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Jim Justice, governor of West Virginia and owner of the Greenbrier, photographed for Forbes by Jamel … [+]
Jamel Toppin/The Forbes Collection
James C. Justice, II, the governor of West Virginia, made a fortune in 2009 when he sold Bluestone Resources, a collection of his best West Virginia coal mines, to Russian company Mechel OAO for $500 million plus several hundred million dollars in Mechel stock. That deal was enough to push Justice into the ranks of the 2011 Forbes 400 with an estimated net worth of $1.1 billion, later peaking at $1.7 billion.
But the coal industry has deteriorated, and with it, the Justice family fortunes. In 2015, after coal prices plunged, the Russians insisted that the Justice family buy Bluestone back. So Justice paid $5 million for his old company, but also assumed some $300 million in environmental and legal obligations. Justice — in new court documents — says that the Russians left behind a shambles. “The business had been mismanaged under Mechel ownership, burdening it with substantial reclamation, union and trade obligations.”
Despite the challenges, Jim Justice, 69, and his son James C. Justice, III, or Jay, say in their lawsuit that they have maintained the objective of “returning Bluestone to profitability.” Never mind that Justice long ago earned the reputation of being a businessman who never pays his bills — they just needed some more capital. Justice found a willing party in Greensill Capital — an upstart supply chain lender, which in April 2019 extended the Justices the first of some $850 million in outstanding loans.
Greensill had good reason to want to build a relationship with Justice, because Bluestone’s metallurgical coal had a natural buyer in the form of Greensill’s biggest client — GFG Alliance. Run by U.K. entrepreneur Sanjeev Gupta, GFG manages an empire of mostly second-hand steelworks and smelters across the U.K. and around the world. Notable assets include the last major steelworks in Scotland; Britain’s last aluminum smelter; the largest electric arc furnace in the U.K. for melting scrap metal. Gupta built his steel empire with $5 billion borrowed via Greensill.
Greensill, which in March filed for insolvency in the U.K., and is now in receivership, was not a traditional lender. Rather, Greensill was an enthusiastic practitioner of supply chain finance methods such as “invoice discounting” — in which a business unwilling to wait 60 or 90 days for a customer to pay would sell its receivables to Greensill, which would cut them a check immediately, minus a fee, then collect from the customer later. It was a lending practice that founder Lex Greensill cultivated in his early days financing crops for farmers in his native Australia, where he grew up on a sweet potato farm.
Greensill attracted plenty of believers. Credit Suisse
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Greensill didn’t invent supply chain financing, but he did push the envelope in lending against non-existent orders. The Justices — in their complaint filed in U.S. District Court in the Southern District of New York — describe Greensill’s method of buying “prospective receivables,” that is, amounts that “prospective buyers” would presumably agree to pay Bluestone for coal that they could reasonably be expected to order at some point in the future. It’s a risky endeavor, like extending someone a payday loan against their salary for a job that they haven’t even applied for yet. Justice disclosed that Greensill would advance Bluestone $15 million at a time for prospective receivables, i.e. fake orders from nonexistent customers. Greensill’s interest and fees for that credit would come to about $500,000. Every few months, Greensill would “roll” these loans — giving Justice new cash to pay off the old advances. Eventually, say the Justices, they and Greensill devised the “cashless roll” — no money would change hands, they’d just pay fees and interest. All told, the Justices claim to have so far repaid Greensill nearly $130 million in fees and interest out of the initial $850 million loaned. With Greensill now insolvent, it’s unlikely that Justice can continue to roll these accounts.
The Greensill case has captivated Ben Hunt, who in early March wrote a trenchant analysis of what he considers dirty doings at Greensill on his wonky Epsilon Theory site. Says Hunt, “What really surprised me about Justice case is that it basically says ‘We were engaged in bank fraud’” — his assessment of the legality of borrowing against fake invoices from fake customers. Justice admitted that “they make up these prospective receivables to borrow against because nobody would give them against their actual business.” Their basic complaint, says Hunt, is that Greensill lied to Bluestone about their ability to commit bank fraud over the long term, “so we’re going to sue the bank for it not turning out the way they promised. They’re going to try to make themselves the victim.”
If they were counting on Gupta being a long-term customer, those hopes are dashed. Justice claims that in mid 2020 they received their first order from GFG for a single cargo, which they delivered. Ironically, months passed, and GFG never paid. In January 2021 Gupta ordered a second cargo, but the Justices decided not to ship it, allegedly after Jay Justice had a chat with Greensill director Roland Hartley-Urquhardt, who raised “concerns regarding the credit risk of GFG.”
Jim Justice, governor of West Virginia, at the Greenbrier Hotel, photographed for Forbes by Jamel … [+]
Jamel Toppin/The Forbes Collection
With GFG hitting the skids, and Greensill’s collapse, what were the implications for Bluestone’s financing arrangement? The Justices claim they were appalled when Greensill in February 2021 demanded that Bluestone speed up the return of its borrowed money and hand Credit Suisse $300 million by the end of the third quarter, and perhaps even all of it by the end of 2021. The Justices, claiming this was the first time they’d ever heard of Credit Suisse, did not hand over any emergency cash, and instead sued Greensill for “continuous and profitable fraud” committed “under the guise of establishing a long-term financing arrangement with Bluestone.”
The Justices accuse Greensill of a “bait and switch” maneuver: “Greensill Capital — from the start — agreed to finance Bluestone based not on the existence and collectability of Bluestone’s then-existing receivables, but rather based on Bluestone’s long-term business prospects.” Greensill was wrong to demand accelerated repayment from them because it was understood, according to the Justices, that “Bluestone would repay Greensill Capital through the eventual fruit borne from the rebuild.” Justice in the complaint says most of what they owe Greensill wouldn’t be due until 2023, or “until such time that the business could generate sufficient cash flow to begin to amortize the debt.”
So maybe never? The Governor already has a hard-earned reputation of not paying debts he owes. Coal couldn’t be less popular. No SPAC is going to come to the rescue of Justice’s coal companies, which are subject to EPA consent decrees over pollution caused by their operations, and could be subject to millions more in penalties tied to leaks of selenium-tainted water at the Red Fox surface mine. Even without those burdens it’s hard to see what value remains in the Justice mines. U.S. coal production fell 25% in 2020, and 60% of all coal-fired power plants have been mothballed in the past decade. The bankruptcies are legion: Murray Energy, Foresight Energy, Lighthouse, White Stallion, Blackjewel, Rhino Resources have all gone bankrupt recently. Peabody Energy
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It’s not evident what kind of coal revenues the Justice companies generate. According to Dun & Bradstreet, the James C. Justice Companies did $173 million in revenues in 2018. A Justice subsidiary, Southern Coal (according to court documents the parent company of Bluestone) according to D&B did $88 million in revenues. Justice attorneys declined to share any details on the coal mine assets that constitute the collateral for the Greensill loans, and did not respond to a question about whether the Justices had defaulted on any of their obligations to Greensill.
Jim Justice, in a spring 2019 interview with Forbes, said that since taking back Bluestone from Mechel in 2015, he had “cleaned up $60 million of reclamation liabilities left from the Russians,” paid $30 million owed to vendors and $20 million in taxes, and rehired 250 workers. “I could have put them into bankruptcy, but I would not do that,” he said. “It takes time to fix everything and do it right, and along the way you get people who are throwing rocks at you.”
With Mechel deep in the rearview mirror, it’s only natural that Justice would look to shift blame, insisting in the complaint that Greensill is “responsible for all damages to plaintiffs caused as a result of their egregious actions.” And there will be plenty of damage they say: “Greensill Capital’s sudden and unjustified abandonment of Bluestone, together with all of the press surrounding Greensill Capital’s fall, now present a clear and present threat to Bluestone’s business.”
There are not a lot of bright spots in the Justice family empire. Last year the PGA Tour permanently canceled its longtime stop at the Greenbrier Hotel, which Justice bought out of bankruptcy in 2009 and has struggled to renovate since devastating 2016 floods. Justice has been fighting since then with insurance adjusters, and claims to have put more than $200 million into renovations, though it needs much more. Meanwhile, the hotel has become a political lightning rod in West Virginia — though federal investigators looking into Justice’s use of the Greenbrier for political purposes cleared him of wrongdoing last year.
Justice has long insisted to Forbes that the Greenbrier is worth $1 billion on its own. We’ll believe that when someone comes along and pays him that much for it. Meanwhile, as Greensill’s creditors scrutinize its loans, exposures and collateral, we’ll be curious to better understand what Justice spent Greensill’s $850 million on, whether he has any of it left, and how many cents on the dollar he’ll end up settling for with Greensill’s insurers. Until more is revealed, don’t expect to see Jim Justice return to the billionaires’ list.