• `Leave me out of it,' N.Y. judge tells sparring creditors
  • Lenders seeking to block debt exchange by troubled miner

Arch Coal Inc.’s effort to carry out a debt exchange didn’t get any easier Friday as a judge declined to rule on a request to stop a group of lenders from blocking the transaction.

New York State Supreme Court Justice Saliann Scarpulla said at a hearing in Manhattan that she wouldn’t immediately rule on the request by a unit of Blackstone Group LP to temporarily halt attempts by senior lenders to stop the swap.

The Blackstone unit, a junior creditor of St. Louis-based Arch Coal, sued the agent for the senior lenders last week. The lawsuit accuses the senior lenders of trying either to “extract a favorable ransom” from Arch Coal or its unsecured creditors in exchange for allowing the swap, or to force the miner to file for bankruptcy before the deal is finished and prevent their interests from being diluted.

Arch, the second-biggest U.S. coal producer by volume, is facing slowing demand, stricter environmental regulations and competition from cheap natural gas. Saddled with $5.1 billion of debt, it has been trying to close a deal with creditors to swap existing bonds for new, higher-ranked securities with longer maturities. This week, it pushed the deadline for the exchange back about a month to Oct. 26. The company has an interest payment of $18.1 million due Oct. 1.

Scarpulla said she wasn’t prepared to immediately grant the request to let the exchange proceed. She said she would either deny it or listen to further arguments, and urged the parties to negotiate a compromise or bring in a mediator.

“There is much that is unclear to me,” Scarpulla said. “Which is why I keep telling you to talk to each other and leave me out of it.”

The case is GSO Special Situations Master Fund LP v. Wilmington Trust NA, 653110/2015, New York State Supreme Court (Manhattan).

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