Bonuses sign of likely Cloud Peak bankruptcy, says expert

By Greg Johnson

Gillette News Record

Via Wyoming News Exchange

GILLETTE — A move to pay Cloud Peak Energy Corp. executives larger retention bonuses and to make those payments up front in a lump sum may be an indicator that bankruptcy is inevitable for the Powder River Basin coal mining company.

That’s the opinion of Robert Godby, director of the Department of Economics and Finance at the University of Wyoming and one of the state’s leading energy industry economists.

“My initial reaction is this suggests the probability of a bankruptcy has gone up to the point they have to increase those payments and move those payments up because, if they waited the five quarter period (under the previous retention bonus agreement) those executives would never get paid,” he said during a Wednesday morning interview with the Gillette News Record.

Godby said predicting a Cloud Peak Energy bankruptcy now is “pure speculation,” but also said that’s how many investors will take the company’s move to change the retention bonuses for top executives.

The new bonus structure was announced Tuesday afternoon in a Cloud Peak press release and outlined in a new filing with the Securities and Exchange Commission. The board of directors has increased the bonuses for the company’s top six executives and changed the payout structure first announced Nov. 13. The bonuses were to be paid out in payments over five quarters through July 2020.

The executives now will get their bonuses as a lump sum cash payment “as soon as practicable,” according to the SEC filing.

The new SEC filing also outlines that the company’s top three officials will receive considerably more bonus money.

President and CEO Colin Marshall will get a bonus equal to 150 percent of his base salary.

Executive Vice President and COO Bruce Jones will get 115 percent.

Executive Vice President and CFO Heath Hill will get 115 percent.

Executive Vice President Bryan Pechersky also will get 115 percent. He’s also the company’s general counsel and corporate secretary.

Receiving 100 percent as previously outlined is Senior Vice President Amy Clemetson and Todd Myers, senior vice president for marketing and business development.

The retention payments are subject to being paid back on a pro-rated basis if an executive quits before Jan. 24, 2020.

“My thinking is there might be a bankruptcy in the works,” Godby said, adding that would be a justifiable reason for Cloud Peak’s board to make the change.

Under a bankruptcy, there would be no guarantee the executive team would get those bonus payments and take away much of the incentive for them to stick with the company through a difficult time. In fact, because they would be owed payments each quarter, they would also become creditors of the company under a bankruptcy, Godby said.

“This says that in order to retain your executives through such a turbulent period, you have to pay them more and pay them up front so they can be guaranteed they’ll be paid,” he said. “At least that’s the way this is going to be taken.”

Gillette-based Cloud Peak Energy is the only pure Powder River Basin company mining thermal coal. It employs more than 1,200 and produced 49.5 million tons of coal in 2018 at its three mines — Spring Creek in Montana and Cordero Rojo and Antelope south of Wright.

Tuesday’s announcement marks another difficult point for the company over the past 10 weeks, which began with the Nov. 13 announcement that Cloud Peak is exploring its financial options to stay afloat. In December, the New York Stock Exchange put the company on notice that it stands to be delisted because its stock has fallen below $1 a share for more than 30 consecutive days.

The company also terminated its retirement benefits plan that paid workers up to $600 a month toward their health care coverage.

While the public perception of paying large bonuses to top executives isn’t positive, Godby said it’s a necessary business practice to make sure the company can operate moving forward during a bankruptcy or other difficult transition.

“If the executive team jumped ship right now, it would be chaos and would probably be the end for Cloud Peak,” he said.

Whether the new retention agreement is a prelude to bankruptcy or not, the signs say it may be inevitable, Godby added.

“Let’s be frank. The odds are really long right now they’re going to avoid a bankruptcy,” he said, adding that watching how the company’s running is a good indication of where it’s going. “The first ones to realize the bridge is out are the people at the front of the train.”