Alpha Natural Resources Inc. filed for bankruptcy in Virginia Monday, becoming the latest victim of the coal industry’s worst downturn in decades.
The second-largest U.S. coal company has lost almost all its market value since 2011, when it bought Massey Energy Co. for about $7 billion. The deal made it the biggest U.S. producer of metallurgical coal, used in steelmaking — and steeped it in debt — right before prices began their plunge.
“The change and challenges the U.S. coal industry has experienced over the last several years are greater than any in the past three decades,” Kevin Crutchfield, Bristol, Virginia-based Alpha’s chairman and chief executive officer, said in a statement. “There is no doubt more uncertainty ahead, but also transformational opportunity in the coal sector for those who make proactive, strategic decisions.”
Alpha’s bankruptcy comes the same day as President Barack Obama’s Environmental Protection Agency plans to issue measures that force states and utilities to use less coal and more wind, solar and gas power.
Details emerging ahead of the release show pressure from Washington to curb coal’s use will only intensify over the next 15 years, escalating the industry’s fight for survival. The plan could go into effect in the next month or two.
Research firm SNL Energy says more than three dozen coal operations have been forced into bankruptcy in just over three years. Most have been small, but some of the biggest firms have also succumbed, including Walter Energy Inc., Patriot Coal Corp. and James River Coal Co. — Patriot and James River for the second time.
The combined market value of U.S. coal company shares shrank to about $12 billion in late July from $78 billion in 2011, according to data compiled by Bloomberg.
In July, Alpha said it had drawn $445 million from a revolving loan, mostly to fund its business, and it warned investors that it wouldn’t pay $109 million on notes related to the Massey deal due in August. The company said in Monday’s statement that it had secured $692 million in bankruptcy financing, arranged by Citigroup Inc.
U.S. coal companies invested billions of dollars to expand their reserves in 2011 as prices for “met” coal went as high as $330 a metric ton. Then demand from China suddenly slowed and the price of natural gas dropped, cutting into their business. Met coal now sells for $93 a metric ton. A strong dollar has also kept exports in check.
Alpha lost around $214 million on operations in the March quarter while sales fell to $842 million from $1.1 billion a year earlier, according to a regulatory filing.
Financial woes are breeding new problems. In May, Wyoming said the company can no longer simply promise to fulfill its environmental cleanup obligations in the state, giving it until late August to come up with about $411 million in new insurance. Alpha said Monday that it hopes to resolve the issue without further hurting creditors.
Peabody Energy Corp., the biggest U.S. coal company, has also struggled, reporting its seventh-consecutive quarterly loss on July 28. Since May, it’s cut a quarter of corporate and regional staff, sold assets and suspended its quarterly dividend.
Alpha listed assets of $10.1 billion and debts of $7.1 billion in its Chapter 11 filing Monday in Richmond.
The company’s advisers include law firm Jones Day, Rothschild Group and Alvarez & Marsal Holdings LLC.
The case is In re Alpha Natural Resources Inc. 15-33896, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).