Walter Energy Judge Says Bankruptcy Headed for `Crash and Burn'

  • Lenders scrap deal to take over company for $1.9 billion debt
  • Walter would have month to reach new deal or go up for sale

The bankruptcy of coal miner Walter Energy Inc. may “crash and burn” because of the lack of cooperation among the company, its lenders and its lower-ranking creditors, a judge said.

U.S. Bankruptcy Judge Tamara O. Mitchell said Thursday at a hearing in Birmingham, Alabama, that she doesn’t see how a 30-day window to foster discussions among the company and the creditors will help, “given the complete lack of success in negotiations.”

Lawyers for Birmingham-based Walter Energy were in court seeking approval of a new deal with lenders to use cash representing collateral for its debt over the next 30 days. Lenders said they would no longer let the company use the cash on the court’s previously approved terms and scrapped a pact to support a restructuring plan. Mitchell said she will make a decision later.

The coal miner filed for bankruptcy in July after reaching an agreement with the lenders to support a reorganization plan that would hand them control in exchange for about $1.9 billion in debt.

Terminated Deal

The lenders stated in court documents that the deal was terminated after the judge made changes that they didn’t like to the support agreement. They offered new terms to allow cash use until Oct. 21.

“The deal you presented to me had two fatal flaws,” the judge told the lenders Thursday. 

First, she said, the plan support agreement was drafted solely for the benefit of lenders without any consideration for unsecured creditors, including the company’s unions.

Second, according to Mitchell, the agreement tried to bind the court to its terms, which, if not approved in their entirety, gave the lenders the right to withdraw their support.

“I never agreed to those terms, yet you decided to try to bind me to them anyway,” Mitchell said at the hearing.

The judge said she fears “this case is going to crash and burn” if lenders and committees representing unsecured creditors and retired workers can’t put aside their differences.

‘Intolerable Risk’

The current situation presents the company with an “intolerable risk,” Patrick Darby, a lawyer for Walter Energy, said at the hearing. Operating at a loss, and lacking a lender deal, the company will run out of cash in little over a month, he said.

“A plan of reorganization can’t go anywhere without the secured lenders,” said Marty Brimmage, a lawyer for the lender group. The focus should be on reaching a new path to get Walter Energy out of bankruptcy, because “the alternative isn’t very attractive,” he said.

If the new cash accord receives approval, the company will re-engage with lenders to try to reach a solution. If a deal can’t be reached, Walter Energy will be headed for a sale. 

“My goal is to put us back on a track for a plan,” said Darby. “Nobody wants this case to die in 30 days.”

The case is In re Walter Energy Inc., 15-02741, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

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