
Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Author: Joel R. Glucksman
Date: September 4, 2015

Partner
201-896-7095 jglucksman@sh-law.comLast week, Alpha Natural Resources, one of the largest U.S. coal producers, announced plans to file for Chapter 11 bankruptcy protection, according to the Wall Street Journal. In court papers, the coal producer announced that it is entering Chapter 11 bankruptcy protection to cut its debt load, currently listed at $7.1 billion.
The company cited the collapse of coal prices for its decision to file for Chapter 11. With the U.S. shale revolution and an economic slowdown in China, the largest global steel producer, the company also blamed an 11-year low in metallurgical coal prices for its debt load. However, with thermal coal prices also dropping as power plants switch to natural gas, Alpha has cut capital expenditures by 55 percent to $225 million for new project development in 2015. Alpha also downsized its workforce by 6,500 personnel while closing or suspending operations at more than 80 coal mines across the U.S.
The company claimed to hold $2.1 billion in outstanding unsecured bonds and $1.96 billion in secured debt, including $714 million in second-lien bonds and a $611 million term loan. Alpha also cited its acquisition of Massey Energy in 2011 as a source of its increasing debt.
Currently, Alpha Natural Resources has no reorganization plan. However, the company stated that it does not intend to hold an immediate auction or sale due to the bear market for coal. In fact, according to recent Fitch Ratings, the current bid price for Alpha’s bonds averaged 6 percent, illustrating negative market expectations for the company’s recovery rates on unsecured and second lien debt claims. However, the coal producer does plan to sell off a portion of its highest producing coal mines, and offer some of these mines to certain creditors in exchange for their claims.
According to bankruptcy documents, the company has secured an 18-month Debtor-in-Possession financing package arranged by Citigroup with its first and second lien lenders. The objective of the DIP financing package is for its secured creditors to provide the company with the operational flexibility to effectively restructure. With the DIP financing package, the company hopes to support its ongoing operations to generate additional cash.
Alpha intends to request a judge’s permission to maintain normal operations at a first-day hearing. The company is also seeking approval of so-called first-day motions that would enable it to keep using its bank accounts to maintain supplier relationships and pay its 8,000 remaining employees.
Alpha hopes to re-emerge from bankruptcy as a financially-viable business. The company’s board of directors approved the filing for Chapter 11 bankruptcy protection to improve its future. With relief from Chapter 11 bankruptcy protection, Alpha intends to wait out the historically low prices in the coal market to better position itself to compete in dynamic energy sectors in the future.
The coal producer expects to keep its current management in place through the bankruptcy process.
Are you a creditor in a bankruptcy? Have you been sued by a bankrupt? If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.
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