"The Meltdown Started": A Coal Bankruptcy Dramatically Unfolds
A shovel operator named J.D. Dietsche went to work at the Eagle Butte coal mine, owned by Blackjewel, on July 1 expecting a normal day. It wasn’t long before he learned that would not be the case.
"They actually pulled in everybody in Monday morning and told them that [Blackjewel] would be filing for Chapter 11. That was Monday morning about seven o’clock,” Dietsche said.
As many in the coal industry know, Chapter 11 isn’t the end of the world. Arch Coal, Peabody Energy, Westmoreland Coal and several others have gone through it too and come out the other side. So, Dietsche didn’t worry too much.
“It’s basically just a restructuring deal. We went through the same process with Alpha Coal when Contura took us over. You’ll be restructured and we had open and things were looking good,” he said.
But he soon found out this case wouldn’t be like the others.
“Several hours later, they pulled everybody in and escorted them off the mine site.” Dietsche said, "I was devastated.”
At the end of 2017, West Virginia coal company Blackjewel LLC took ownership of two mines in the Powder River Basin: Belle Ayr and Eagle Butte. Less than two years later, the West Virginia-based company abruptly filed for bankruptcy. What came next was a meltdown for a company unprepared for bankruptcy.
It wasn’t Blackjewel’s plan to send home 600 employees or have a CEO forced out (we’ll get to that) or to lock the gates at their mines. Certainly not handing out paychecks that couldn’t be cashed. It wasn’t their plan to threaten a burn-it-to-the-ground Chapter 7 scenario because it couldn’t secure any financing. That’s because Blackjewel said none of this was expected.
Expected Or Unexpected
The company’s lawyer Stephen Lerner said in an emergency hearing the filing came down to one creditor, Riverstone Credit Partners, who suddenly pulled out and wanted to get paid back.
"That happened Wednesday. Prior to Wednesday there was no issue. Zero issue,” Lerner said to the judge.
Fred Westfall, counsel for the Department of the Interior and Internal Revenue Service, seemed dumbfounded that Blackjewel had no idea this bankruptcy could be coming. After all, it only had a little over $100,000 in the bank with about $250 million in debt. Not even enough to make payroll.
"They had some idea that some of this was going to be happening for months prior to today’s hearing,” Westfall said. "I can understand the debtor situation. They kind of created their own problems.”
Clark Williams-Derry, director of energy finance at Sightline Institute, said the company likely did know just how close it was to insolvency. In his testimony, Blackjewel company CEO Jeff Hoops said he had been keeping a detailed cash flow model.
“Myself and our CFO, Drew Kesler, we maintain a very detailed cash flow model of the company, week to week. And we review cash needs and cash requirements each week,” Hoops said.
"My attention is going to turn to making these people pay for what they have done to us."
In fact, the company likely could have gone bankrupt months earlier to put itself and workers in a better position. Williams-Derry explained companies like Cloud Peak and Westmoreland Coal that entered Chapter 11 were in bad shape but had enough money to keep their mines open. He said Blackjewel had little choice but to implode.
“It decided it would try to keep going, moving forward, until finally, when bankers and lenders cut them off. We really haven’t seen something like this in the Powder River Basin,” he said.
Jill Morrison, executive director of the landowner group Powder River Basin Resource Council, said concern around Blackjewel started well before the bankruptcy. The company has 42 mine violations. And for months, the company has avoided paying Campbell County ad valorem taxes, now adding up to $17 million.
"There have been signs all over the place about that. And red flags everywhere,” Morrison said.
Creditor vs. CEO
Three days into the bankruptcy, miners still weren’t back at work. But the West Virginia bankruptcy court did eventually authorize Blackjewel to use $5 million to secure its mines.
In a later statement, CEO Jeff Hoops said that’s when, "THE MELTDOWN STARTED.”
Riverstone agreed to finance $5 million interim funds to secure the mines on the condition that Hoops would resign. Testimony in the hearings reveal a conflict between Hoops and Riverstone, likely along with other secured creditors. It appears Hoops was making personal loans to the company and then paying himself back rather than the highest tier debtor, the secured lender like Riverstone. To avoid getting in trouble, Hoops sought to turn his unsecured loans into secured ones. He had also tried to describe $34 million he had already paid to himself as “normal business operations.”
To that, the US Trustee said, “while we appreciate the emergency in this situation, we certainly think are suspicious that some of this is a situation that was self-made to have a quick result, where a loan that would favor the insider in this case.”
Blackjewel’s lawyer described it this way: “Mr. Hoops has provided for many months a revolving credit loan that was undocumented. He provided that financing such that and it was revolving so he put up certain amount of money and money was available repaid it.”
On July 4, the distressed Hoops released a letter, mostly all in capitals, seeking to explain himself. The first paragraph read, “IT IS TIME TO SET A LITTLE OF THE RECORD STRAIGHT AS IT IS CLEAR EACH OF YOU HAVE NO IDEA WHAT HAS TRANSPIRED.”
After laying out a timeline of what happened, Hoops writes he’s sick over this. In his letter, he characterizes, "what has transpired over the past weeks as essentially... this has been a hostile takeover."
Near the end, Hoops writes, "My attention is going to turn to making these people pay for what they have done to us.”
After the court approved the $5 million interim funds, Hoops is out of the company, and FTI Consulting has been named Chief Restructuring Officer and financial advisor. It won’t be enough to re-open the mines, but it will allow the company to seek additional financing to make that happen.