Politics & Government

Unlike miners, this lender to emerge from Blackjewel bankruptcy ‘virtually unscathed’

Blackjewel LLC filed for bankruptcy July 1 owing $6 million to its 1,700 workers in Wyoming and Central Appalachia, including more than $4,000 in unpaid wages to Kentucky coal miner Chris Rowe in Cumberland.

Blackjewel also owed $32 million in loans to Riverstone Holdings, an international investment firm that manages $39 billion in capital.

Guess who is likely to get paid in coming weeks.

Hint: It isn’t Rowe and his fellow miners.

Riverstone is listed in bankruptcy court filings as the “super-priority senior secured debtor-in-possession,” with a lien on Blackjewel assets currently being sold for millions of dollars. It was Riverstone that wrote that contractual description of itself when it made its first $28 million loan to Blackjewel two years ago, putting it at the top of the heap today, according to court filings.

Riverstone enjoyed such a strong position that when it made a second loan to Blackjewel for $5 million, two days after the July 1 bankruptcy filing, it was able to demand the resignation of Blackjewel chief executive Jeff Hoops and all members of Hoops’ family. (Hoops has blamed Riverstone for forcing his company into bankruptcy by refusing to extend repayment terms for the 2017 loan.)

“It looks like Riverstone should emerge from this virtually unscathed,” said Clark Williams-Derry, an energy industry finance analyst for the Sightline Institute in Seattle.

“As for everyone else — the bottom line is, the workers, the vendors, the government agencies, all of the other creditors that are still owed millions, they’ll be left at the end of the line fighting for scraps,” Williams-Derry said. “The American bankruptcy system right now favors the financiers. That’s just the way our laws are written.”

Rowe said this week that he figured as much.

“Of course, I don’t like it,” said Rowe, who has stood with his fellow miners to block a trainload of Blackjewel coal from leaving Harlan County. “We’ve got families out here with nothing to live on right now. And this big company that has already got millions of dollars, it hardly feels like it needs more.”

Rowe said he hopes to land a job with Kopper Glo Mining LLC, which purchased mines in Harlan and Letcher counties from Blackjewel through the bankruptcy proceedings for $6.35 million in cash and royalties with a net present value of $9.1 million.

Although it only would cover a fraction of their unpaid wages, Kopper Glo has promised $450,000 as part of the deal to pay former Blackjewel employees, as well as a per-ton fee that will accumulate up to $550,000 over the next two years. Miners also have a priority lien on the purchase price, which carries the potential for them to receive further compensation as negotiations continue, said Ned Pillersdorf, a Prestonsburg attorney who has assisted them with a class-action suit.

Riverstone did not respond to requests seeking comment at its New York office. On its website, the firm says it’s involved in energy-related investments on every continent but Antarctica.

Among Riverstone’s many clients is the $21.3 billion Teachers’ Retirement System of Kentucky, for which it manages $82.6 million in pension and health insurance fund investments. In fiscal year 2018, Riverstone collected more than $1 million in investment fees from TRS.

Beau Barnes, TRS general counsel, pointed out this week that the Blackjewel loans were held in the Riverstone Credit Partners Fund, while Kentucky’s teacher pension and insurance money is held in several other, separately managed Riverstone funds. Still, Barnes said, he regrets what happened to the unpaid miners in Eastern Kentucky who were stranded by Blackjewel’s bankruptcy.

“I feel sorry for the miners,” Barnes said. “I’ve read about their protests in the newspaper, and I definitely sympathize with the situation they’re in.”

A Kentucky education activist said she wants to see TRS cut ties with Riverstone in solidarity with the miners.

Nema Brewer, co-founder of KY 120 United, is the daughter of a Letcher County union coal miner. Brewer said Kentucky educators should not want any of their money going to a financial adviser that is getting to step in line ahead of impoverished Kentucky coal miners.

“This is a filth you just can’t wash off your hands no matter how you try to justify it,” said Brewer, who works in the Fayette County Public Schools.

“I’m disgusted and disappointed to think that any of my pension money is going to a company that gets to walk away from this kind of devastation that’s going to ripple through southeastern Kentucky for years,” she said. “But you know, this is how it works with our pensions and our 401(k)s. We don’t know where all of that money’s really kept. Our own money can be used to put the thumb on our heads.”

Among the many others left on the hook by Blackjewel’s bankruptcy are federal, state and local taxpayers. The company owned tens of millions of dollars in taxes and royalties in Kentucky, Wyoming and elsewhere when it failed. Its largest debt is $60 million to the U.S. Department of the Interior for 35 million tons of coal it mined on federal lands in Wyoming in 2018.

For good or for ill, the chief purpose of corporate bankruptcy when a company fails is to protect the capital behind it so that it can be invested in another enterprise, said Christopher Frost, who teaches bankruptcy law at the University of Kentucky College of Law. Those lenders typically are “secured” creditors, so they get first dibs on whatever assets remain, Frost said.

“It’s obviously very controversial, but the basic rationale is that, if you’re asked to lend money to a business, you might not do that or you might charge a much higher interest rate unless you can be reasonably sure that you’re going to get it back at the end if things go wrong,” Frost said.

Of course, Frost countered, an argument could be made that financiers recognize they’re taking a risk with their money, while coal miners and other employees have every reason to assume they won’t be stiffed on their wages for work already performed.

“You’re getting a sense of the injustice of it,” Frost said. “Frankly, it’s a tragedy. It happens all the time. I think the big question is, is the ability to protect capital formation and the ability to build worth the secondary effects — and I hate to even call them secondary — on the employees who are left on their own? And so far, we as a society have said ‘Yeah, it is.’”