`Bankruptcy king' Ross is turning to coal

Warming up: Financier Wilbur L. Ross finds saving the steel and textile industries is not enough.

October 23, 2004|By James P. Miller | James P. Miller,CHICAGO TRIBUNE

International Steel Group founder Wilbur L. Ross has always favored bargain-basement deals. But the financier's newest acquisition literally operates underground.

After assembling the nation's biggest steel company from the ruins of bankrupt and near-bankrupt U.S. steelmakers, including Bethlehem Steel Corp., Ross shifted gears and bought some troubled U.S. textile-makers. Now he is buying distressed assets in another industrial commodity, coal.

This month, an investing group led by Ross paid $786 million for the assets of Horizon Natural Resources Co. of Ashland, Ky., which was undergoing bankruptcy proceedings a second time.

Horizon, which operates mines in West Virginia, Kentucky, Indiana and Illinois, is being folded into a new holding company, International Coal Group.

Ross is betting that a stronger global economy will keep upward pressure on energy demand, and on coal prices.

"We believe that while commodities have been out of favor for a long time, hard commodities, things that are mined, will be in vogue now for a number of years," Ross said in an interview.

"Living standards around the world are on their way up," the New York investor said, and, in today's economy, "living standards are denominated in commodity consumption."

With his latest acquisition, the man sometimes known as the "bankruptcy king" has again demonstrated good timing. After a long period of depressed prices, the U.S. coal industry is enjoying a resurgence. Fueled by rising natural gas and oil prices, coal prices have increased sharply over the past several months.

Ross buys "assets that aren't sexy," said Peter A. Chapman, publisher of Bankruptcy Creditors' Service, which tracks large bankruptcy cases.

A one-time bankruptcy expert, Ross sifts through the wreckage of companies in bankruptcy, and when he finds assets he likes, "he buys them cheap," Chapman said.

Over the past few years, Ross' steel investments have had such an impact that many observers perceive him not as just another vulture investor, but rather as a pioneering figure who helped revive a failing industry.

Ross, a former high-profile bankruptcy specialist with a New York investment bank, started W.L. Ross & Co. in 2001 to buy distressed companies.

First on his list were steelmakers squeezed by low steel prices, stiff offshore competition and billions of dollars in retiree health care and pension obligations.

In 2001, he scooped up the assets of bankrupt LTV Corp. for pennies on the dollar in a bankruptcy court auction. Next he acquired the assets of the nation's No. 2 steel company, Bethlehem Steel Corp. - including its Sparrows Point mill in Baltimore County - Acme Steel and Weirton Steel. The combination yielded economies of scale and reinvigorated the steel sector. The industry was also helped by several months of tariffs against some steel imports and high world demand spurred by China.

Ross took ISG public last year as steel prices began a climb that has taken the metal to its highest level in two decades.

This year Ross raised eyebrows when he bought out of bankruptcy the troubled U.S. textile-makers Cone Mills and Burlington Industries, and combined them into International Textile Group. Much of the U.S. textile industry has been driven out of business over the past decade by low-priced imports, and even Ross' admirers consider ITG a long shot.

Now, out of Ross' expectations for a coal boom, comes International Coal Group. Compared with nuclear power, oil or natural gas, coal offers electric utilities "huge savings," Ross said.

In contrast with the steel sector, he said, most of the major coal companies are nonunion. As a result, their health care and pension costs are lower.

"There's a different kind of legacy costs in coal: the reclamation costs in the played-out mines," Ross said.

Those costs long have been an impediment for coal-asset sales, he said. The complex Horizon transaction was structured to guarantee reclamation funds and "to be responsible to the moral obligations of Horizon," Ross said.

The Horizon purchase arrangement "may be a new pattern to handle reclamation," he said.

More deals appear to be on the way. "There's a lot of little mama-and-papa operations in Appalachia and some real dis-economies," Ross said. "They can't afford modern equipment and don't own enough coal reserves to justify the expense."

Through consolidation, Ross said, costs can be lowered and more-efficient techniques brought to bear.

The Chicago Tribune is a Tribune Publishing newspaper.

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