It’s been a wild year for Arch Coal, the country’s second-largest producer of coal. In January, the company filed for Chapter 11 bankruptcy; less than a year later, they won approval for a restructuring deal that allowed them to cut millions in debt from their books and emerge relatively unscathed. On Thursday night, as part of the 2017 Distressed Investing Event, Arch Coal will receive an award for that deal, despite the fact that the restructuring benefited company executives while leaving workers and the environment worse off.
“Arch Coal shed hundreds of millions, if not billions of dollars in debt by short-changing both their commitments to worker health care and pensions and their environmental cleanup obligations,” Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign, told ThinkProgress. “Economically their prospects haven’t changed that much; they just shifted the burden onto the environment and workers.”
Adding to the air of absurdity surrounding the award, the opening gala of the Distressed Investing Event will be held at Mar-a-Lago (though the award ceremony will actually take place at a nearby hotel)— the Florida club owned by President Donald Trump, who made promises to revitalize the ailing coal industry a cornerstone of his campaign.
“The idea of a turnaround in the coal industry is another alternative fact,” Hitt said.
“The idea of a turnaround in the coal industry is another alternative fact.”
Arch Coal is far from the only coal company to recently face bankruptcy — Peabody, Patriot Coal, Walter Energy, and Alpha Natural Resources all also filed for bankruptcy within the last five years. In addition to slumping domestic demand for coal — fueled in large part by the availability of cheap natural gas — Arch Coal suffered losses from a decision in 2011 to spend $3.4 billion to acquire a slew of new coal mines, specifically mines that specialized in producing metallurgical coal, or coal used in steel production.
At the time, it appeared demand for metallurgical coal was on an upward trajectory, with markets in Asia looking especially favorable. What happened, instead, is the price of metallurgical coal dropped due to availability elsewhere and reduced demand in China. By the time it filed for Chapter 11 bankruptcy, Arch was roughly $5 billion in debt.
As part of its restructuring deal, Arch agreed to give unsecured creditors $30 million in cash and six percent of the company’s new stock shares. In the lead-up to the bankruptcy filing and throughout the process, Arch also paid its top executives multi-million dollar bonuses, as part of an employee incentive plan designed to encourage top company officials to continue hitting certain financial targets. According to Sierra Club attorney Peter Morgan, both Arch Coal’s top executives and the companies senior lenders, who gave the company the money it used to buy the metallurgical mines in 2011, did quite well in the restructuring deal — executives scored bonuses, while lenders used the bankruptcy to get more equity in the company.
Arch Coal workers, however, did not fare as well as top-level executives. Those who chose to take advantage of Arch Coal’s deferred compensation plan, which allowed workers to save money for retirement, lost those savings. Workers who had Arch Coal stock as part of their retirement plans also lost those investments. Any outstanding debts owed by Arch Coal to suppliers that didn’t have collateral or security were also wiped out.
“It’s what’s been the lessons of all of these [coal] bankruptcies — if you go into it sitting at the top of the pile, you’re going to do great,” Morgan told ThinkProgress. “It’s all those folks who did business with Arch or trusted that Arch would pay their pensions, and who, individually, have no leverage — they all did quite poorly.”
“It’s all those folks who did business with Arch or trusted that Arch would pay their pensions…they all did quite poorly.”
Another issue with coal companies declaring bankruptcy is the question of who pays to restore the land once mining is finished. By law, coal companies are required to purchase reclamation bonds whenever they apply for a surface mining permit — bonds equal to the full cost of reclaiming that mine, should the company go under. In reality, coal companies have long been allowed to practice something called self-bonding, meaning instead of posting a bond directly to the permitting agency, they simply give the agency their word that they will pay for the reclamation themselves. When coal companies declare bankruptcy, self-bonding means states and the federal government are often on the hook for cleanup costs.
As part of their restructuring deal, Arch Coal pledged to purchase reclamation bonds from a third party, assuaging some fears that if they were to declare bankruptcy again, states would be liable for the costs associated with cleanup. But Morgan said the fact that Arch Coal held millions in self-bonds might have influenced the restructuring process, making states and the federal government wary of pushing for a restructuring deal that would have been financially harder on the company, for fear they might be left covering the cost of Arch’s environmental damages.
“They were legitimately concerned they not do something that would endanger Arch being able to come out of the bankruptcy, because that would be devastating,” Morgan said.
Arch emerged from its bankruptcy at perhaps optimal timing for a coal company with big bets on metallurgical coal: Australian coal mines had just flooded, limiting the availability of coal, and China was again, briefly, importing coal. But since then, the price of coal has once again dropped — throwing Arch’s ability to sustain its financial health into question.
“They are stubbornly still proclaiming that the prices for coal are going to come back and coal is going to come back when we know the industry is in structural decline,” Hitt said. “There is no big resurgent demand for coal that is going to happen, despite their hopes.”
Despite the Trump administration’s rhetoric on revitalizing the coal industry and bringing back coal jobs, economists emphasize that it will be incredibly difficult to revitalize the industry. Internationally, demand for coal is slumping, with China and India placing coal projects on hold due to concerns about air pollution. In the United States, coal-fired power plants continue to shutter, citing the fact that the plants are no longer economically viable in the face of cheap natural gas and increasingly cheap wind energy.
Meanwhile, communities that once depended on the coal industry to fuel their local economies continue to suffer. Congress has yet to pass permanent funding to pay for threatened health benefits of retired mine workers, despite President Obama twice including such a fix in his proposed budgets. Trump’s proposed budget includes no funds for retired miner health plans — but it would kill the Appalachian Regional Commission, which funds infrastructure improvements and community programs in the region, as well as the Economic Development Administration, which, in part, provides funds to economically-struggling coal communities.
“I live in West Virginia where our state budget is in a lot of trouble — our people take a big hit when these companies shed their obligations to workers and the environment,” Hitt said. “To have them being lauded at Mar-a-Lago while folks on the ground pick up the pieces is pretty hard to swallow.”
UPDATE: An earlier version of this story included a quote from Sierra Club’s Mary Anne Hitt saying the award ceremony would take place at Mar-a-Lago. In fact, only the opening gala of the event will take place there. We have thus updated the quote to avoid confusion.