It’s not often that bankrupt coal mines are acquired by a nonprofit land conservation fund. But that is exactly what happened when the Virginia Conservation Legacy Fund purchased a group of Appalachian mines from Patriot Coal Corp. as part of Patriot’s recently-confirmed chapter 11 plan of reorganization.
It turned out to be the largest mine reclamation project ever undertaken in the state of West Virginia.
The highly unusual and complex bankruptcy acquisition required legal counsel willing to take a risk on an unconventional transaction and client. For that, the fund turned to Pillsbury Winthrop Shaw Pittman LLP. Led by partners Patrick Potter, Andrew Troop, Sheila Harvey and David Baxter, Pillsbury’s team included lawyers from a wide range of practices including bankruptcy, M&A, finance, energy, tax, real estate, antitrust, and environmental regulatory lawyers.
When Patriot filed for bankruptcy, it intended to sell its trophy mining assets at auction and leave behind various employee and environmental liabilities. The plan faced substantial opposition from the United Mine Workers of America, as well as state and federal environmental regulators, environmeantal sureties and others.
However, the protests effectively evaporated when VCLF demonstrated it could close a transaction where, in addition to acquiring the left-behind mines, the fund would (a) take responsibility for reclaiming land and addressing virtually all of Patriot’s environmental issues; (b) enter into a new collective bargaining agreement on fair terms, preserving close to 500 hundred jobs and providing for future contributions to retirement plans; (c) assume, administer and pay Patriot’s legacy obligations for black lung and other occupational illness, as well as workers’ compensation; (d) avoid surface mining except where incidental to reclamation; and (e) fund much, if not all, of this effort from, and in an amount less than, existing bonds already in place for environmental cleanup and certain employee-related liabilities.
The VCLF had already committed to reducing the growth of carbon emissions by linking clean-air credits from reforestation efforts in which it is involved around the world with the sale of coal.
In exchange for assuming up to $400 million in Patriot liabilities, VCLF will now reforest many of Patriot’s former mine sites in West Virginia and plant trees elsewhere, then sell coal from the acquired mines combined with carbon credits generated from the trees it has planted or will plant. This reforestation effort is significant and will be on-going, and VCLF has agreed to provide union workers associated with the acquired mines with the opportunity to work on this project, thereby introducing new jobs. In addition, VCLF has proven experience in managing environmental compliance for other coal mine owners, such as Southern Coal Corp., economically and efficiently.
“This was one of the most challenging, but rewarding deals that we’ve ever done” said Pillsbury’s Ms. Harvey, a longtime energy partner who heads the firm’s climate change/sustainability practice. “VCLF was basically acquiring a limited set of challenged assets to realize its vision of pairing coal with carbon credits so that jobs could be saved in an otherwise economically depressed region and mines could be operated in both an economically and environmentally sustainable way.”
The Pillsbury team credits Tom Clarke, the head of VCLF, and Ken McCoy, Chief Executive Officer for the on-going mining business, with devising the strategy to acquire Patriot’s otherwise unwanted assets and advance VCLF’s public interest agenda.
“VCLF brought an amazingly innovative plan to the table. Our job was to assemble the pieces and bring the deal together in the face of aggressive skepticism from many of the largest and most significant constituents involved in Patriot’s chapter 11,” according to Pillsbury’s Patrick Potter, a Washington-based partner in the firm’s Insolvency & Restructuring practice.
“But for our client addressing and resolving Patriot’s legacy problems, the sale of any of Patriot’s assets may never have closed,” Mr. Potter said. “To bolster support for the sale of all Patriot’s assets, considerable effort went into ensuring that the costs associated with remediation and liabilities would be less than the face sum of the bonds issued in connection with those liabilities.”
VCLF’s Mr. Clark commented: “From the start, Pillsbury’s support of our effort and mission was unwavering, even when the challenges to closing the transaction seemed insurmountable.”
“We are grateful that Pillsbury agreed to represent us,” Mr. Clarke noted. “We could not have asked for better counsel in our effort to sustain vital economies and communities, such as those represented by the Appalachian coal mines, while working to make the environment better.”
VCLF CEO Mr. McCoy added: “The dedication of Pillsbury’s attorneys to this transaction, their understanding of the business objectives of operating a coal mine, and their intense attention to the complexities of our deal, together with the expertise of each member of the team, made this transaction an unqualified success.”
“In a challenging economic and regulatory environment, VCLF proposed an innovative business strategy to advance the otherwise seemingly irreconcilable goals of improving the environment and continuing to mine coal and preserve coal-related jobs,” said Andrew Troop, East Coast Practice Section Leader for Pillsbury’s Insolvency & Restructuring practice.
“Achieving these objectives for VCLF required everyone to think creatively,” he added. “Tried and true past practice was not going to get this deal done or achieve VCLF’s goals. We worked hard to get everyone, Patriot, its creditors, its sureties, the UMWA and state and federal regulators, to bet on the benefits of trying a different course. Pillsbury is honored to have been chosen as a key player in this effort.”