Though Westmoreland Coal Co. plans to wrap up a significant portion of its Chapter 11 bankruptcy reorganization over the next several weeks before dissolving, several of its mining operations will still bear its name under new management.
A federal bankruptcy court confirmed the company's reorganization plan, allowing the parent company to transfer many of its assets to creditors who acted as a stalking horse bidder during the sale in exchange for relieving some of the company's debt. Westmoreland will transfer its Denver headquarters, Canadian business as well as its San Juan, Savage, Colstrip, Beulah and Jewett mining operations in the U.S. to the lenders' Westmoreland Mining Holdings LLC, which will later change its name to Westmoreland Mining LLC.
Westmoreland, which said in October 2018 that it was seeking bankruptcy protection and recently announced plans to emerge by the end of the first quarter, will have to work with the new mine owners and seek regulatory approval to transfer the permits needed to run the operations, said Elizabeth Lee Thompson, a Kentucky-based member of the law practice Stites & Harbison PLLC who focuses on bankruptcy among other types of law.
Once the reorganization plan goes into effect, Westmoreland's board of directors will dissolve, leaving a plan administrator to wind down the operation and deal with any remaining claims against the company, a process that could take a year or so. The new entity owned by the creditors will continue operating and "Westmoreland will be finished," Thompson said.
Peter Morgan, a senior attorney with the Sierra Club who focuses on issues related to coal, said this bankruptcy has taken a different course from the reorganizations of Peabody Energy Corp., Arch Coal Inc. and Alpha Natural Resources Inc. In those cases, "at the end of the day there remained an entity with the same name, and operating many of the same mines, as the debtor that went into the bankruptcy."
"Here, we're seeing a liquidation, essentially," he said, "the company being sold off for parts."
He also questioned the value of the mines the creditors are taking, given that several operations serve power plants that are slated to shut down in the next few years. The lenders may be "cutting their losses" and trying to make some money on those assets, he said, "but probably with the understanding that they're not going to be made whole again."
"But that's kind of the big thing that I haven't seen really addressed is exactly what the lenders' plan is to try to get value out of those assets," Morgan said.
Steven Abramowitz, a partner with the law firm Vinson & Elkins LLP who focuses on restructuring and bankruptcy, said Westmoreland's Chapter 11 plan is not uncommon, though it is "not a real reorganization" because the company is selling its assets to new entities. Companies that go through bankruptcy proceedings sometimes prefer to shed their former corporate shell and "start with a clean slate with a new corporate entity."
"An acquirer who's acquiring assets that are associated with long-term legacy liabilities will often want to use a new corporate entity because of the contingent risk of legacy liabilities, not withstanding the bankruptcy discharge," he said.
The parent company will continue providing administrative services for Westmoreland's master limited partnership, which is responsible for some of the company's noncore assets, including the Buckingham mine in Ohio and Kemmerer mine in Wyoming, on an interim basis until the MLP debtors are able to transfer the assets and the corresponding permits, Thompson said. The bankruptcy court has already approved the sale of the Kemmerer mine to Western Coal Acquisition Partners LLC, which bid $215 million for the operation, as well as the sale of substantially all of Westmoreland's Oxford assets in Ohio to CCU Coal and Construction LLC.
The MLP debtors will eventually file their own reorganization plan, she said, and "must just not have all the pieces in place yet to be able to do that." That plan will likely center on the Kemmerer and Oxford sales and deal with any remaining assets or liabilities.
"I would expect it to be filed soon because they only had so much cash that their lenders freed up for them to be in this bankruptcy," Thompson said, "and so they will run out of cash within a few months, I would think."