By Scott Robertson
Leaving many observers surprised at how quickly the action was taken, Bristol, Va.-based Alpha Natural Resources voluntarily filed for Chapter 11 bankruptcy protection Aug. 3. As late as four months ago, the coal mining company had reported having $476 million in cash.
Immediately after filing, Alpha began assuring customers and vendors it plans to continue to conduct “business as usual” as the restructuring unfolds over the course of the next year to year-and-a-half. A statement to those companies which Alpha published online said, “We expect to continue operating, paying employees, suppliers and vendors, and delivering high-quality service to our customers. We’re committed to maintaining safe, compliant and productive operations.”
Alpha was scheduled to repay a convertible bond at the beginning of August, but chose to file for Chapter 11 protection instead. In the meantime, Alpha has secured an 18-month Debtor-in-Possession financing package totaling up to $692 million through Citigroup, led by a group of both its first and second lien lenders.
That package, the company said, will allow Alpha to continue to meet its current contractual obligations and to enter into new contracts with, “no interruption of service or deliveries.”
In an online communication to vendors, the company noted, “Alpha has more than sufficient liquidity to pay for all goods and services received during the restructuring process.”
Alpha has hired Kurtzman Carson Consultants LLC to act as its claims agent regarding goods and services received before Aug. 3. As for whether or not petitioners will be paid the entire amount Alpha owed before filing, the company said, “Payment of pre-petition claims will be subject to the terms of Alpha’s final plan of reorganization. At this time, it is impossible to estimate what value a general unsecured claim will have in the company’s Chapter 11 cases.”
Vendors of goods (but not services) received by the company within the last 20 days before the filing must, by law, be paid in full before general unsecured creditors receive payment.
The day after the filing, the courts gave Alpha the okay to continue paying employee compensation and to honor medical and other benefits.
Chairman and CEO Kevin Crutchfield issued a letter to employees stating, “We are not shutting our doors and going out of business. While certain types of bankruptcy can involve liquidating assets and closing the company, that’s not what this restructuring is about. During our proceedings, we will keep mining and selling coal, delivering high-quality service to our customers, and providing employee wages and benefits, all on an uninterrupted basis.”
At its peak, Alpha employed 8,800 workers in five states. But the entire coal industry has been hit hard by a negative confluence of regulatory challenges, declines in natural gas prices, and declining demand worldwide. The company has had several layoffs in response, and Crutchfield’s letter said the company would continue to do whatever it takes to reposition itself to succeed in the future.
“We’ve experienced dramatic and adverse shifts in recent months, and I believe there’s been more change in the past three years than the last three decades combined,” Crutchfield said. “In many ways, we’ve seen a perfect storm of economic, competitive and regulatory factors converging to impose incredible stress on the industry. And, it is important to note that Alpha is not alone in this plight; in fact, no coal company is immune. I believe it is likely that we’ll see other coal companies choose a similar path in the coming months.
“The industry must go through significant restructuring and consolidation to find success within the sector’s contracted market share,” Crutchfield continued. “While the landscape will change, our country and economies around the world still need coal for both power and infrastructure—and the silver lining in this storm is the significant opportunity available to the companies that take timely, strategic action. Our goal is to realize those opportunities, and we see reorganization as the first step in positioning ourselves to help shape this evolving industry landscape.
“Though the toll on our business—and that of many others—has been unmistakable, these conditions won’t last forever. They never do. While producers will have to adapt to these factors in order to survive, I personally believe an eventual improvement in the market is inevitable because coal is not going away.”
Neither are Crutchfield or his top brass. The release announcing the filing said the current management team is expected to remain in place to lead the company through the bankruptcy process.
Said Crutchfield, “I can assure you that we arrived at the decision to pursue reorganization only after extensive consideration and analysis over the course of many months determined it was the best path forward at this time for Alpha.”