"Legacy benefits aren't new by any means; a lot of companies and industries have been plagued by employee and retiree costs," said Ron. "But what makes the coal industry, in my view, different and exceptional, is you have federally mandated statutes that govern the health care."
Federally mandated statutes shackling bankrupt coal companies include the Black Lung Benefits Act and the Federal Mine Health and Safety Act, which both provide compensation for miners suffering from black lung disease, as well as the federal Surface Mining Control and Reclamation Act and state reclamation laws.
"One thing you can't do in this business is abandon," Ron noted. "You can't say, 'There's no value in these coal operations, let me walk away.' Someone is going to be on the hook on this."
Ron went on to discuss how companies often need bonds in order to meet these expensive requirements: "The company doesn't have enough money to take care of these reclamation costs, it could be a bonding company would have to pay them and that company would essentially have claims against the estate. A lot of these expenses may be considered administrative expenses, so they might have a heightened priority. There could also be shortfalls — the amount that had to be bonded wasn't enough."
Escalating regulatory pressure, along with the availability of clean-burning natural gas, is diminishing the pool of potential buyers in the coal market, making asset sales more challenging.
"The external pressures will have to change in order for there to be some interest in M&A activity in the space ... the overlay of the increased [environmental] regulations essentially puts a wet blanket on a lot of this," Ron told Law360. "Is this the kind of industry that will attract a lot of eager buyers? All of these things spell no."
As Ron described, a number of companies are at risk in the ailing coal industry, and the hindrances to exiting bankruptcy are forcing many coal companies into liquidation.