Alpha Natural Resources Inc.'s $2 billion merger with Foundation Coal Holdings Inc. is an all-stock deal. But debt financing issues played a role.

"It's not so simple, even to do a stock-for-stock deal," says Ethan Klingsberg, a partner at Cleary Gottlieb Steen & Hamilton LLP, which advised Alpha. Partner Jeff Lewis and associate Matt Salerno are also on the Cleary team.

Klingsberg says that Foundation Coal's existing debt -- including $298 million of bonds and $302 million of loans -- had attractive terms that would be virtually impossible to replicate if they had to be refinanced in today's environment. To avoid having to do so, the holding companies of the two corporations merged, but the target, Foundation, will become the surviving entity and avoid having to refinance its debt.

Sources say that Alpha and Foundation had been 99% on the way to a merger last year, but Alpha abandoned those talks when Cliffs Natural Resources Inc. came calling in July with a $10 billion acquisition offer. Opposed by Cliffs shareholder Harbinger Capital Partners, the deal disintegrated in the fall, resulting in a $70 million payout to Alpha.

Foundation turned to Barclays Capital's Gary Posternack and Jonathan O'Donnell. Both are formerly from Lehman Brothers Inc., which was an underwriter of Foundation's IPO in 2004. Barclays bought part of Lehman last year aftr its collapse.

For legal advice, the target turned to Skadden, Arps, Slate, Meagher & Flom LLP's Mark Smith and Allison ­Schneirov. A source says that Blackstone Group LP, which, along with First Reserve Corp., had owned Foundation until January 2006, recommended Skadden to Foundation in 2005 after the company's prior counsel, Simpson Thacher & Bartlett LLP, pulled out because of conflicts. Energy-focused private equity firm First Reserve had at one point owned both Alpha and Foundation but cashed out of Alpha through its 2005 IPO.