Directors of ANR did not qualify any competing bids for the Reserve Price Assets (other than the natural gas assets), however, because all of the alternative proposals: provided no additional value to the debtors’ estates; were not economically viable, in the debtors’ business judgment; contained speculative financing or other contingencies; and/or represented a material increase in risk related to completing the debtors’ restructuring. As a result, except with respect to the natural gas assets, the proposed auction of the Reserve Price Assets was cancelled and on May 13, the debtors filed a notice designating the Stalking Horse Bid as the successful bid for such assets.

Some mine complexes would stay with a reorganized company

In part, Alpha wants to reorganize what’s left of itself under a group of companies called the “Reorganized Debtors.” which will retain a total of 27 mining complexes. The retained complexes that have active mines associated with them are:

  • Kingston Complex – Glen Alum and Douglas mines
  • Delbarton Complex – Kielty Mine
  • Litwar Complex – Horse Creek #1 and Lower War Eagle
  • Kepler Complex – Wyoming #2 and Guyandotte Energy
  • Marfork Complex – Pax Surface Mine, Pax High Wall Mine, Workman Creek Surface, Workman Creek High Wall Mine, Horse Creek Eagle Mine, Ellis Eagle Mine, Slip Ridge Mine and Allen Powellton
  • Inman Admiral Complex – Black Castle Surface, High Wall Mine #1 and High Wall Mine #2
  • Mammoth Complex – Empire Surface Mine, Republic Surface Mine, Republic High Wall Mine, Slabcamp Stockton Mine
  • Bandmill Complex – Hernshaw Mine, Cedar Grove No. 2. Highlands Surface Mine, Highlands High Wall Mine and Alma Mine
  • Sidney Complex – Process Energy
  • Roxana Complex – EMC #9

The newly-created stock of this “Reorganized ANR” would be distributed to certain unsecured creditors.

As of the August 2015 bankruptcy petition, the debtors were among the largest domestic producers of coal by volume in the United States, with total assets and liabilities of approximately $10.1 billion and $7.1 billion, respectively, and consolidated 2014 revenues of approximately $4.3 billion ($3.7 billion of which were attributable to coal sales). Further, they were the nation’s leading supplier and exporter – and one of the world’s largest suppliers – of metallurgical coal for steel producers and a major supplier of steam coal to electric utilities and manufacturing industries across the country.

Measured by volume, steam coal accounted for 78% of the debtors’ 2014 coal sales (approximately 66 million tons), with met coal accounting for nearly the entirety of the remaining 22% of coal sales (approximately 18.6 million tons).

As of the August 2015 petition date, the debtors operated in three major coal-producing basins – Northern Appalachia and Central Appalachia (i.e., southwestern Pennsylvania, West Virginia, eastern Kentucky and western Virginia) and Wyoming’s Powder River Basin. They owned or controlled approximately 2.35 billion tons of proven coal reserves and another 1.20 billion tons of probable reserves. Operations included 22 coal preparation plants, each of which received, blended, processed and shipped coal produced at one or more of the debtors’ 54 active mines.

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.