Joshua Learn for SNL:
With the threat of liquidation weighing over bankruptcy proceedings involving the largest U.S. coal miners, environmental groups and government regulators must often make difficult choices about environmental liabilities.
Brian Resnick of Davis Polk & Wardwell LLP said that as a bankruptcy lawyer, the ideal solution for insolvent producers is to let surety bondholders handle reclamation obligations.
But in practice, a company that does not meet its reclamation responsibilities itself faces the possibility of having permits blocked for its active mines.
One example of how such talks can go occurred after Patriot Coal Corp. filed for bankruptcy. Initially, Morgan said, Patriot wanted to abandon many of its coal mine properties that required reclamation.
“They were proposing that [these mines] would all go to a liquidating trust where a trustee would oversee a process of essentially abandoning those properties, which had enormous environmental liabilities,” he said.
While these properties and liabilities were ultimately taken on by the Virginia Conservation Legacy Fund Inc., Morgan said that the threat of liquidating those assets hung over the Patriot Coal bankruptcy proceedings as well as those of Alpha Natural Resources Inc., which attempted a similar move early on in its reorganization process.