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Dec. 30 — Alabama-based coal company Walter Energy Inc. is allowed to reject two current collective bargaining agreements and terminate retiree benefit obligations pursuant to its liquidation process under the U.S. Bankruptcy Code, a bankruptcy judge in Alabama ruled.
In her Dec. 28 opinion, Judge Tamara O. Mitchell of the U.S. Bankruptcy Court for the Northern District of Alabama granted the motion by the company and its subsidiaries requesting authorization to reject their current CBAs and terminate retiree benefits allowing them to continue with a pending sale of their mining operations.
This case stems from the decline of the global metallurgical coal industry since 2011, and the court recognized the impact the ruling will have on employees, retirees, creditors, vendors, the city and the state.
“The dilemma facing the Court is whether to shut down the mines or allow the possibility that the mining operations continue in the hopes that coal prices will rebound in time and the miners keep valuable jobs,” Mitchell wrote.
The order prompted criticism from the president of the United Mine Workers of America, Cecil E. Roberts, who released a written statement Dec. 28 describing Mitchell's decision as “extremely disappointing but not surprising.”
Walter Energy filed for Chapter 11 bankruptcy protection in July and is set to put its assets up for auction Jan. 5. As an opening bid, lenders that banded together as Coal Acquisition LLC have offered to exchange $1.25 billion of debt and pay $5.4 million in cash.
Among Walter Energy's labor obligations listed by the court are two CBAs. Subsidiary Jim Walter Resources Inc. is party to a CBA between the Mine Workers and the Bituminous Coal Operators Association, as well as a memorandum of understanding with the UMWA. Subsidiary Walter Coke Inc. is a party to the other CBA, with the United Steelworkers.
Walter Energy and its subsidiaries also owe benefits to more than 3,100 union retirees and spouses. Under its various retiree medical plans, it had more than $579.2 million in unfunded liabilities.
In November, Coal Acquisition LLC executed an asset purchase agreement to buy Walter Energy's core Alabama mining operations, which included two Jim Walter mines, related methane gas operations and other assets for $1.15 billion pursuant to a sale under Section 363 of the bankruptcy code—which is a sale that is contingent on court's approval of a debtor's rejection of its CBAs.
Coal Acquisition refused to acquire the companies' legacy and current labor costs, and it requested the elimination of clauses imposing on Walter Energy the requirement that a buyer had to assume the CBAs or liabilities or obligations under the CBAs. In the alternative, Coal Acquisition requested the rejection of the CBAs.
Potential buyers have also said they won't assume Walter Energy's pension plans, and the Pension Benefit Guaranty Corporation announced Dec. 30 that it would take over responsibility for the plans at the beginning of 2016.
Walter Energy filed a motion under sections 1113 and 1114 of the bankruptcy code requesting, among other things, an order authorizing the rejection of the CBAs, and terminating the retiree benefits and related obligations. The union, the funds and current employees filed objections to the request.
A debtor may unilaterally reject a CBA under the bankruptcy code, the court noted. Congress enacted Section 1113 of the bankruptcy code with the purpose of requiring debtors to comply with multiple procedural steps prior to rejecting a CBA, the court added.
The court rejected the objectors' argument that Walter Energy's request to eliminate the retirees' health-care coverage couldn't be granted because it was inconsistent with the Coal Industry Retiree Health Benefit Act of 1992. The court noted that previous cases have reconciled that law with the bankruptcy code and have permitted modifications of retiree benefits under special circumstances.
The court ruled that the best interest would be served if Walter Energy's assets were sold for the best possible price, not “on a piecemeal basis.” The court concluded that if modification of Coal Act retiree benefits is necessary to accomplish that goal, then the modification must be permitted.
In evaluating whether to authorize the rejection of the CBAs to allow the sale, the court noted the “dire” circumstances in which Walter Energy and its subsidiaries found themselves. The companies were on the brink of running out of cash to cover their operations and have to move quickly, the court said.
Walter Energy and the subsidiaries couldn't “survive absent a sale in the near term,” and this sale provided the “best opportunity for future employment” of their employees, the court assessed. It noted that the evidence showed that the Walter Energy coal operations couldn't be sold subject to the CBA and retiree benefits. The court said that even if the companies obtained “savings of $150 million from the unions,” they would still require hundreds of millions of dollars in new capital to remain viable.
The court concluded that Walter Energy's proposal didn't discriminate against union employees or retirees. It further added that the union didn't show good cause in rejecting the proposal. In rejecting the objections to Walter Energy's request, the court recognized the “potential hardship” on employees and retirees the decision would have, and noted the interest in keeping mines open and offering future job opportunities.
Roberts of the Mine Workers said the “law is stacked against workers” in bankruptcy court.
“A lifetime of hard work and dedication means nothing to the courts. The life or death decisions vulnerable senior citizens will now be forced to make mean nothing to the courts,” Roberts said in the statement.
Walter Energy was represented by Bradley Arant Boult Cummings LLP; Paul, Weiss, Rifkind, Wharton & Garrison; and Maynard, Cooper & Gale PC. The UMWA was represented by Quinn, Connor, Weaver, Davies & Rouco LL. The unsecured creditors committee was represented by Morrison & Foerster LLP and Christian & Small LLP. The retired employees committee was represented Adams and Reese LLP and Jenner & Block LLP.
—With assistance from Tyrone Richardson in Washington and Dawn McCarty in Wilmington, Del.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at email@example.com
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