November 17, 2016 Read More →

In Bankruptcy Reorganization, U.S. Coal Giant Alpha Is Overstating Cash Flows by $100 Million, Regulators Say

Taylor Kuykendall for SNL:

West Virginia regulators admonished Alpha Natural Resources Inc. for a five-year business projection that overstated “cash flows by a whopping $100 million.”

The West Virginia Department of Environmental Protection noted it would not challenge a settlement resolving the shortfall between Alpha and Contura Energy Inc., the entity formed from the bankruptcy out of Alpha’s top, core assets. The DEP filed the Nov. 15 response with the bankruptcy court to note it reserves its rights, including the right to revoke releases from certain environmental requirements it negotiated with Alpha.

The $100 million shortfall, the DEP wrote, is “devastating” given projections for Alpha only estimated operating cash flow of about $146 million over the entire four and one-half year projection period. The DEP said the shortfall “seriously threatens the reorganized debtors’ viability and ability to perform their legal obligations to bond and reclaim their remaining mine sites, just three months” after striking a deal with the DEP that relied on those projections.

The DEP, represented by Bailey & Glasser LLP attorneys including partner Kevin Barrett in a role as special assistant attorney general for the state of West Virginia, said the shortfall did not result from a failure to achieve projections, either. The filing says the projections “were simply wrong from the beginning” and arose almost immediately after closing.

The DEP previously secured an agreement providing $325 million in funding for mine reclamation in the state.

It also said around three-fourths of the “unaccounted-for” obligations were for routine coal mining expenditures like royalties, payroll, taxes, and accounts payable that had already been incurred. The rest of sum, the filing states, came from express terms and provisions of the Contura asset purchase agreement.

“Under all the circumstances, it is hard to imagine that a shortfall of this nature and order of magnitude was just a mistake,” DEP said. “But, here, even more damning, the debtors’ senior management sat on both sides on these very issues and stood to benefit uniquely from consummation of the plan and the DEP settlement. During the pendency of the Chapter 11 cases, the debtors’ senior management jockeyed for positions at Contura and then assumed those positions immediately upon consummation of the plan.”

DEP alleges that the conclusion “seems almost inescapable” that Alpha’s senior management, many of whom are now with Contura, knew about but did not disclose impending “unaccounted-for” expenditures to ensure they would gain from the consummation of the Contura sale. Proposed settlements before the court, DEP notes, reduce but do not eliminate the obligations and shortfall. The agency estimates projections appear to remain at least $50 million short.

Full article: W.Va. DEP: ‘Almost inescapable’ Alpha execs knew of $100M uncounted liabilities

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