Alpha Natural Resources Inc. filed for bankruptcy in Virginia on Monday, becoming the latest victim of the coal industry’s worst downturn in decades.
The second-largest U.S. coal company has lost almost all its market value since 2011, when it bought Massey Energy Co. for about $7 billion. The deal made it the biggest U.S. producer of metallurgical coal, used in steelmaking -- and steeped it in debt -- right before prices began their plunge.
“The fall has been precipitous and the effect on the debtors has been extreme,” Kevin Crutchfield, chairman and chief executive officer of Bristol, Virginia-based Alpha, said in a court filing.
The CEO predicted continuing failures of major companies in the industry as a result of collapsing demand and pricing, plus a “burdensome regulatory environment.”
A few hours after Alpha filed, President Barack Obama announced sweeping rules to cut coal use in power plants, saying the new Environmental Protection Agency regulations are the country’s biggest step ever to address climate change. By 2030, coal’s share of power generation will have fallen to 27 percent, according to the EPA. It was at 33 percent in May.
Alpha will use bankruptcy to keep downsizing and prepare for the future, Crutchfield said, estimating that coal-fired plants will continue to supply 30 percent to 40 percent of U.S. electricity “for the foreseeable future,” even as utilities opt for more renewable energy and natural gas.
‘Plenty of Mines’
As Alpha shrinks, “plenty of mines” could get cut, said Ted O’Brien, CEO of coal market researcher Doyle Trading Consultants LLC. Candidates include smaller, high-cost mines in Appalachia, where Alpha’s spread-out operations prevent it from capitalizing on economies of scale, he said.
Alpha didn’t give data on future closings, saying only that it wouldn’t immediately sell any mines. The company has about 8,000 employees, down 45 percent from a spike after the Massey purchase. It listed assets of $9.97 billion and total liabilities of $7.3 billion as of June 30.
The United Mine Workers of America said it would fight to “maintain decent jobs with the pension and health care benefits our retirees were promised and have earned.”
Alpha shares dropped more than a cent, to 3 1/2 cents in over-the-counter trading. Some of its bonds rose as it announced a $692 million, 18-month bankruptcy loan to be arranged by Citigroup Inc.
The company’s $393 million 9.75 percent of senior unsecured bonds maturing April 2018 traded up 1 cent to 4 cents on the dollar at 16:31 p.m. in New York, after dropping from 46.1 cents at the beginning of the year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Obama’s new rules, to be put in place in the next couple of months, indicate Washington’s pressure on states and utilities to use more wind, solar and natural gas power will intensify in coming years, escalating the coal industry’s fight for survival.
Research firm SNL Energy says more than three dozen coal operations have been forced into bankruptcy in just over three years. Most have been small, but some of the biggest firms have also succumbed, including Walter Energy Inc., Patriot Coal Corp. and James River Coal Co. -- Patriot and James River for the second time.
The combined market value of U.S. coal company shares shrank to about $12 billion in late July from $78 billion in 2011, according to data compiled by Bloomberg.
Peabody Energy Corp., the biggest U.S. coal company, has also struggled, reporting its seventh-consecutive quarterly loss on July 28. Since May, it’s cut a quarter of corporate and regional staff, sold assets and suspended its quarterly dividend.
The case is In re Alpha Natural Resources Inc. 15-33896, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).