A bankruptcy court judge in Delaware has cleared the path for Cloud Peak Energy Corp. to potentially pay millions of dollars in back taxes and fees.
Whether that translates to Campbell County collecting an $8.3 million payment the company missed May 10 could be unlikely, said Rob Godby director of the Center for Energy, Economics and Public Policy at the University of Wyoming.
“Does this motion mean the taxes will get paid? Not necessarily,” he said. “But it does mean that they could get paid.”
Tuesday’s ruling was part of the court’s granting a rash of motions that accompanied Cloud Peak Energy’s Chapter 11 bankruptcy filing and clears the way for the company to continue to pay vendors, employees, and taxes and fees as they come due during the course of business.
The company estimates it has $62 million in accrued taxes and fees, with $12.7 million due within 21 days of filing for bankruptcy.
The motions are standard in a bankruptcy and protect the value of Cloud Peak’s assets, namely its mines, Godby said.
“If they don’t pay those, then you potentially could have (the state or county) start seizing equipment or putting it up for auction to get their money and that could affect the ability to do business,” he said, adding that’s an unlikely scenario.
The big question for Campbell County is whether it will see any or all of that $8.3 million or millions more from production in 2018 and the first five months of 2019, which aren’t yet due. Based on previous production reports and tax bills, that could conservatively come to at least another $25 million.
The county’s $8.3 million payment was due by the end of business May 10. Because Cloud Peak’s bankruptcy filing was made the same day hours before the end of the day, that tax is considered a financial liability of the bankruptcy and doesn’t have to be paid under the motion granted Tuesday.
Because counties collect ad valorem taxes on production on an 18-month delayed schedule, Cloud Peak’s bankruptcy could be resolved before another payment comes due, Godby said.
“The bottom line is, it’s possible that the bankruptcy could be resolved before the county has another payment due and the county is still as uncertain as to when, or if, that could happen,” he said.
The company also pays state severance taxes on the coal it produces, but those are due monthly, which means those taxes have been collected throughout the process and will likely continued to be paid under the motion, Godby said. At $55.8 million, production and severance taxes make up the bulk of Cloud Peak Energy’s accrued tab.
Whether paying any outstanding taxes or fees will be part of any sale of the company’s assets also is anybody’s guess, Godby said. Because Cloud Peak intends to sell its assets and not emerge from bankruptcy as a viable business, it’s possible a buyer could assume some, all or none of that debt.
In the case of Alpha Natural Resources, which went through Chapter 11 reorganization in 2015, the company spun off its Powder River Basin mines, Eagle Butte and Belle Ayr, into another company, Contura Energy. Contura didn’t assume the outstanding tax debt and the county had to sue Alpha to collect $19 million in back taxes. After a couple of years of legal wrangling and the county spending $1 million in legal fees, Alpha settled and paid all but $4 million it owed.
With Cloud Peak, however, if it sells its assets and doesn’t emerge as a company after bankruptcy, there may not be anyone left for the county to go after for those millions of dollars, Godby said.
“The real importance in all this is for the coal mines to continue operating after all this is done,” he said. “It’s never a pleasant process to watch a bankruptcy, especially for those folks dependent on that company.”
A June 26 deadline has been set to submit bids for Cloud Peak’s assets, which basically are its three Powder River Basin mines, Antelope and Cordero Rojo in Campbell County and Spring Creek in Montana.
The bidding process is closed, Godby said, and it’s unlikely anyone will know much about the bids until after they’re in and an auction is held a few days after the bid deadline.