Bankrupt Walter Energy gets nod from judge to end labor pacts

SAN FRANCISCO (Reuters) - A federal judge granted approval for coal producer Walter Energy Inc to reject its labor agreements and end retiree benefits, which the bankrupt U.S. company said was needed in order to sell off its operations, given the industry’s dire straits.

U.S. Bankruptcy Judge Tamara Mitchell said in a 57-page opinion published on Monday that Walter’s situation would go from bad to worse if it had to maintain its collective bargaining agreements and retiree benefits.

“The court finds credible that no potential buyers have an interest in assuming such obligations, let alone assuming such obligations and investing such new capital,” said Mitchell of the U.S. Bankruptcy Court for the Northern District of Alabama.

The company has in place a purchase agreement with Coal Acquisition LLC, which is made up of Walter’s lenders. An auction is scheduled for Jan. 5, and Mitchell will be asked to approve the auction results at a sale hearing on Jan. 6.

If the sale goes through, Coal Acquisition would assume $115 million to $122 million in liabilities, pay up to $5.4 million for Walter’s assets and forgive $1.25 billion owed by Walter.

Mitchell said that if Walter’s sale fails to close, the company will have no choice but to immediately move to shut down its mines in Alabama and sell assets in piecemeal fashion, destroying the value of the mines.

The judge added that her decision gives Walter’s miners an opportunity to hold on to their jobs until coal prices rebound.

Weak commodity prices, sagging demand and tougher environmental regulations forced Walter along with three other debt-laden U.S. coal producers to file for Chapter 11 bankruptcy protection.

The United Mine Workers of America, which represents more than 1,280 current and laid-off Walter employees along with 2,700 retirees and dependents, had objected to Walter’s plan to scrap labor pacts and retiree benefits.

Cecil Roberts, the union’s president, in a statement said Mitchell’s decision was disappointing. But Roberts added the union would press Walter to maintain its labor contract and retiree benefits.

“Negotiations with the company are underway this week and I sincerely hope we can reach an agreement,” Roberts said.

A spokesman for Walter declined to comment on the talks and Judge Mitchell’s opinion.

The case is In re Walter Energy Inc et al, in the U.S. Bankruptcy Court for the Northern District of Alabama, No. 15-02741.

Reporting by Jim Christie, editing by Tom Hals and Diane Craft