A federal judge approved short-term funding for coal operator Blackjewel LLC during an emergency hearing Friday, the latest development in a weekslong effort to avoid liquidation of two Campbell County coal mines and bring employees back to work.
U.S. District Judge Frank Volk approved $2.9 million in interim debtor-in-possession financing from lenders Whitebox Advisors LLC and Highbridge Capital Management. The loan will not bring the company’s mines back to full capacity and only provides relief to the company until Monday.
“The financing from the DIP Lenders is a short-term bridge financing, which will allow the Debtors more time to continue working collaboratively with their key stakeholders to maximize value in these cases,” a motion filed by Blackjewel attorneys stated.
In a cash flow budget forecasting the company’s finances through Monday, the company reported insufficient funds to pay a $2.1 million insurance payment, along with $658,000 in unpaid payroll for employees that returned to work. According to Blackjewel attorney Stephen Lerner, payments to the insurance company and workers were due Friday.
“Financing under this new DIP will be used for limited purposes,” Lerner said.
But Lerner admitted the financing would only allow the company to survive until Monday, calling it a “bridge” that would buy the company time to seek long-term funding.
“What they are trying to prevent is a complete financial breakdown where there is no cash to do anything,” said Clark Williams-Derry, director of energy finance at the Sightline Institute, a think tank in Seattle that advocates a transition to green energy.
In addition to compensating the skeleton crew of 140 employees currently working at mines across the country, Blackjewel still owes its Wyoming employees over $700,000 in unpaid compensation and $900,000 in retirement payments from the period before the company filed for bankruptcy on July 1, according to Blackjewel attorneys.
The judge questioned Blackjewel about the outstanding payments.
“I’m sure you haven’t lost sight of those families ... who have been under great stress, enormous stress,” Volk said.
Lerner assured the courtroom that employees would receive “everything they are entitled to in the priority waterfall,” meaning workers would be compensated after more senior creditors have been paid. Senior creditors are owed an estimated $150 million.
The two investment firms — Whitebox Advisors LLC and Highbridge Capital Management — are no strangers to the coal sector, or Blackjewel.
In 2017, Alpha Natural Resources transferred idle mines in Kentucky, Tennessee and West Virginia to former Blackjewel CEO Jeff Hoops’ Lexington Coal Company, a deal that included 250 permits and a multi-million dollar financial package to help clean up the mines.
“Whitebox helped finance this exchange and figured prominently as part of a $150 million financing deal,” Williams-Derry said. “The funding was intended to be used for cleaning up the mines and reclamation.”
But Hoops may have used some of the money given to Lexington Coal Company to pay for the operation of Blackjewel, Williams-Derry said, after reviewing court documents.
What’s more, Whitebox has a nearly 12 percent stake in Contura Energy, the former owner of Blackjewel’s Eagle Butte and Belle Ayr mines in Wyoming. Highbridge Capital Management has a 5.4 percent stake in the same company.
Contura still holds the permits for the two mines and therefore the steep costs of reclamation if the mines are abandoned or closed for good.
“It appears that they are doing their best to keep their western mines from going to full reclamation,” Williams-Derry said.
Although not objecting to the proposed $2.9 million in DIP funding, counsel for a senior creditor expressed concern over the new funding agreement Friday, given the new DIP lenders’ connection to Blackjewel.
“That really lies at the heart of why Whitebox and Highbridge are here,” the attorney for Riverstone Credit Partners said. “... We’re concerned, your honor, that this DIP financing disproportionately benefits Contura.”
This is not the first short-term loan proposed by the company since it filed for bankruptcy on July 1 and shut down mines across the country, sending shock waves through Wyoming’s coal country.
In the days following the closures, the federal bankruptcy judge approved a $5 million interim funding package for basic maintenance of the facilities. As a condition of the deal, Hoops had to resign.
The new funding source allowed the company to dodge Chapter 7 bankruptcy, or the liquidation of their assets and abandonment of the mines. But the financing has not been sufficient to resurrect the mines and produce coal. The company can only spend the small pool of funding on “essential” security at the mines, firefighting personnel, professional fees of up to $500,000 and other emergency expenses.
Blackjewel reported only having $1.1 million remaining in the bank on Friday. Halfway through July, the bankrupt coal operator reported it had already spent 60 percent of the $5 million in emergency funding. The company planned to wire transfer the money to workers before the end of the day Friday.
Blackjewel attorneys clarified during the hearing that DIP funding would be applied to all Blackjewel mines across the country — not just the two Wyoming mines, as had appeared in court documents.
Volk ordered the counsel to amend the documents to accurately reflect the company’s intentions.