Alpha Natural Resources files for Chapter 11

October 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Coal mining giant Alpha Natural Resources has filed voluntary petitions to reorganise under Chapter 11 of the US Bankruptcy Code.

The board of directors of Alpha took the decision to file for Chapter 11 with the United States Bankruptcy Court for the Eastern District of Virginia in Richmond in order to safeguard the company’s future, as well as that of a number of its wholly-owned subsidiaries, as it looks to weather a particularly challenging coal market.

To allow normal business operations to continue uninterrupted while in Chapter 11, with coal continuing to be mined, customer sales and shipment commitments honoured, and wages and benefits for Alpha’s affiliated employees paid, the company is seeking immediate relief from the Bankruptcy Court.

One of the largest and most regionally diversified coal suppliers in the United States, Alpha supplies metallurgical coal to the steel industry and thermal coal to generate power to customers on five continents. Additionally, Alpha affiliates operate more than 50 underground and surface mines and more than 20 coal preparation facilities in Virginia, Kentucky, West Virginia, Pennsylvania and Wyoming.

Alpha’s commitments include being a leader in mine safety with their Running Right safety process, and as an environmental steward in the diverse communities where the company’s affiliates operate.

Key figures within the Alpha hierarchy intend the relief provided by Chapter 11 to be utilised to allow the company to reorganise effectively and emerge as a financially viable business that is better positioned to compete in dynamic energy markets.

“While a difficult decision, this voluntary Chapter 11 filing is the right strategy at the right time for the future of our business,” said Kevin Crutchfield, Alpha’s chairman and chief executive. “It will enable us to build on the significant steps we have taken over the past several years to restructure our debt and protect our operations. I am confident Alpha will emerge from this process as a stronger company, with a diversified resource base and better positioned for the future.”

Noting that the US coal industry is currently in an unprecedented period of distress, Mr Crutchfield pointed to increased competition from natural gas, an oversupply in the global coal market, historically low prices due to weaker international and domestic economies, and increasing government regulation, as the key reasons for the crisis.

However, he was keen to emphasise that neither Alpha nor the US coal industry as a whole should be thought of in the past tense. He believes that while the sector will, in all likelihood, get smaller, coal will continue to play a critical role in providing affordable and reliable electricity and in the production of steel for infrastructure.

“The change and challenges the US coal industry has experienced over the last several years are greater than any in the past three decades. There is no doubt more uncertainty ahead, but also transformational opportunity in the coal sector for those who make proactive, strategic decisions,” he said.

Helping to secure Alpha’s immediate future is an 18-month debtor-in-possession (DIP) financing package of approximately $692m, arranged by Citigroup and led by a group of both its first and second lien lenders. The DIP financing package demonstrates the support of its secured creditors and provides Alpha with significant operational flexibility to successfully reorganise.

Alpha also expects to work with a number of key constituencies to facilitate reorganisation and exit Chapter 11 at the most opportune moment. To this end, the current management team, led by Kevin Crutchfield, is expected to remain in place to lead the company through the bankruptcy process.

Fraser Tennant