Creve Coeur-based Arch Coal Inc. said last week it may file for bankruptcy in the “near term” as the company's cash flow can't sustain its $5.1 billion in debt.
Arch is in talks with creditors over a “significant restructuring” of its balance sheet, the company said in a filing with the Securities and Exchange Commission. The company may file for relief under Chapter 11 whether it strikes a deal with creditors or not, Arch said.
Coal miners are reeling from the industry's worst slump in decades. The thermal coal used by power plants is facing competition from cheap natural gas and tougher emissions standards. The metallurgical coal used in steelmaking is at its lowest price in a decade amid global oversupply.
Arch Coal said this summer it had reduced its St. Louis-area workforce to 175 people, a reduction of about 20 percent.
Meanwhile, a group of St. Louis-based Peabody Energy Corp.’s senior lenders have hired the law firm Davis Polk & Wardwell LLP to help protect the value of their assets as they anticipate the company will begin talks to restructure its $6.3 billion of debt.
The lenders hired the firm after rival Arch attempted a debt-exchange deal that would have helped cut its $5.1 billion of obligations while also diluting the assets of its backers. Arch Coal’s lenders objected to the plan because they would have had to share their assets with a new group of creditors.
All of this is bad news for working and retired coal miners as the coal companies attempt to shirk their commitments to miners.
Patriot Coal, created by Arch and Peabody, was loaded up with billions of dollars in union pensions, health care costs and environmental remediation obligations.
Ninety percent of the retirees that Patriot is responsible for never worked for Patriot. They all worked for Peabody or Arch. As Patriot goes through its second bankruptcy in three years, its lawyers continue to create maneuvers designed to shed the company’s obligations to the retirees.
A plan to divert $18 million set aside for health care benefits for nearly 1,000 retired Indiana coal miners (who had never worked directly for Peabody, Arch or Patriot) was withdrawn after it was subjected to public scrutiny and criticism.
Now Peabody is attempting an even more audacious scheme that would allow it to escape $145 million in promised payments to a trust fund set up in the wake of Patriot’s last bankruptcy.
The trust fund was supposed to provide health care benefits for 12,000 retirees — about 8,500 of them former Peabody miners. Coal companies promised $400 million to the fund, most of it coming from Peabody.
The companies themselves estimated the benefits due these miners would cost $1.45 billion.
Peabody now says that it shouldn’t have to make any more payments because its agreement was with Patriot, and Patriot is going out of business.
A WAY FORWARD
United Mine Workers of America President Cecil Roberts is calling for stakeholders to pool their efforts. Speaking to West Virginia Governor Earl Ray Tomblin’s Energy Conference last month, Roberts suggested a public/private partnership to create a market for coal.
“We should take the initiative here to say we’re going to have a robust coal industry in the state of West Virginia and we don’t care who the president is or who is running the EPA,” Roberts said. “We’re going to see that our people work and we have jobs. We’ll have jobs building power plants, we’ll have jobs mining coal, and we’ll have jobs at the utility.”
(Information for this report from Bloomberg News, the St. Louis Post-Dispatch and MetroNews of West Virginia.)