Last fall, Murray Energy — the largest privately-owned coal company in America with a large presence in the Ohio Valley — joined many of its peers in declaring bankruptcy. Murray faced mounting debt and a struggling coal market. Then the COVID-19 pandemic hit, tanking the global economy including energy markets.
S&P Global Market Intelligence senior reporter Taylor Kuykendall has been following the bankruptcy case closely. Late last week, he spoke with energy and environment reporter Brittany Patterson about the latest updates in the case.
***Editor's Note: The following has been edited for clarity and length.
Kuykendall: I think it's worth noting a few things about Murray Energy for those that might not understand how they got there. They were buying a whole lot of property. They bought longwall coal mines in West Virginia to expand, they bought coal mines from Armstrong Energy to expand into the Illinois Basin, and they bought a mine in Colombia recently. I mean, that sounds like a lot, even if you were just talking about a normal period for the coal industry. But this is at a time when the coal industry was really, really suffering. And most people were thinking more about downsizing their coal assets.
Patterson: What were some of the reasons that the company gave at the time that it filed?
Kuykendall: Murray used to criticize all these other companies that were filing for bankruptcy, because basically when you file for bankruptcy, you get rid of your debt, and you can compete a lot better afterwards. He called it dragging the industry into the bankruptcy sewer. Well, after, you know, months and months of complaining about being dragged towards the bankruptcy sewer, his company lands in the bankruptcy sewer.
The reasons are ones that we've all heard before: cheap gas, the growth of wind and solar energy is increasingly a factor, and an overall decline or flattish electricity demand. By the time that they got to the bankruptcy court, you're talking about a company that's the largest private coal company in the country, but they made about $540 million in earnings in 2018. On the other side of the balance sheet, carrying about $8 billion in potential actual legacy liabilities and about $2.7 billion and other debt obligations. They had way more debt on their balance sheet than they can handle. And not only was the market bad, but it wasn't really showing a lot of signs of looking better anytime soon.
Patterson: What have we learned about Murray Energy?
Kuykendall: There's been a couple of interesting things come out. I mean, I think some of the latest developments that we're finding, which is just kind of mind boggling when you think about the scope of the company. They started the bankruptcy, about $300 million in liquidity. And that was supposed to last them through about the end of June, I believe … whenever they're supposed to come out on the other side of bankruptcy, burned through $180 million in two months. They said that they have about $6 million in cash on hand. $6 million. Sounds like a lot. And it'd be a lot if I had $6 million stacked on my desk right now, but for the country's largest coal company, $6 million is not a lot of money. And even Murray Energy themselves warned in their bankruptcy filings, you know, that this amount is insufficient to responsibly manage the business and this or any environment as a quote, they mentioned laying off something like 500 employees, the CEO is personally approving any expense over $25,000. That's not a lot of money when you're talking about coal mining. They're really desperate here to try to save as much money as they possibly can. And we're also kind of learning that management and just about anybody that's involved in this bankruptcy doesn't think that that's going to improve, you know, in the next several months.
Patterson: Tell us a little more about what some of the documents have shown us about what top officials at Murray Energy have been paid and have been doing.
Kuykendall: Consol Energy kind of caught my attention. At first, I mean this as far as its bankruptcy goes on some filings earlier this month, and they just kind of hinted at a stunning inability to control costs, manage the market and you know, otherwise manage the business, wasn't a lot of details when they first kind of put this filing out there it was this, this latest filing from the Committee of unsecured creditors. That's basically people that Murray Energy owes money that are a little bit further down on the list of likelihood to see that money could pay back in a bankruptcy court. So as you can imagine, they do have some motivations here, and talking about the company, but what they describe is a “disturbing pattern of self dealing and abuse of corporate resources.” That's mostly pointed to actions from Mr. Murray and Mr. Moore. Basically, they went through and reviewed board materials, financial information, emails, flight logs, those kind of things, from the period between 2016-2019.
And also to preface all this, Murray says the creditors did not interview him. He basically rejects all these statements. He disagrees with all of it. But, you know, some of the things that they found they say that the company was mostly insolvent during a lot of that investigation period they did an analysis of Murray and Moore's compensation and compared that to other key executives. Well, they found between 2016-2019, these two executives earned about $100.4 million more than the average senior officer. They also mentioned cash bonuses around $24 million and $13 million respectively, for Murray and Moore. At the same time, company earnings were declining and flat. But they also point to these guys using the company aircraft for personal purposes. They say that they paid for vacations and sporting events. And you know, Murray's pushback against these again, in his statements, he does say that he's kept logs of that travel and is prepared to explain it.
Another thing that the creditors point out was $10 million in donations to charities. One of the big beneficiaries of that is the Boy Scouts. There's a church, I believe, in St. Clairsville [Ohio] he donated some amount of money to. Creditors are maybe making an argument that that wasn't the most financially responsible thing that they could have done.
Murray Energy’s a big priority, and the thing they're pushing back on is, hey, we're running out of liquidity. We don't really have time for this argument. They're trying to get through with reorganization and otherwise, and they've said this themselves, if you know that this isn't done right, there very well might not be a company to restructure.
Patterson: And so if the company is forced to liquidate or go to Chapter 7 bankruptcy, what would that mean? This company employs thousands of workers, a lot in the Ohio Valley region, and as you mentioned, they have significant pension and healthcare obligations.
Kuykendall: So, that's a really big question and one that we haven't seen come up as much. So, it's not really clear what a Chapter 7 liquidation would look like because different things could happen. Someone could buy the mines. If Consol Energy, for example, were to buy some of these longwall mines, I imagine they would want to keep operating them. And for a lot of the workers, maybe even some that have been there back when Consol ran the mines, there would be very little difference at all, it'd be like going back to that. But on the other hand, this is a really bad time to be trying to sell anything, let alone a coal mine. We're talking about coal mines that have been just really painful to try to take to market and sell on an auction for the past 10 years. And nobody's thinking that situation is getting any easier going down the road. And now they're trying to do it in the middle of a global pandemic. We won't know anything for a little while. I think that the next hearings aren't for a couple weeks. There is kind of a tendency for courts to lean toward a Chapter 11 and restructuring and getting a company out on the other side. So even though Consol Energy is asking for liquidation, it doesn't mean that it's likely to happen.