Walter Energy Inc.’s senior-most creditors are entering confidential talks with the coal miner to reorganize it in bankruptcy court and hand ownership to the lenders, according to two people with direct knowledge of the matter.
The group, which owns the company’s first-lien bonds and loans, will submit a draft plan to the company that calls for converting their debt into equity, said the people, who asked not to be named because the talks are private.
Walter, which last generated an annual profit in 2011, has been discussing a reorganization since April as it struggles with a $3.1 billion debt load amid the worst downturn for coal in decades. Prices of metallurgical coal have been undermined by excess supply and slowing demand from China.
William Stanhouse, a spokesman for Birmingham, Alabama-based Walter, declined to comment.
The creditors also are offering to back a loan that would fund the company’s operations during bankruptcy proceedings, the people said. Creditors would ask for union support of their plan in exchange for the financing, known as a debtor-in-possession loan.
The senior lenders want Walter to file for bankruptcy by July 15, when the grace period on a $19 million interest payment due to junior bondholders ends, the people said. The company elected to miss the June 15 interest payment as it negotiates with creditors, it said last month.
Walter shares declined 6.4 percent to 20 cents at 11:06 a.m. in New York.