James River Coal Company and 21 of its subsidiaries filed for Chapter 11 bankruptcy protection last week.

The move is designed to restructure the operation's debt and sales contracts, not to layoff employees, said James River chief financial officer Buddy Sullivan.

"We just got caught with as most central Appalachian coal companies have rising operating costs," he said.

Subject to approval from the U.S. Bankruptcy Court for the middle district of Tennessee, the company expects to receive up to $20 million in debtor-in-possession financing from its current secured lenders, states a James River press release.

Several factors went into the bankruptcy, newly appointed James River chief executive officer Peter Socha stated in the release.

"The industry has suffered from a rising cost environment in the past several years," he said. "The impact of these rising costs on our profit margins was compounded by the company's significant reliance on long-term fixed-price contracts. Many of these contracts are below or significantly below current market pricing for comparable product."

"We took on too much debt and our contracts basically have been a hedge that went bad," said Sullivan.

The company plans on renegotiating its long-term sales contracts that prevent major coal producers like James River from benefiting from short-term up-markets, like the one in 2001, said Sullivan.

Another factor cited by company officials included James River's almost exclusive reliance on bank financing to fund its capital needs.

"Our debt to equity ratio was more than 30:1 before equity turned negative during 2002," stated Socha. "This is much too high in a cyclical industry where the competition has a leverage ratio of approximately 1:1. The combination of these factors completely restricted our ability to fund our needs during the downturn in the economy."

James River reportedly employs approximately 1,100 workers in Kentucky. Headquartered in Richmond, Va., the company mines, processes and sells steam and metallurgical coal from deep mining complexes in Pike, Perry, Leslie, Harlan and Bell counties.

The company's operating subsidiaries, McCoy Elkhorn Coal, Leeco, Bledsoe Coal, Bell County Coal and Blue Diamond Coal sold 13.9 million tons during 2002 for total revenues of almost $400 million. James River sells primarily to electrical utilities, steel producers and other industrial customers in the eastern United States.

James River is the latest addition to a growing list of financially troubled coal enterprises, said Bill Caylor, president of the Kentucky Coal Association.

Horizon Natural Resources and Lodestar Energy are currently in bankruptcy proceedings. Bankruptcy court officials have reportedly ordered Lodestar to be broken up.

American Electric Power recently announced it would divest itself of its coal assets in Kentucky.

Increasing overhead plus long-term sales contracts that hurt coal producers during short-term up-markets are a national trend, said Caylor.

"We're in a 20-year low on what we receive for coal," he said.

The industry has responded by favoring mechanization over labor. But after years of cuts, coal companies have hit a financial wall, said Caylor.

"We've reached the point where we can't tighten our belt anymore," he said. " ... We got to the point where we can't keep selling at a 20-year low."