Arch Coal’s Saving Grace Debt Swap Said to Draw Lender Fire

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Arch Coal Inc. lenders are teaming up in an attempt to block a bond exchange that would help the coal miner weather one of the worst commodity slumps in decades, according to three people with direct knowledge of the matter.

Two groups that hold a majority of the company’s first-lien loans are preparing to direct their agent not to sign off on the swap, said the people, who asked not to be identified because the talks are private. Law firms Paul Weiss Rifkind Wharton & Garrison LLP and Kaye Scholer LLP are representing the lender groups, the people said.

The new debt the company’s offering some junior bondholders would share secured claims on the miner’s assets if it were to file for bankruptcy protection.

A spokeswoman for Paul Weiss declined to comment. Representatives for Kaye Scholer and Bank of America Corp., the lenders’ agent, didn’t immediately respond to telephone and e-mail messages. A spokeswoman for St. Louis-based Arch Coal didn’t immediately provide comment.

Arch, saddled with $5.1 billion in debt, is struggling during a commodity-price downturn that’s put other U.S. coal producers including Walter Energy Inc. and Patriot Coal Corp. into bankruptcy protection this year. The coal used in steelmaking is at its lowest price in a decade amid global oversupply. Coal used by power plants is facing competition from cheap natural gas and tougher emissions standards.

The company said in a July 2 statement as it launched the first part of the bond offer that the swap was “being made as part of Arch’s efforts, in light of challenging market conditions, to deleverage its balance sheet and improve its liquidity profile.”

The miner’s loan has plunged 13.9 cents to 55.6 cents on the dollar, the lowest ever, since the exchange offer was announced, according to prices compiled by Bloomberg. The company’s shares fell 4.8 percent to 23 cents at 9:38 p.m. in New York.

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