To paraphrase the American humorist Mark Twain, reports of the coal industry’s death have been greatly exaggerated. The coal industry is clearly in decline but appears to be far from dead. Globally, coal is used to fuel more than 40% of power generation. In addition, metallurgical coal is used to produce about 70% of the world’s steel production (the remainder comes from recycled scrap). Despite concerns about pollution, coal is abundant, making it affordable. It is also easy to transport, store, and use. Equally important is that it is not subject to geopolitical tensions. According to the 2015 global energy report by the International Energy Agency, the use of coal among Western European countries and the United States and Canada, peaked about 2008 and has been flat to declining in these countries since then. Even though the demand for coal is expected to increase at less than half of its historical 2.4% compound annual average growth rate during the last 25 years, it is projected to still account for more than 30% of global electricity output by 2040. Why? Because India and Asian Pacific countries have hundreds of new coal fired electrical power generating plants under construction or on the drawing boards to bring electricity to millions in these countries that do not currently have power. The logic is that it is better to provide electricity to millions in poverty and to deal with the potential pollution problems later. According to the Instituted for Energy Research, China is adding coal fired power plants at the rate of one every 7–10 days, despite have horrible air pollution in its major cities. Japan plans to build 43 coal fired plants to replace its shuttered nuclear power operations. While US coal demand is expected to grow modestly long-term, the industry has been particularly hard hit in recent years. Nationwide, coal production at 895 million tons sank to the lowest levels in three decades in 2015. The vast majority of that drop was in Appalachia, but production in the west was down as well according to the US Energy Information Agency. Many utilities have been switching from coal to natural gas to generate electricity. Besides being cheaper, natural gas emits less greenhouse gas, a major consideration as utilities look to comply with tough new government regulations. The Clean Power Plan, which takes effect in 2022, requires states to cut carbon emissions by using less coal and more solar, wind and gas power. Finally, prices of metallurgical coal remained depressed throughout 2016 amid the slowdown in China’s economic growth. Despite these developments, the US Environmental Protection Agency predicts US coal production will decline to 685 million tons in 2016 increasing to about 800 million tons in 2050, comprising about 30% of US electricity output down from about 50% in 2008......

Discussion Questions:

1. To what extent do you believe the factors contributing to the Arch Coal’s bankruptcy were beyond the control of management? To what extent do you believe past mismanagement may have contributed to the bankruptcy?
2. Comment on the fairness of the bankruptcy process to shareholders, lenders, employees, communities, government, and so forth. Be specific.
3. Why would lenders be willing to lend to a firm emerging from Chapter 11? How did the lenders attempt to manage their risks? Be specific.
4. How does Chapter 11 potentially affect adversely competitors of firms emerging from bankruptcy? Explain your answer.
5. Discuss whether Arch Coal’s lenders would have been better off in Chapter 11 reorganization, from a liquidation, or a Section 363 sale?
6. The Arch Coal case study illustrates options available to the creditors and owners of a failing firm. How do you believe creditors and owners might choose from among the range of available options?