Arch Coal Circles the Drain

Another day, another coal company circling the drain.

Today’s victim is Arch Coal, one of the two backers of the proposed Millennium Bulk Terminal coal export project in Longview, Washington. The company is in deep financial doo-doo, mostly because it took on massive debts to buy new coal mines at the peak of the coal bubble in mid-2011. As the bubble deflated, Arch’s mining operations started losing money hand over fist, and it became increasingly clear that the new mines were worth just a fraction of what Arch paid for them. Gradually, as the coal slump continued, Arch’s stock tanked, and its bonds started trading at pennies on the dollar. Recently, market analysts concluded that the company would either have to negotiate with its creditors to write off some of its debts, or else file for bankruptcy (and let the bankruptcy court write off their debts for them).

An Arch bankruptcy “is a question of when, not if.”

But on Monday, in a huge blow to the company, a New York judge allowed a group of Arch bondholders to block a proposed debt restructuring deal. And as the Billings Gazette reports, coal industry analysts at Morningstar say that without a debt deal, an Arch bankruptcy “is a question of when, not if.”

Arch’s impending bankruptcy doesn’t just pose risks to the company’s investors. Mineworkers, landowners, and the general public are at risk too. A bankruptcy can put mineworkers’ pensions at risk; struggling companies often fail to fully fund their pension funds, so workers’ retirement funds may wind up being subject to the whims of a bankruptcy settlement. But just as importantly, as I explained back in July, a failure at Arch could saddle Wyoming landowners and residents with millions of dollars in mine cleanup costs. In theory, federal law holds Arch responsible for cleaning up its mines. But in practice, it’s not clear that a bankruptcy will leave the company with the money or resources to complete their cleanup.

Of course, Wyoming state regulators are right on top of things, and are taking all appropriate steps to ensure that the state or neighboring landowners aren’t left holding the bag for cleanup.

JUST KIDDING!!!!! This is Wyoming, after all, and an agency with a history of doing what it can to benefit coal companies. Instead of acting to protect people who, y’know, live and work in Wyoming, state regulators are bending over backwards to protect the interests of Arch Coal’s bondholders—principally well-heeled hedge fund managers and institutional investors. Despite entreaties from public interest groups in the state, Wyoming regulators still aren’t asking the company to put up money to guarantee mine cleanup. Instead, in a proposterous violation of the intent of federal mining law, they’re letting Arch take advantage of a cleanup loophole that was originally was intended specifically for financially healthy companies—the sorts of companies for which bankruptcy was literally unthinkable.

The thing that’s worth repeating, again and again, is that allowing Arch to avoid setting aside money for mine cleanup won’t keep Wyoming mines running. It just won’t. Those mines will rise or fall based on the dynamics of global energy markets. Instead, giving Arch a break mostly benefits the company’s bondholders…while shifting cleanup risks onto citizens of Wyoming.

Which forces one to wonder what Wyoming regulators are thinking, and whose interests they’re really representing.