Corporate bankruptcies are painful for companies, especially the laborers who may lose jobs or have their heath and pension benefits cut. That’s especially true in the coal industry, which has been seeing a decline in the demand for its product but a greater demand that it pay up for the environmental scars it has left behind.
When companies restructure through Chapter 11 of the federal bankruptcy code, they have to make some difficult choices so that they can perhaps emerge as stronger but as much more defined and smaller entities. In the coal sector Peabody Energy is doing that right now. Alpha Natural Resources started the process last summer — as have dozens of others. But what makes these two cases so compelling is that they are paying millions in bonuses to their executives so that they can make the hard decisions to keep the company ultimately afloat. Otherwise, they would just quit.
Last week, a federal judge gave Peabody the Okay to do just that. A different federal judge previously ruled Alpha could do the same. Sound unfair?
“Slashing the health benefits of aged and medically vulnerable retirees with extremely limited resources, while lavishly rewarding white-collar employees, is neither fair nor reasonable,” writes the United Mine Workers, in court documents, in the Peabody case.
Peabody, which filed for bankruptcy in April, is asking for permission to pay out $3.24 million in bonuses to 42 people, reports the St. Louis Post-Dispatch. The paper also says that St. Louis-based Peabody already cut retiree health funds by $70 million before filing for bankruptcy. Peabody said that the purpose of the bonuses is to keep employees up-and-down the corporate ladder so that when the company re-emerges, it will be able to move forward.
As for Alpha, it asked for and it has received permission to pay out nearly $12 million to 15 executives. The Virginia-based company filed for bankruptcy in August 2015, a victim of what it has said is changing market conditions combined with a strict regulatory environment. It has been losing money since 2010 and last year, it lost hundreds of millions.
The executives, who are already paid well and who might not otherwise find work if they were laid off, must keep the company from bleeding cash — a decision with which the bankruptcy judge has agreed. To do so, they must sell assets and cut expenses, which has included ridding the company of a portion of the life and health benefits for 4,580 non-union miners and their families. The company also plans to remove 6,670 current miners from its retirement plan.
“The performance goals for the cost savings and ending book cash metrics relate to specific dollar amounts that must be achieved,” Alpha’s Assistant Secretary William Phillips said in a January 29th filing with the U.S. Securities and Exchange Commission. “The performance targets will be adjusted to reflect the effects of asset sales, financing-related transactions and certain other events to neutralize their impact.”
The problems ailing both Peabody and Alpha are the same ones now taking place coal sector: cheap natural gas, stricter air quality laws and thinning coal seams in Central Appalachia. In 2015, Arch Coal, Walter Energy and Patriot Coal also declared bankruptcy.