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Inner City Press Finance Watch Report - January 5, 2006

From Appalachia to Wall Street: Behind the Mining Tragedy, UBS and Lehman Brothers

   Financial records, from Delaware and Washington DC, show the financing behind International Coal Group, the owner of the Sago Mine where twelve miners have been confirmed dead. Wilbur Ross' main coal financier, both as a secured lender and then joint book runner on ICG's public offering in December 2005, was the Swiss-based bank UBS AG. Beginning in 2004, when Ross bought the bankrupt Anker Coal Group, UBS filed security interests in "all assets" of Ashland, Kentucky-based International Coal Group. The lending agreement was twice amended. Then, less than a month before the twelve miners' death, UBS among with Lehman Brothers managed the initial public offering by which ICG went public, assisted also by General Electric Capital Corporation.

   While ICG's stock price fell on January 4, and numerous stock analysts are predicting further scrutiny and turmoil, other analysts are beginning to question, albeit more quietly, what sort of due diligence UBS, and later Lehman Brothers, conducted of ICG and its Sago mine. As the now-promised investigations into the background of the mining tragedy begin, the disclosures made in the Securities and Exchange Commission filings that accompanied ICG's sale of stock last month are likely to be closely considered, among with the environmental and risk review UBS performed before taking the security interests in ICG it took in 2004. UBS also served as advisor to ICG in connection with its acquisition of Anker Coal Group and the Sago Mine.

  In terms of risk, ICG's November 9,2005 filing with the SEC (Registration No. 333-124393), listing UBS and Lehman Brothers as underwriters, disclosed that "The level of our production is subject to operating conditions and events beyond our control that could disrupt operations and affect production [including] unexpected mine safety accidents, including fires and explosions from methane."

  A question that will be reviewed is whether this explosion was "beyond [the companies'] control." The Sago Mine was cited for 208 federal safety violations last year, and before UBS and Lehman Brothers signed off on ICG's initial public offering.

  The corporate website of UBS states that "we believe that being transparent about our environmental initiatives is the best way to give our shareholders and other stakeholders a full and complete picture of our efforts in that area… The Investment Bank intends to complete its environmental risk training program in the Americas and Europe in 2005 and then roll out a similar program to the Asia Pacific region."

  UBS' "Head of Ecology Americas" Anna-Marie Rothkopf signed up for the United Nations Environment Program's conference in New York in October 2005, at which socially responsible bank practices, particularly with respect to extractive industries like coal mining, were discussed. UBS has in the past resisted becoming a signatory to the environmental "Equator Principles," stating that it is not involved in project finance.

  A November 14, 2005 SEC filing refers to the "Restated Credit Agreement dated as of November 5, 2004 among ICG, LLC, as Borrower, International Coal Group Inc. and UBS Securities LLC, as Arranger, Bookmanager and Syndication Agent, General Electric Capital Corporation, as Documentation Agent, UBS AG, Stamford Branch, as Issuing Bank, Administrative Agent and Collateral Agent, and UBS Loan Finance, LLC, as Swingline Lender."

  These various roles played by UBS, and Lehman Brothers and GE, will be subject to scrutiny as the now-promised investigations into the West Virginia mining disaster proceed.

On the web:

International Coal Group:

UBS environmental policy:

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