Alpha Natural to Try to Sell Coal Assets, Reorganize Leftovers

  • Miner's auction comes during worst industry slump in decades
  • Lenders offer $500 million in debt for billions in assets

Alpha Natural Resources Inc. will try to sell its best coal mines and reorganize whatever is left to resolve its bankruptcy by June 30.

With the coal industry ravaged by its worst downturn in decades, the assets could go to lenders for as little as $500 million -- plus the assumption of liabilities -- a fraction of their worth in 2011, when Alpha became the biggest U.S. producer of steelmaking coal in a $7 billion takeover of Massey Energy Co.

Alpha’s bankruptcy is playing out as power plants are burning less coal because of cheap natural gas and tougher environmental standards. Meanwhile, the metallurgical coal used by steelmakers is at its cheapest in more than a decade amid a global glut and slowing Chinese demand. Other U.S. miners including Arch Coal Inc., Walter Energy Inc. and Patriot Coal Corp. have also gone bankrupt in the last year.

Under Alpha’s proposal, lenders can swap debt for the assets. The lenders have agreed to make an opening bid of $500 million. Should no other offers come in, the lenders would get the company’s core mines and related assets, pending court approval.

Big Question?

“There’s been no shortage of prospective interest from buyers for Alpha’s core assets,” Ted O’Brien, chief executive officer of Doyle Trading Consultants LLC, said in an interview. “The question is, who would be willing to put down $500 million in cash plus the assumption of liabilities to take those assets?”

Assets to be sold include active and closed mines in Wyoming, Virginia, West Virginia and Pennsylvania. Anything Alpha can’t sell it will organize into a new company focused on repairing the environmental damage caused by the mines, a process known as reclamation.  Alpha expects some of those mines to continue operating. The new company would be funded by senior lenders. 

Recent buyers of other companies’ Appalachian coal assets include the Virginia Conservation Legacy Fund, Blackhawk Mining LLC and Coronado Coal LLC.

Alpha’s auction proposal stems from a settlement among senior lenders, including investors funding the bankruptcy. Because the deal leaves out lower-ranking creditors, the sale and reorganization effort may face a court fight.

First Test

The proposal gets its first test on Thursday, when Alpha will return to bankruptcy court in Richmond, Virginia, to seek approval of the auction rules. A committee of unsecured creditors has attacked the procedures, saying they “chill bidding” because they are so favorable to the senior lenders.

The company defended the auction and reorganization proposal.

“These filings represent an important step in our effort to effectively restructure the company and emerge from Chapter 11 better positioned to meet new market realities,” Chairman and CEO Kevin Crutchfield said in a statement Tuesday. “We appreciate the support of our lenders to help advance our restructuring process.”

Bids are due March 28. Alpha said its reorganization proposal could allow it to end the active part of its bankruptcy by June 30.

Alpha filed for bankruptcy protection in August, the same day President Barack Obama announced sweeping rules to cut coal use at U.S. power plants, calling the new regulations the country’s biggest step ever to address climate change. The U.S. Supreme Court has suspended those regulations while coal companies challenge their legality.

The case is In re Alpha Natural Resources Inc. 15-33896, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).

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