Contura directors fight back over accusations about coal asset sale

The independent members of the Board of Directors for Contura Energy, which a few months ago bought some of the major coal mines of Alpha Natural Resources out of bankrupcy, on Nov. 18 responded to recent accusations made by the West Virginia Department of Environmental Protection in the U.S. Bankruptcy Court for the Eastern District of Virginia.

They said: “Since Alpha’s successful emergence from Chapter 11 Bankruptcy protection on July 26, 2016, and the concurrent sale of certain core assets to Contura Energy, Inc., both entities have been working diligently to implement their respective obligations under Alpha’s Plan of Reorganization confirmed by the Court. By any account, Alpha’s restructuring case was extremely complex, involving the oversight, input, and ultimately support of various constituencies, federal and state government entities, surety providers, union employees, pension beneficiaries, trade creditors, and many others.

“Over the past several weeks, Contura Energy’s senior management has worked proactively and closely with Alpha’s senior management and lender parties to Alpha’s First Lien Credit Agreement, to resolve certain issues identified during the Plan’s implementation. The efforts of the aforementioned parties culminated in the First Lien Settlement Agreement and the Contura Settlement Agreement filed by Alpha with the Court on November 4, 2016.

“In a subsequent filing with the Court on November 16, 2016, the West Virginia Department of Environmental Protection made claims with respect to Contura’s senior management that the Independent Directors of Contura’s board believe to be inaccurate and defamatory as they are made without any evidence whatsoever, with no basis in fact, and without merit.

“The Independent Directors fully and completely support Contura’s senior management team. The Independent Directors believe that throughout this process, senior management has conducted themselves with the utmost integrity and professionalism, and have worked tirelessly to implement a complex reorganization while ensuring the financial health of Alpha and Contura. The efforts of Alpha’s and Contura’s dedicated management teams continue to ensure the preservation of thousands of jobs and provide value to both companies’ diverse set of stakeholders. We challenge any inference to the contrary. We intend to work with all parties to resolve these allegations and will vigorously defend the hard-earned reputations and integrity of management to the fullest extent.”

Contura Energy is a private, Tennessee-based company with affiliate mining operations across multiple major coal basins in Pennsylvania, Virginia, West Virginia and Wyoming.

Said the Nov. 16 complaint filed at the court: “The West Virginia Department of Environmental Protection (‘DEP’) entered into a settlement agreement with the debtors and reorganized debtors in these chapter 11 cases, Contura Energy, Inc., and Citicorp North America, Inc., as agent for the first-lien lenders. The settlement resolved one of the chief impediments to confirmation of the debtors’ chapter 11 plan and the first-lien lenders’ acquisition of the debtors’ crown jewel assets. Inasmuch as the settlement agreement stretched out the reorganized debtors’ environmental obligations at their West Virginia mining sites for more ten years, DEP expressly premised the settlement upon the financial projections the debtors attached to their court-approved disclosure statement.

“The reorganized debtors recently disclosed, however, that those projections were materially false and misleading when made, the debtors having failed to properly account for as much as $100 million in known (or at least knowable) liabilities under their agreement with Contura.

“The failure to properly account for those liabilities in the disclosure statement projections cannot reasonably be characterized as an error or mistake. Alpha’s senior management, including each of the individual defendants named above who prepared the projections, effectively sat on both sides of the Contura transaction and, in that position, had intimate and unique knowledge of the debtors’ business operations and affairs and the terms and provisions of the agreement governing that transaction. Further, their knowledge and intent may properly be attributed to both the debtors and Contura.

“As DEP and other parties in interest pointed out in filed pleadings, the reorganized debtors’ prospects and projections were dicey enough as it was. But the additional $100 million in previously undisclosed liabilities materially worsen their prospects, materially increase the risk that the reorganized debtors will fail, and materially reduce the amount of money the reorganized debtors may commit to their still massive environmental liabilities. Moreover, the additional undisclosed liabilities may well reduce the excess cash flow required to be paid into the DEP-controlled reclamation accounts established under the DEP settlement agreement.

“In turn, the undisclosed liabilities materially increase the probability that DEP will be left with claims under the surface-mining and other environmental laws against the individuals and entities in ownership and control positions with respect to the debtors’ mining operations, including each of the individual defendants who comprised the debtors’ former senior management. Pursuant to the settlement agreement, however, DEP, in reliance upon the debtors’ prospects and projections, released those very same individuals.

“DEP believes, however, that it is too late to unwind the DEP settlement or the debtors’ plan. Far too many parties have changed their positions in reliance on the settlement and the plan, and there appears to be no conceivable way to restore even the parties to the settlement to their positions prior to entering into the settlement agreement. DEP, accordingly, does not seek any relief as to the debtors, Contura, or the first-lien lenders. Instead, it asks this Court only to undo the releases and other relief granted to the debtors’ former senior management under the settlement agreement and, to the extent applicable, the debtors’ plan and the confirmation order.

“To ensure the enforcement of the surface-mining and other environmental laws and protect the State of West Virginia in the event the reorganized debtors should fail and default in the performance of their legal obligations, DEP seeks a declaratory judgment of this Court that the releases and other relief granted to Alpha’s senior management are void and unenforceable as having been procured by material misrepresentation and fraud.”

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.