Despite Tax And Reclamation Concerns, Contura Approved As A Bidder

Jul 26, 2019

Blackjewel Belle Ayr sign
Credit Vikki Strande/Facebook

Judge Frank Volk has approved Contura Energy as the stalking horse bidder of Blackjewel's Eagle Butte and Belle Ayr mines, along with a mining complex in West Virginia. The company will put down a deposit of $8.1 million to fund the sale process and pay another $12.5 assuming no party outbids them. Contura's offer is now set as the low bar, or stalking horse, bid.

Volk of the United States Bankruptcy Court for the Southern District of West Virginia rejected most of the objections, saying, "this appears at the present time to be the only path forward to get some of the going concern value out of these assets and also to pull back what may very well be the majority of employees who previously had employment in the industry."

The hearing was timely as the Blackjewel attorney Stephen Lerner explained wire transfers needed to be paid almost immediately to avoid Chapter 7 liquidation.

Several objections and concerns around the bid arose, despite the plan's approval.

Reclamation

Early in the hearing, Lerner said Debtors' would accept bids that don't include reclamation obligations, qualifying that "our view is that the law wouldn't permit that."

Several attorneys representing sureties, a company that backs reclamation bonds, took issue with the haziness around necessary reclamation. Daniel Waxman, attorney for Indemnity National Insurance Company, countered that the bid structure could allow for those obligations to be avoided. Contura has $227 million worth of surety bonds to pay for reclamation.

Waxman argued the Debtor "wants to accept cash bids for all of the good assets it has. It wants to segregate that cash into a carve-out to pay professional fees, and then convert that case into a chapter 7 leaving reclamation obligations that are due to the states and by default and to the sureties to deal with those issues. It's something that can't be done."

Another surety attorney raised similar concerns. Blackjewel attorney Lerner countered that part of the analysis for a bidder includes its financial wherewithal to satisfy obligations like reclamation.

Tax Payments

Campbell County is owed $37 million in ad valorem taxes, production taxes that pay for local services as well as state education. Attorney Jeff Liesemer argued the bidding structure as is would leave the county empty-handed.

"What this sale would do as presently constituted… our taxes will be stripped off, and the county will be basically left with nothing. It has a secure claim, it has a priority claim, but it will be left holding the bag. It will be wiped out," Liesemer said.

He added the county should be getting paid right now, rather than employee claims and trade creditors; "There's no foundation in bankruptcy code to pay those types of claims ahead of secured claims."

Bias

Several attorneys raised concerns that Contura may disproportionately benefit from this deal. Blackjewel's Debtors' still haven't released a full list of its assets and liabilities to give other bidders an opportunity to know what they're getting.

Caterpillar Financial Services Corporation attorney Greg Pavey argued Contura could be enjoying an advantage. He said the equipment alone is worth well over three times more than the stalking horse bid offered by Contura.

"Neither the debtor's motion nor the affidavits filed in support explain why Contura is entitled to $74 million worth of equipment plus all the other assets of the western division and Pax mines and related assets including Caterpillar's equipment for only $12.5 million. We have seen no justification for such a significant loss."

Campbell County attorney Steven Thomas also argued Contura's benefit may come from being a consultation party and help determine what bids could even be considered.

"We are concerned with the fox guarding the hen house on Contura's right to make judgments about whether other competing bids should be qualifying bids."

Approval

Despite concerns, Judge Frank Volk determined relevant objections could be brought up during the sale process next week and this plan was the best opportunity for workers and assets within the company to stay afloat.