West Virginia regulator says Alpha Natural asset sale may jeopardize cleanup

CHICAGO (Reuters) - West Virginia’s environmental authority opposes a plan by bankrupt coal miner Alpha Natural Resources to sell core assets to its hedge fund lenders, saying in a court filing that it could undermine a $1 billion cleanup.

A string of bankruptcy filings by major U.S. coal companies, including Alpha last August, has raised concern among environmental agencies and the federal government that future mine cleanups may be at risk.

The West Virginia Department of Environmental Protection said Alpha’s proposed sale of certain mines would strip the company of its “crown jewels,” giving it little hope of obtaining its required bonding or performing its cleanup obligations, according to an April 15 filing with the bankruptcy court.

Alpha declined to comment.

The company has agreed to sell various assets to its first-lien lenders, which will pay by forgiving what they are owed, according to court documents. Alpha is seeking court approval of the sale in May and approval for its bankruptcy exit plan in June.

The West Virginia regulator said in a filing that Alpha had yet to explain how it would comply with its bonding and cleanup obligations once it emerges from bankruptcy and that the reorganized company would have a harder time securing bonding without its core assets.

Federal law requires coal companies to clean up land that they have mined, restoring the landscape to its original vegetation and treating water supplies that were damaged during the mining process.

The state agency estimates Alpha’s environmental and water treatment liabilities in West Virginia at roughly $1 billion.

In the past, large coal companies like Alpha have insured part of their cleanup costs through a decades-old program called self-bonding that allows their balance sheet to be used as a guarantee, rather than financial bonds or letters of credit.

The two largest U.S. coal companies, Peabody Energy Corp and Arch Coal Inc, have also filed for bankruptcy in the past year. They and Alpha have more than $3 billion combined in self-bonds designated for future mine cleanups.

Alpha has estimated its bonding requirements for cleanup liabilities in West Virginia at $318 million, of which more than$200 million is in the form of self-bonds, court documents show.

Reporting by Tracy Rucinski; Editing by Lisa Von Ahn