By Matt Jarzemsky and Joseph Checkler
The ailing U.S. coal industry got another black mark Monday
morning, when Alpha Natural Resources Inc. filed for chapter 11
bankruptcy protection.
The Bristol, Va., company filed for chapter 11 protection in
U.S. Bankruptcy Court in Richmond, Va., brought down by plummeting
coal prices and high debt from its 2011 acquisition of Massey
Energy.
The Wall Street Journal reported Sunday that Alpha, with assets
of $10.1 billion and liabilities of $7.1 billion, would be entering
chapter 11 as part of a plan to cut its debt load, another victim
of the severe slump in coal prices that continues to wreak havoc on
the industry.
"While a difficult decision, this voluntary Chapter 11 filing is
the right strategy at the right time for the future of our
business," said Alpha Chairman and Chief Executive Kevin
Crutchfield Monday.
Alpha, one of the largest U.S. coal producers, isn't entering
chapter 11 with a restructuring plan in place, but did say in a
filing accompanying its bankruptcy petition that it doesn't want to
immediately sell itself "at a low point in the coal market." The
Wall Street Journal reported Sunday that the company will likely
sell some of its best mines or turn them over to creditors and
close others during bankruptcy, citing people familiar with the
matter.
The company is seeking approval of up to $692 million in
bankruptcy financing from senior lenders and secured bondholders to
fund its operations during its chapter 11 case, according to court
documents. The company will ask for a judge's permission to keep
operating normally at a first-day hearing yet to be scheduled,
where it will seek approval of so-called first-day motions
including ones that would allow it to keep using its bank accounts,
paying its nearly 8,000 employees, and maintaining relationships
with suppliers.
A steep drop in coal prices has Alpha and its rivals bleeding
cash and choking on debt taken on to finance acquisitions from
earlier this decade, when the industry's outlook was rosier. In
2011, Alpha paid $7.1 billion for rival mining company Massey
Energy, a deal that extended Alpha's lead as the largest miner of
the type of coal used in steelmaking.
But the price of metallurgical coal has hit an 11-year low amid
an economic slowdown in China, the world's largest producer of
steel. Thermal-coal prices have also plummeted as power plants
switch to abundant and relatively clean-burning natural gas.
In court filings, the company said it has $1.96 billion in
secured debt, including $714 million in second-lien bonds and a
$611 million term loan. Alpha also reported $2.1 billion in
outstanding unsecured bonds.
According to Fitch Ratings, bids on Alpha's bonds recently
averaged 6%, "indicating the current market expectations of poor
recovery rates on both unsecured and second lien debt claims."
The slump has a number of coal companies at risk. Walter Energy
Inc. filed for bankruptcy protection last month with a plan to hand
control of the company to senior creditors, after chapter 11
filings by Patriot Coal Corp. and Xinergy Ltd. earlier this year.
Arch Coal Inc., meanwhile, is working with bankers and lawyers who
specialize in helping struggling companies, The Wall Street Journal
has reported, and is facing lender pushback on a proposed
debt-for-debt exchange meant to reduce its borrowings and interest
costs.
Alpha has posted four straight annual losses and disclosed in
May that a Wyoming regulator had notified the company it no longer
qualified for a "self-bonding" program that had freed the company
from buying insurance to cover future mine cleanup costs. Given the
financial burden, the company opted to file for bankruptcy rather
than repaying a convertible bond due at the start of this month,
despite having $476.3 million in cash as of March 31.
The Wall Street Journal reported in mid-July the company was in
talks for bankruptcy financing with senior lenders such as Davidson
Kempner Capital Management LLC and Citigroup Inc., represented by
law firm Davis Polk & Wardwell LLP and financial adviser Ducera
Partners LLC, and bondholders including Capital Research &
Management Co. and Blue Mountain Capital Management LLC, working
with law firm Kirkland & Ellis LLP. The bondholders have also
since hired investment bank Houlihan Lokey, according to people
familiar with the matter.
Peg Brickley contributed to this article.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and Joseph
Checkler at joseph.checkler@wsj.com