A once-dominant industry loses power

Transcription

1 Q SPECIAL REPORT A once-dominant industry loses power By Anders Melin After more than 50 years of generating the lion s share of electricity used in the U.S., coal no longer rules the roost. The end result for many industry players could be a trip to bankruptcy court. While total Chapter 11 filings in the first six months of 2014 were half of last year s total, according to The Deal s data, the energy sector tallied 11 new with of more than $100 million. That figure is almost double the number recorded in all of In several of the largest including Energy Future Holdings Corp., James River Coal Co. and Optim Energy LLC coal emerges as a common denominator. Fundamentally, energy is very bullish in the U.S., but you have to separate between coal, oil and gas, said Stephen Hannan, a senior managing director at Evercore Group LLC. Low natural gas prices and environmental regulation have put the coal sector under a lot of pressure. Thanks to hydraulic fracturing, previously inaccessible supplies of oil and natural gas buried in North American shale have flooded the energy market in recent years and threatened to dethrone coal from its spot as the nation s cheapest energy source. Meanwhile, coal has become a dirty word to the many Americans concerned about global warming, leading Washington to zero in on large emitters of carbon dioxide. Similar sentiments are making an imprint on the agendas of governments across the globe. EU lawmakers have, for years, worked to rein in greenhouse gas emissions in the bloc s member states, and in China, leaders must now tackle severe air pollution in several of its largest cities following more than a decade of rampant economic growth largely powered by fossil fuels. In North America, yield-seeking investors have been pumping dollars into oil, gas and renewable energy sources in recent years, and experts said all this could signal the beginning of a slow death for the black mineral in the country known as the Saudi Arabia of coal and neighboring Canada. Coal producers in the region, many of them reliant on exports, could potentially be forced into lengthy stints in bankruptcy court to overcome industry-specific legal barriers, to fight with creditors over write-downs of legacy and to find buyers for their assets, experts said. Such developments are likely to make an imprint on The Deal s bankruptcy league tables, which, starting with this year s second quarter, will capture only restructuring work on ongoing U.S. and Canadian. This isn t just a cyclical change, said Loretta Cross, a managing director at Stout Risius Ross Inc. Every coal company is going to have to fix its balance sheet. What it s going to cost them to produce electricity is going to make it hard to compete. CONTINUED > l a w f i r m s, v o l u m e ($b i l l.) l a w y e r s, v o l u m e ($b i l l.) Lawyer 1 Schein, Michael Vedder Price PC 21 $49.2 $1, Hahn, Richard Debevoise & Plimpton LLP Rosner, Douglas Goulston & Storrs PC Gottfried, Andrew Morgan, Lewis & Bockius LLP Davidson, Scott King & Spalding LLP Walker, Wendy Morgan, Lewis & Bockius LLP Gilhuly, Peter Latham & Watkins LLP Golden, Daniel Akin Gump Strauss Hauer & Feld LLP 1 Saul Ewing LLP 88 $12.4 $1, Vedder Price PC ,02. 3 Akin Gump Strauss Hauer & Feld LLP , Duane Morris LLP Morgan, Lewis & Bockius LLP Goulston & Storrs PC Latham & Watkins LLP King & Spalding LLP Debevoise & Plimpton LLP Chadbourne & Parke LLP Cleary Gottlieb Steen & Hamilton LLP Orrick, Herrington & Sutcliffe LLP DLA Piper Ropes & Gray LLP Cooley LLP Steinberg, Arthur King & Spalding LLP Wofford, Keith Ropes & Gray LLP Nixon, Timothy Godfrey & Kahn SC Williamson, Brady Godfrey & Kahn SC Seife, Howard Chadbourne & Parke LLP Lipke, Douglas Vedder Price PC

2 2 < PREVIOUS After becoming the nation s dominant source of electricity in the mid-20th century, coal-fired production grew for almost six straight decades, according to the U.S. Energy Information Administration. But in 200, the tide turned. Overall demand dropped as the country slumped into a recession, and the price of natural gas started falling, carving into coal s historical cost advantage. While the price of natural gas has recovered some from its most recent low recorded in early 2012, it remains low enough that significant volumes are burned each day at drilling sites around the country rather than transported due to a lack of pipeline capacity between extraction sites and processing facilities. According to Cross, significant investments in pipeline infrastructure are likely to offset growing demand, which ultimately will keep the price stable for the foreseeable future. Coal miners and plant owners have felt the effects. The Central Appalachian coal spot price, the benchmark for coal produced in the eastern U.S., has fallen by more than a quarter since its most recent peak in January Two decades ago, half of all electricity generated in the U.S. came from coal-fired plants. In 2013, that number slumped below 40%, EIA data shows. As a result, a number of coal companies have entered bankruptcy in recent years. Aside from James River, Trinity Coal Corp. was put into bankruptcy in 2013 by a group of creditors following years of eroding finances, and Patriot Coal Corp. filed in 2012 due to declining demand, regulatory pressures and burdensome legacy. Those still solvent have dialed back production. Last year s output from U.S. coal mining companies, just south of 1 billion short tons, was the lowest in two decades. Several electricity producers with coal plants in their portfolios have also entered bankruptcy, including Optim Energy and Energy Future Holdings this year and Longview Power LLC in Metallurgical coal, which can be used for steel production because of its high concentration of carbon, should recover some once construction picks up, Evercore s Hannan said, adding that the outlook for thermal coal, mainly used to generate electricity, is darker. Increased exports could offset some of the pressure, but China, which historically has been a key importer, has several geographically more proximate trade partners, such as Australia. On the bright side, Wall Street s growing interest in the nation s energy sector has spilled over to the coal industry, providing relief for some. In addition, years of low interest rates have left investors increasingly apt to make loans on liberal terms to financially troubled companies. The booming oil and gas sector, ripe with opportunities to win big, has attracted many of the nation s largest private equity firms, and with them high-yield mezzanine loans, into energy, according to Robert Rabalais, an energy financing partner at Simpson Thacher & Bartlett LLP in Houston. There is an abundance of capital willing to come in on aggressive terms, Rabalais said. Right now, everybody is looking for yield. As long as this capital is available, there is an alternative way out. CONTINUED > i n v e s t m e n t b a n k s, vo l u m e ($b i l l.) 1 Blackstone Group LP 31 $25.4 $ Miller Buckfire & Co. LLC Jefferies LLC Centerview Partners LLC Peter J. Solomon Co Evercore Group LLC Millstein & Co Houlihan Lokey Inc Moelis & Co. LLC Solic Capital Advisors LLC crisis m a n a g e m e n t f i r m s, vo l u m e ($b i l l.) 1 FTI Consulting Inc. 104 $9.6 $ Goldin Associates LLC Capstone Advisory Group LLC Alvarez & Marsal LLC Gavin/Solmonese LLC AlixPartners LLP Protiviti Inc Conway MacKenzie Inc Huron Consulting Group Inc GlassRatner Advisory & Capital Group LLC n o n i n v e s t m e n t b a n k s, vo l u m e ($b i l l.) * Epiq ruptcy Solutions LLC 90 $12.2 $1, BMC Group Inc Garden City Group Inc Kurtzman Carson Consultants LLC Sard Verbinnen & Co Perry Street Communications KPMG Ernst & Young CohnReznick LLP Deloitte *Deloitte includes Deloitte & Touche Inc., Deloitte & Touche LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP and Deloitte Touche Tohmatsu; Ernst & Young includes Ernst & Young Inc. and Ernst & Young LLP; KPMG includes KPMG Corporate Recovery, KPMG Inc. and KPMG LLP.

3 3 < PREVIOUS i n v e s t m e n t b a n k e r s, vo l u m e ($b i l l.) Still, opportunities to rework lending terms and refinance maturing debt could just postpone the inevitable for some companies. Access to capital allows companies to avoid their day of reckoning, said David Hillman, a restructuring partner at Schulte Roth & Zabel LLP. But while investors are interested in yield, they also need an exit strategy. They re not going to fund a bridge to nowhere. Hillman, who recently authored a report addressing the hurdles faced by coal companies looking to reorganize, noted that for financially strained players, bankruptcy, while an option, can be very challenging. Like other blue-collar employers with a large number of unionized workers, many coal companies carry sizable amounts of legacy, such as retirement and healthcare obligations, on their balance sheets. These are subject to industry-specific federal statutes, including the Coal Industry Retiree Health Benefits Act and the Black Lung Benefits Act, that give recipients special protection in bankruptcy proceedings. Scaling them back without the consent of the recipients therefore can be significantly more challenging than for debtors in other industries, Hillman wrote. When Patriot Coal filed for bankruptcy in 2012 part of the reason was its inability to support costly benefit payments to former employees. The coal mining company, while employing only 4,200, had 21,000 individuals on its payment roster. Attempts to spin off bad assets and burdening into a separate company a method contemplated by executives of Lehman Brothers Holdings Inc. in late summer 2008 to avoid a fullon bankruptcy are also unlikely to succeed, Hillman said. In Patriot s proceedings, two noteholders filed a motion in March 2013 seeking to appoint a trustee to separately administer those debtors that had not signed collective bargaining agreements with the United Mine Workers of America, one of the country s largest unions for coal miners. The court later struck down the motion, saying a separation could not be warranted since the debtors businesses were inextricable intertwined. Shutting down operations to ride out the storm could be a costly endeavor, said Martin A. Sosland, a restructuring partner in Weil, Gotshal & Manges LLP s Dallas office. Halting and restarting production at a coal-fired power plant is far more expensive than reducing output, and for miners, legacy owed come due whether or not coal is mined. Coal s long run as the nation s primary source of electricity and the subsequent sharp drop in demand also has resulted in significant excess production capacity, a challenging situation for commodity companies to tackle, according to Hannan. In other industries, such as airlines, planes wear out and can be repositioned to underserved markets. Fleet reduction increases capacity utilization, which drives profits. Companies extracting commodities stuck in the ground face a different reality, however. Commodities like coal never go away, Hannan said. If pricing is weak, like now, mines are just idled. They can come back rather quickly if pricing improves, but once they do, supply-demand balance will drive pricing back down. n er crisis m a n a g e r s, vo l u m e ($b i l l.) n o n i n v e s t m e n t b a n k e r s, vo l u m e ($b i l l.) 1 Coleman, Timothy Blackstone Group LP $102.4 $ Erickson, Stuart Miller Buckfire & Co. LLC Szlezinger, Leon Jefferies LLC Zelin, Steven Blackstone Group LP Klein, Richard Jefferies LLC White, Robert Jefferies LLC Suckow, Morgan Miller Buckfire & Co. LLC Abrams, E.; Preiss, A. Millstein & Co Millstein, J.; Vris, J. Millstein & Co Altman, Roger Evercore Group LLC O'Connell, Jamie Blackstone Group LP Tully, Conor FTI Consulting Inc. 12 $69.1 $ Star, Samuel FTI Consulting Inc Pauker, David Goldin Associates LLC Eisenband, Michael FTI Consulting Inc Nolan, Bill FTI Consulting Inc Kearns, Christopher Capstone Advisory Group LLC Simms, Steve FTI Consulting Inc Davido, Scott FTI Consulting Inc Joffe, Steven FTI Consulting Inc Chadwick, Peter 1 Mendizabal, Lorenzo Capstone Advisory Group LLC Epiq ruptcy Solutions LLC $10.4 $ Feil, Tinamarie BMC Group Inc Stein, Jeffrey S. Garden City Group Inc Kass, Albert 5 Kurtzman Carson Consultants LLC Christiansen, John Sard Verbinnen & Co Morgan, Jonathan Perry Street Communications Zucker, Clifford CohnReznick LLP Fielding, Jeremy Kekst and Co Beekenkamp, B.; McDonald, M. Ernst & Young DesChenes, Denise Sard Verbinnen & Co

4 4 l a w f i r m s, n u m b e r 1 Duane Morris LLP 22 2 Ballard Spahr LLP 19 3 Richards, Layton & Finger PA 16 4 Young Conaway Stargatt & Taylor LLP Pachulski Stang Ziehl & Jones LLP DLA Piper 119 Saul Ewing LLP Cooley LLP Morgan, Lewis & Bockius LLP Akin Gump Strauss Hauer & Feld LLP McCarter & English LLP Latham & Watkins LLP Lowenstein Sandler LLP Skadden, Arps, Slate, Meagher & Flom LLP Katten Muchin Rosenman LLP 9 15 Vedder Price PC 16 Reed Smith LLP 6 1 Blank Rome LLP 1 18 King & Spalding LLP 0 18 Kirkland & Ellis LLP 0 19 Goulston & Storrs PC Dentons Cole, Schotz, Meisel, Forman & Leonard PA Greenberg Traurig LLP Weil, Gotshal & Manges LLP DelBello, Donnellan, Weingarten, Wise & Wiederkehr LLP Orrick, Herrington & Sutcliffe LLP Stichter, Riedel, Blain & Prosser PA Kelley Drye & Warren LLP Holland & Knight LLP 4 2 Berger Singerman LLP 45 2 Brown Rudnick LLP 45 2 Chadbourne & Parke LLP Levene, Neale, Bender, Yoo & Brill LLP Sidley Austin LLP Schulte Roth & Zabel LLP Jackson Walker LLP Dechert LLP Baker & Hostetler LLP Alston & Bird LLP 3 33 Kutner Brinen Garber PC 3 33 Milbank, Tweed, Hadley & McCloy LLP 3 l a w y e r s, n u m b e r Lawyer 1 Branch, Dustin Katten Muchin Rosenman LLP Pollack, David Ballard Spahr LLP Huben, Brian Katten Muchin Rosenman LLP 25 4 Carr, James Kelley Drye & Warren LLP Minuti, Mark Saul Ewing LLP 82 6 Collins, Mark Richards, Layton & Finger PA 8 Daluz, Tobey Ballard Spahr LLP 6 8 Herman, Neil Morgan, Lewis & Bockius LLP 58 9 Nestor, Michael Young Conaway Stargatt & Taylor LLP Bellavia, Leonard Bellavia Gentile & Associates LLP Jones, Laura Pachulski Stang Ziehl & Jones LLP Lipke, Douglas Vedder Price PC Mayer, Katharine McCarter & English LLP Brady, Robert Young Conaway Stargatt & Taylor LLP DeFranceschi, Daniel Richards, Layton & Finger PA Gottlieb, Lawrence Cooley LLP Taylor, William McCarter & English LLP Heath, Paul Richards, Layton & Finger PA 3 1 Miller, Brett Morrison & Foerster LLP Rosen, Kenneth Lowenstein Sandler LLP Simkulak, Wendy Duane Morris LLP Pasternak, Jonathan DelBello, Donnellan, Weingarten, Wise & Wiederkehr LLP 19 Summers, Matthew Ballard Spahr LLP Schein, Michael Vedder Price PC Hershcopf, Cathy Cooley LLP Holden, Frederick Orrick, Herrington & Sutcliffe LLP Walker, Wendy Morgan, Lewis & Bockius LLP Seife, Howard Chadbourne & Parke LLP Gilhuly, Peter Latham & Watkins LLP Knight, John Richards, Layton & Finger PA Kutner, Lee Kutner Brinen Garber PC Brown, Stuart DLA Piper 2 25 Cairns, Timothy Pachulski Stang Ziehl & Jones LLP 2 25 Indyke, Jay Cooley LLP 2 26 Ford, Buddy, Law Offices of Buddy D. Ford PA Lynch, Christine Goulston & Storrs PC Merchant, Michael Richards, Layton & Finger PA Rosner, Douglas Goulston & Storrs PC Singerman, Paul Berger Singerman LLP 26 2 Cleary, M. Blake Young Conaway Stargatt & Taylor LLP Gelman, Arlene Vedder Price PC Hampton, Jeffrey Saul Ewing LLP Oliner, Ron Duane Morris LLP 23 34

5 5 i n v e s t m e n t b a n k s, n u m b e r 1 Blackstone Group LP 35 2 Carl Marks Securities LLC 20 3 Houlihan Lokey Inc Jefferies LLC 15 5 Moelis & Co. LLC 14 6 Solic Capital Advisors LLC 13 Lazard 11 8 Duff & Phelps Securities LLC 10 Mesirow Financial Holdings Inc. 10 Rothschild 10 crisis m a n a g e m e n t f i r m s, n u m b e r 1 FTI Consulting Inc GlassRatner Advisory & Capital Group LLC 95 3 Alvarez & Marsal LLC 45 4 Gavin/Solmonese LLC 38 5 Protiviti Inc. 2 6 Duff & Phelps Canada Restructuring Inc. 22 AlixPartners LLP 21 Conway MacKenzie Inc Development Specialists Inc Capstone Advisory Group LLC Goldin Associates LLC 16 n o n i n v e s t m e n t b a n k s, n u m b e r * 1 Kurtzman Carson Consultants LLC Duff & Phelps Ltd Epiq ruptcy Solutions LLC Garden City Group Inc EisnerAmper LLP 80 6 BMC Group Inc. 68 Deloitte 39 8 PwC 33 9 Ernst & Young Donlin, Recano & Co. 23 *Deloitte includes Deloitte & Touche Inc., Deloitte & Touche LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP and Deloitte Touche Tohmatsu; KPMG includes KPMG Corporate Recovery, KPMG Inc. and KPMG LLP; PwC includes PricewaterhouseCoopers EC Inc., PricewaterhouseCoopers Inc. and PricewaterhouseCoopers LLP; Ernst & Young includesernst & Young Inc. and Ernst & Young LLP. i n v e s t m e n t b a n k e r s, n u m b e r 1 crisis m a n a g e r s, n u m b e r n o n i n v e s t m e n t b a n k e r s, n u m b e r 1 Gavin, Edward Gavin/Solmonese LLC 32 2 Smith, Margaret GlassRatner Advisory & Capital Group LLC 2 3 Glass, Ronald GlassRatner Advisory & Capital Group LLC 22 4 Simms, Steve FTI Consulting Inc Greenspan, Ronald FTI Consulting Inc Kofman, Robert Duff & Phelps Canada Restructuring Inc. 1 er Atkinson, Michael Protiviti Inc. 14 Eisenband, M.; Star, S. Genereux, Michael Blackstone Group LP 12 Wu, Christopher Carl Marks Securities LLC 12 2 Luria, Neil Solic Capital Advisors LLC Casas, Edward Solic Capital Advisors LLC Coleman, Timothy Blackstone Group LP Kaufman, Peter Gordian Group LLC Reynertson, Soren GLC Advisors & Co. LLC Cullen, Brian Duff & Phelps Securities LLC 6 Klein, Richard Jefferies LLC 6 Mann, Kenneth Equity Partners Inc. 6 Szlezinger, Leon Jefferies LLC 6 FTI Consulting Inc. 14 Weitz, Wayne Gavin/Solmonese LLC 14 8 Tucker, Michael FTI Consulting Inc Kass, Albert Kurtzman Carson Consultants LLC Mendizabal, Lorenzo Epiq ruptcy Solutions LLC Feil, Tinamarie BMC Group Inc. 3 4 Bell, S.; Duffy, P. Duff & Phelps Ltd Ringer, David EisnerAmper LLP 31 6 Clancy, Stephen Duff & Phelps Ltd. 28 Muncaster, Steven Duff & Phelps Ltd Bouchier, Geoffrey Duff & Phelps Ltd Waisman, Shai Prime Clerk LLC 1 Whitehouse, David Duff & Phelps Ltd. 1