Blackjewel’s bankruptcy, at least the public portion, has played out at the Robert C. Byrd U.S. Courthouse in Charleston, West Virginia. (Google street view)

Though Wyoming miners and local businesses struggle with unpaid debts and though tens of millions of dollars in state and county revenue could be wiped off the books, not all those owed money by Blackjewel will walk away empty handed. 

Riverstone Holdings LLC, an energy investment firm with $39 billion in capital and offices in financial centers around the globe, may be the bankruptcy winner. Blackjewel owed the firm $34 million when it entered bankruptcy, from a loan made to the mining company in July 2017.

Filings in bankruptcy court document how Riverstone maneuvered to protect its interests, propping Blackjewel up with a $5 million loan to prevent the company’s liquidation, then making deals in the bankruptcy auction to recoup its investments. If those deals hold, Riverstone could ultimately walk away from Blackjewel with $40 million, according to court filings. 

Riverstone declined to answer emailed questions from WyoFile, including whether the investment firm earned any profit from the bankruptcy. 

Other debtors won’t emerge nearly as unscathed. Blackjewel owes Campbell County $37 million in taxes, owes Wyoming $11 million and owes the federal government $60 million in mineral royalties (half of which would have gone back to Wyoming). Then there are smaller but perhaps more hard-hitting losses to miners and businesses. 

Workers in Wyoming lost money the company never put into their retirement accounts and some haven’t been paid for their final days working at the mines. Gillette businesses have had to lay off employees and carry unpaid bills that represent significant chunks of their revenue. 

Many of those debts could go unpaid, as little remains in the Blackjewel estate to satisfy them. For Wyoming workers, Contura Energy, which got a judge’s initial approval to buy back the Wyoming mines, offered to put future mine profits toward a $5 million fund to make Blackjewel employees whole. But Contura’s intentions for the mines’ futures remain unclear

Meanwhile, Riverstone “gets out with barely a scratch,” said Clark Williams-Derry, an energy industry finance analyst at the Sightline Institute who has criticized coal companies for using the bankruptcy process to escape obligations to their employees and the environment. “Meanwhile the workers are struggling for their back pay,” Williams-Derry said. “All the mom-and-pop vendors are getting screwed.

“This is fundamentally what the U.S bankruptcy process has become,” he said. “The big banks, private equity companies, hedge funds … they’ve been able to hack the bankruptcy process so that they get paid while everyone else is fighting for scraps.”

Elite Industrial employees work to repair a piece of industrial equipment on July 9. The small Gillette company does repairs and electrical work for coal mines and drillers. Blackjewel owed it $20,000 when the coal company filed for bankruptcy, according to one Elite manager. (Andrew Graham/WyoFile)

Others say the bankruptcy courts are functioning as designed, because the process was never structured to protect workers, tax dollars or environmental cleanup. 

“I really feel for these workers that are blindsided by what’s going on,” said Michael Duff, a UW law professor who focuses on bankruptcy and labor laws. “But the reality is that they may have believed that there was some kind of legal superstructure that would protect them and provide fairness, and there’s really not.” 

The purpose of bankruptcy courts is to protect the economy, Duff said, by stemming the destruction of wealth in a business’ collapse and reassuring finance companies their investments are protected. 

“It’s a very cold-blooded affair,” he said. 

The tactics Riverstone used to protect its investments offer a window into that affair, a process increasingly relevant for Wyoming as coal mining declines.

The loan

In July 2017, Riverstone made its loan to Blackjewel at a 15% interest rate. The interest rate is high, according to those familiar with energy industry financing, and likely reflective of Blackjewel being seen as a risky investment. In December of that year, Blackjewel acquired the Eagle Butte and Belle Ayr mines from Contura Energy without paying any purchasing price. 

Big coal companies see opportunity in operators like former Blackjewel owner and CEO Jeff Hoops to offload mines with hefty financial obligations to workers and environmental cleanup, said Joshua Macey, a visiting assistant professor of law at Cornell University who studies bankruptcy law.

“The coal company that originally incurred the liabilities is no longer responsible for them, and the new company lacks the financial resources to make good on the inherited obligations,” Macey wrote in a paper published in the Stanford Law Review in April, before Blackjewel’s collapse.

“His businesses have begun to exhibit a pattern,” Macey and a coauthor wrote of the company’s former CEO. “Hoops takes over abandoned mines, receives cash from the company that wants to get rid of them, and then fails to actually remediate the environmental problems.”

A lawyer who filed in the bankruptcy court last week to represent Hoops did not respond to a request for comment made Friday.

Hoops was adequately insured so that his company could complete reclamation obligations in Wyoming even if it collapsed, state environmental regulators say. But a citizen oversight board for those regulators delayed transfer of the mine permits. That prevented the transfer of reclamation obligations from Contura to Blackjewel. The delay came after a landowners’ group raised concerns about how thoroughly the Wyoming Department of Environmental Quality had evaluated Hoops and his companies. 

Joshua Macey (Cornell University)

Bonding aside, Hoops failed to keep his business afloat. In March 2019, he defaulted on his loan payments to Riverstone, according to an affidavit he filed with the bankruptcy court. He later sought to extend the loan with Riverstone and found the financiers “initially supportive,” according to the affidavit. 

“Final terms of an extension were agreed on June 21, 2019, but the amendment was never fully documented or signed,” the affidavit reads. Then Riverstone balked. On June 26, the affidavit claims, Riverstone informed Hoops it wouldn’t extend the loan and expected a payment on July 17. 

On July 1, Hoops filed for bankruptcy, sent workers in Wyoming home and shut the doors on the two open-pit mines. State and county agencies had to rush in to secure the properties. In those first few days, as the extent of the wreckage emerged, liquidation of Blackjewel’s assets and reclamation of the mines appeared a real possibility.

Then Riverstone stepped in. 

A $5 million lifeline

By July 4, it appeared increasingly likely Blackjewel would have to enter a Chapter 7 bankruptcy and be sold off piece by piece. Riverstone might have still emerged intact. Its $34 million loan was secured and the finance company could seize Blackjewel property to repay itself. The company was likely “first in line” to be repaid, Macey said. 

Still, Macey said, it was in the finance company’s interest to avoid Chapter 7. The bankruptcy process is tilted to ensure financing companies can recoup their loans, he said, since miners and other smaller parties would never have the kind of comprehensive legal protections Riverstone wrapped its loan in. 

“It’s a hedge fund that knew they would be paid first and didn’t want the entire estate to become valueless,” Macey said.

Part of protecting the firm’s interest apparently lay in ousting Hoops. A condition of the $5 million loan was that the CEO resign from the company, which he did. 

Hoops has accused Riverstone of a “hostile takeover,” and said it maneuvered to oust him after he showed them positive projections for the company’s future cashflow.

“IT ALL MADE SENSE NOW AS I GAVE THEM OUR PLANS FOR THE 2ND HALF OF THE YEAR THAT SHOWED CASH FLOW IMPROVING BY $100M AS A RESULT OF THE IMPROVED SHIPMENTS IN THE WEST AND OPERATIONAL CHANGES WE WERE MAKING IN THE EAST,” he wrote in an email to employees on July 4. “BY TAKING THE ACTIONS THEY HAD BEEN TAKING OVER THE PRIOR 6 DAYS THIS EFFECTIVELY MADE THEM OWNERS OF THE COMPANY.”  

He then called Riverstone “vulture capitalists.”

On its website Riverstone Holdings LLC states “We like building energy businesses from the ground up”

“This has been a hostile takeover that I fought every step of the way as I was trying to do the right thing, which would have gotten each one of you paid and we would have all continued working,” Hoops wrote. “Now as I understand they are not going to pay the people for lost wages and are going to do what vulture capitalists do in these situations.”

The company declined to counter Hoops’ claim when approached by WyoFile. In court, lawyers for Riverstone have argued it was trying to save the company and put workers back to work. Whether Hoops turns out to be right about workers getting stiffed in the bankruptcy or not, reporting and court filings have raised significant questions about his financial management and show he let bills large and small go unpaid.

Sale back to Contura

Much of the negotiations in the bankruptcy process unfold behind the scenes. Sales and other financial maneuvers become public only when the parties ask the bankruptcy judge for approval. The judge, in essence, serves as a referee to the wheeling and dealing to try and maintain an orderly restructuring of a company, said Duff.

“Embedded in bankruptcy law is the notion that we’re all better off when businesses can reorganize or at least be dissolved in a coherent way,” he said.

Once it bought time from the threat of immediate liquidation, Riverstone set to work to recoup its money. In this endeavor, the investment firm was greatly aided by the mine permits Contura still held. Those permits kept the company on the hook in Wyoming for around $250 million in reclamation obligations. Like with Riverstone, it was in Contura’s interest to keep the mines operational, at least for now

Contura had initially offered a bid of just under $21 million to buy the mines back. In the end, the deal was done for nearly $34 million. Of that money, $24 million goes to Riverstone. Another $8 million is devoted to maintaining Blackjewel’s mines while the bankruptcy process continues. Only $1.6 million remains to be divided up by other, unsecured creditors.  

Court filings outline how Riverstone pushed Contura’s bid up. Riverstone’s loans allowed the firm possession of equipment at the mines, and the company had assigned equipment at the Wyoming mines a value of $13 million. During the mine auction, it increased the value to $20 million in a filing. 

Not every piece of the negotiations that likely followed are captured in court documents. However, a filing outlining auction results said Contura and Riverstone agreed to Contura paying Riverstone $24 million for the equipment.

Employee vehicles fill a parking lot at Belle Ayr mine in August 2016. The mines are on their third ownership change since Alpha Natural Resources went bankrupt. (Dustin Bleizeffer/WyoFile)

In a separate deal, two eastern mines were sold to a company called Kopper Glo Mining. Riverstone is to receive royalty payments from the mines that could amount to $16 million over six years.

At the end of the day, the equity firm walks away with $24 million immediately, with the promise of $16 million more. The company’s $34 million loan, and subsequent $5 million, were covered, with $1 million to spare.

The big picture

Contura itself is a product of bankruptcy courts. The company was created as a spinoff from the 2016 bankruptcy of Alpha Natural Resources. 

In his Stanford Law Review paper, Macey wrote that both Alpha and Contura followed an emerging pattern in the coal industry. To stay profitable, big coal companies offload mine properties with looming reclamation obligations into companies likely to fail. 

Peabody Energy and Arch Coal also used such a strategy, when they created a company called Patriot Coal that took possession of many economically unsound mines carrying significant retirement obligations to employees and reclamation obligations, Macey and coauthor Jackson Salovaara wrote. A miners’ labor union president said the company was “created to fail.” Indeed, Patriot Coal was liquidated in 2015 after its second bankruptcy filing in three years.

Over the two bankruptcies, the company shed hundreds of millions of dollars in environmental obligations, leaving the cleanup of some West Virginia mines uncertain, the Stanford researchers wrote. The company also escaped over $1 billion in healthcare and retirement obligations, they wrote. 

Meanwhile, Arch and Peabody held onto their more profitable mines and continued to make money. The two coal giants recently proposed an eyebrow-raising merger of their operations in the Powder River Basin, leaving some coal watchers to wonder if the companies might later look to again split off assets with large reclamation obligations. 

To Contura, Blackjewel offered a similar vehicle as Patriot Coal, the researchers wrote. The permit transfer delay fouled that move up. Still, the agreement approved by the bankruptcy judge does not require Contura to maintain Blackjewel’s healthcare or retirement obligations to its workers.  

There are a lot of losers in Wyoming from the bankruptcy, even if the mines do reopen, Macey said.

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“The miner gets screwed, the environment gets screwed,” Macey said. “Wyoming gets screwed [on unpaid taxes] but it’s kind of their fault. Wyoming has every ability to write tax laws to prevent this from happening.”

Protections for miners are harder to write because of the nature of bankruptcy courts, Macey said. Workers should pursue litigation against companies that have abandoned obligations to them, he said. 

Duff, the UW law professor, suggested Wyoming political leaders should be more honest about the risks the state’s largely non-unionized coal miners face from future bankruptcies. 

“What would happen if [politicians] simply told workers, ‘look, if they declare bankruptcy there’s not a damn thing you can do about it’?” Duff asked.“‘You come after the secured creditors, that’s it. Forget about any other crap that anyone is telling you.’”

Andrew Graham

Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at andrew@wyofile.com, follow him @AndrewGraham88

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  1. that David Leuschen is a rather crafty fellow, he made a mint while ALL the stockholders & employees of montana power here went bankrupt

  2. Excellent article! The comments following the article mentioning that the state is very much culpable couldn’t be more correct. During three separate legislative interims, the core issue of lien priority regarding mineral property was studied by the Joint Revenue Committee. As a result bills were brought forth which would have made state and local tax liens superior in priority to those of lending financial institutions. In other words they would have been ahead of lenders – just as is the case with residential, agricultural, commercial and all other classes of property in Wyoming.

    As one can guess, the proposed bills were always vigorously opposed by the Wyoming Banking Association and other lenders who saw their position threatened. Although passing such a bill wouldn’t have solved every last state and local tax issue when it came to bankruptcy cases, it would sure have put tax entities in a better position in collecting delinquent taxes. Letting taxes be come delinquent now seems to be a critical part of the over-all business plan as companies strategize their bankruptcy futures.

    It is now, even more critical that this matter be resolved legislatively because it is easy to see where this is all going.

    1. Mr. Madden, I might remind you that bankruptcy is a federal proceeding. I am not sure how a state law will move Wyoming into a better position in line when the federal courts rely on federal laws and federal court rules. I think those laws will claim supremacy over any law trying to undermine federal law passed in a state legislature.

      Coal is not the only issue here. South of Cheyenne is a wind farm located near Terry Bison Ranch. Not one single turbine has turned in over 4 years. Those machines will eventually deteriorate locked in position. When the turbine farm has not turned or been maintained over years it will become unusable and who will pay for the mess that is to follow. Since these farms survive on subsidies, when the subsidy runs out, they are abandoned. Youtube video of wind farm at South Point, Hawaii. https://www.youtube.com/watch?v=UY-bxSO82qI . We will get to see the same video here in Cheyenne a few years from now.

      Wyoming pays for capping CBM wells, Wyoming Pays for failed coal mines. Wyoming will pay for failed wind farms. We pay for failed ventures proposed by the business council in advance. The state invests in businesses that bankers find too risky and we end up with Cirrus Sky with, according the their webpage “Right now, the Cirrus Sky Technology Park has one tenant: the multi-national company Underwriters Laboratories (UL).” Or in Ranchester, the Ranchester Merchantile building, also one tenant. Or in Uinta County a road built to the Haystack mine, that never operated. The legislature has always encouraged risky ventures and relied on little insurance for taxpayers monies.

      I am not sure that I have seen a plan from any legislator that properly addresses the future needs of the state in regards to any venture. In fact, many times the legislature will jump onto a bandwagon of the newest cool thing only to complain about what happens later. There is little in statute that provides us insurance on our investments of state dollars and there is virtually no auditing of state dollars in any of these ventures.

      The legislature needs to understand the lifecycle of ventures in the state before engaging in tax exemptions, failure to audit taxes due and how to protect state monies. Wasting time writing law that will not be recognized in federal courts is too little too late.

      As usual, I do enjoy Andrew Graham’s work. Mr. Macey apparently did a very good article on the subject. I appreciate the excellent reporting.

  3. Wonderful piece, Andrew!
    Coal is not the first industry in which our bankruptcy laws have allowed huge liabilities to be externalized (look at CBM, for example) by sale to undercapitalized “created to fail” entities. But this is bigger, and is a crystal clear demonstration that the State of Wyoming is one of the easiest marks around. Macey’s brilliant article says it all: “The miner gets screwed, the environment gets screwed,” Macey said. “Wyoming gets screwed [on unpaid taxes] but it’s kind of their fault. Wyoming has every ability to write tax laws to prevent this from happening.”
    And then there’s the vaunted Peabody/Arch JV — highly praised by our state government. A Trojan horse if there ever was one, Peabody and Arch have even rehearsed this move before when they created Patriot Coal. Yet here we go again, a bunch of hayseeds whistling past the graveyard and praising the perpetrators.

  4. The Pacific Northwest does not want coal trains rolling through the small towns that line the railroad tracks, does not want huge export facilities built on the banks of our major river (Columbia R.),, or actually want anything to do with coal. In one hundred years of using hydro carbon rich fuels (oil, coal) mankind has initiated a process (global warming) that threatens massive extinction to species, even mankind itself. All for the sake of the all-mighty dollar. Get off of it Wyoming. A lot of us out here in the workplace have had to train for multiple professions in order to stay in the workplace. Miners need to get retrained for the coming of new ways to power society. Bill Spillman

  5. Great in depth reporting,
    Next question is can coal compete against natural gas. Research that question and you’ll have the answer to minors and environment being helped

  6. Excellent work Andrew. And kudos to PRBRC for being an effective watchdog on the permit transfer issue.

  7. Sometimes when you are playing a robust round of ” Follow The Money ” , you have to realize that money is behind you , pushing you somewhere else. Example : Cart ahead of Donkey. Donkey wearing blinders.

    The Bottom Line from all this is the astounding state of denial or disbelief across Wyoming from the bottom of the strip mines to the summit of the rotunda top of the new state capitol building that we would always have a robust coal mining base. Even when the evidence was piling up that was not the case at all. Wyoming Republicans and the hardcore coal faithful had to get mugged and robbed on the street before it hit them… Coal companies and mercenary financiers are not our friends.

    When will we learn… ? Hint : this Boom-Bust cycle is the one that ends with funeral services.

  8. I always knew John Jenkins had an inquisitive mind. Impressed to see that Andrew’s work struck John on all cylinders – great praise coming from John Jenkins.

  9. Andrew, I became a deliberate “free market environmentalist” nearly fifty years ago. I regret the “command and control” regulatory impulse that has carried the day since. Often driven by too much technocratic and over-sure opinion masquerading as fact, prevailing environmentalism seems to regularly misdirect society’s scarce social and financial resources (bad for business and workers, and bad for ranking society’s conservation priorities efficiently).
    That’s why I’ve always had a hard time warming to wyofile. Much of your journalism comes linked to that command/control bias. I sometimes find it exhausting to filter it in order to parse out the frequently very good fact reporting your group often provides.
    But this piece is so good and so honest, I am making a note to send in a contribution at the end of the year. This sort of work is real journalism and you have done a service explaining how a deep and important matter is playing out, as opposed to pushing any agenda.. My hat is off to you. More of this discipline, from both the left and the right, from both government and the private sector, and from both industry and environmentalists, would make for a far more productive and constructive dialog in troubled times. I congratulate you on superior work and in the end, just want to say thanks.

  10. Like the professor said, it is a cold-blooded affair. I am not defending Riverstone, but they are not really the bad guy here, if there even is one. What would have happened to the workers if Riverstone had not made the loan in 2017? Most likely, the mine would have closed, and the workers would never have been paid and their pension would also have been unfunded. Riverstone would never have come in to begin with, if they did not have some security to protect their investment. It is not unreasonable position for them to take.
    The lessening demand for coal, even cleaner Wyoming coal, is an unfortunate reality for Thunder Basin/Campbell County. I think a better international outreach to find new markets for this natural resource is the best Wyoming can hope for– so get going on that Governor Gordon! Campbell County supervisors should be aggressively pressing the powers in Cheyenne to do more in developing new markets for their coal.

    1. no demand means no demand, meanwhile natural gas good stuff is being flared off at astounding rates. No demand for natural gas or coal. oil producers can’t afford to sell the derivative gas as a result of producing fracked oil wells and in theory natural gas supercedes coal. in the meantime oil producers scream poverty and cut corners with the water supply in drilled areas. clean water is paramount to survival. oil values are less than what is being valued on commodities as it is. cannot drill or blast your way out of this paradigm.