About 1,700 Blackjewel LLC workers and dozens of other creditors aren’t the only people waiting for news about a bankruptcy auction for the nation’s sixth largest coal producer’s assets. The judge in the company’s Chapter 11 bankruptcy case also is wondering why there hasn’t been any news of potential buyers less than 48 hours before a sale hearing in his West Virginia courtroom.
Judge Frank W. Volk issued an order Saturday night to compel Blackjewel to “file a summary respecting the outcome of the auction process forthwith” and that the filing be “no later than 9 a.m. on Aug. 4,” which is Sunday.
If the company complies, that would give the judge and any of its creditors or other interested parties about 24 hours to file objections or other motions with the court before the sale hearing starts Monday morning.
Volk’s order is short and to the point, and seems to express frustration that an auction process that began Thursday morning still hasn’t had an outcome, or at least one that’s been filed with the court.
“An auction for that purpose (to sell its assets) commenced on Thursday, Aug. 1, 2019,” Volk says in his order, which was filed at 8:38 p.m. Eastern time Saturday. “At this date and hour, the Court has received no word respecting the outcome of the auction, including the successful bidder(s) and the terms attached.
“The absence of such information is inconsistent with the transparency necessary in these matters, given the expedited nature of the proceedings and the urgent necessity of the material data for the Court, interested parties and the general public prior to the Aug. 5, 2019, hearing.”
Not hedging their bets
While the results of the Blackjewel bankruptcy auction are still unknown, that hasn’t stopped some of the company’s creditors filing objections to the potential sale of three mines to Contura Energy Corp.
As the stalking horse bidder selected by Blakjewel, Contura Energy has agreed to buy the company’s flagship mines in Campbell County, Eagle Butte and Belle Ayr, along with the Pax Surface Mine in West Virginia. Contura has already put up an $8.1 million deposit on the mines and will pay Blackjewel another $12.5 million if selected as the eventual buyer.
What became a marathon auction process that began Thursday morning at the Cincinnati, Ohio, office of Blackjewel legal counsel Squire Patton Boggs lasted late into the night and picked up again Friday. As of Saturday evening, there still was no official word whether or not the company has concluded the auction, accepted Contura’s bid or other proposals to buy any or all of Blackjewel’s other 29 Eastern properties and operations in Virginia, West Virginia and Kentucky.
While that leaves about 1,100 Eastern workers in limbo about whether or not they’ve lost their jobs permanently, it also has about 500 Eagle Butte and Belle Ayr workers unsure about when they may be called back. Overall, Blackjewel’s 1,700 employees have been locked out of work since July 1, when the company filed for Chapter 11 bankruptcy reorganization. Hours later, the mines were closed abruptly when a financing package that would’ve allowed the mines to continue regular operations fell through.
One of the few certainties for Blackjewel employees now is that the auction is the last chance for some or all of its mines to reopen and start producing coal again. That’s because the company has said any assets that don’t sell through the auction process will be converted to straight Chapter 7 bankruptcy liquidation.
Another is the Monday morning sale hearing scheduled to begin at 8 a.m. (MDT) at the U.S. Bankruptcy Court for the Southern District of West Virginia. Volk is supposed to consider approval or denial of any potential sales, including to Contura if its stalking horse bid is chosen.
Not taking chances
While knowing those sales details may have to wait until Monday’s hearing, a host of Blackjewel creditors and debt holders aren’t hedging any bets and have already filed objections in case Contura is the buyer of the Eagle Butte, Belle Ayr and Pax mines.
Most of the objections cite a clause in the proposed agreement with Contura that its sale be “free and clear” of financial obligations Blackjewel has to its creditors. That means, for the most part, Contura could buy the assets but not the debt. Because Blackjewel is beyond broke — it’s operating now on Contura’s $8.1 million deposit — it’s unlikely other asset sales will allow most debt holders to recover what they’re owed.
Allowing Contura to buy the mines free and clear is also why Campbell County has filed objections with the bankruptcy court. Contura sold the mines to Blackjewel in 2017, which continued to operate using Contura’s state mining permit into 2018. Because of that, Contura is liable for about $15.1 million in unpaid production taxes.
Campbell County Commissioner Mark Christensen said last week that the county’s position is that allowing Contura to buy back the mines from Blackjewel shouldn’t be a golden ticket to simply wipe out the debt it already owes independent of the sale.
In a Saturday afternoon objection filed in the case, the county says that “with less than 48 hours to go until the start of the scheduled sale hearing, uncertainty remains with respect to the sale of the Western assets and what the ultimate terms of such a sale might be.”
The filing also gives some insight into the negotiations taking place behind the scenes during the auction process.
“Over the past several days, the County has been in productive discussions with Contura with respect to the treatment of the taxes owed and other concerns raised by the County,” according to the motion. “These discussions have resulted in an agreement-in-principle between the County and Contura with respect to the sale of the Western assets.”
The sale to Contura is not finalized or confirmed and also is subject to other contingencies being met, including Contura reaching and agreement with the federal government over unpaid federal taxes and fees.
Campbell County is listed as Blackjewel’s second largest creditor with more than $37 million owed in ad valorem taxes. Of that amount, about $15 million Contura is on the hook for.
Some objections filed Friday include one from L&H Industrial in Gillette for nearly $1.5 million. More than $1 million of that is for repairs to a Bucyrus 495HR shovel that’s described in the court filing as being “as big as a house.”
The work L&H did on the shovel wasn’t paid for and has increased “the value of this specific asset to any prospective buyer,” the objection says.
Other objections cite the speed of the process that has seen Contura be selected as the stalking horse bidder then go to auction in less than a week, along with vague information and gaps in Blackjewel’s obligations to list assets and creditors. Instead of being specific, Blackjewel has said it is selling its assets and those of “subsidiaries and affiliates.”
That’s part of the basis for an objection filed Thursday by Fifth Third Bank, which says “creditors are left to guess which Debtors are or are not selling assets. Since there are not Schedules of Statements of Financial Affairs … parties simply cannot know what is behind the ‘subsidiaries and affiliates’ curtain and whose assets are to be sold.”
The expedited nature of Blackjewel’s bankruptcy process also does not allow for time needed to vet potential sales and the terms of those sales, the objection says. That means “it is impossible for a creditor (or the Court) to know what lurking claims and causes of action the Debtors and its estate professionals intend to be cleansed by the broad, unlimited release” of financial obligations.
Big Brother is watching
An even more ominous objections was filed Friday collectively by the IRS, U.S. Department of the Interior and other federal creditors questioning whether Blackjewel is spending the $8.1 million deposit the way the company is supposed to.
According to a budget filed with the court, about $1.5 million of that money was supposed to be used to pay prepetition benefits withheld from employees’ paychecks to maintain benefits plans.
After filing for bankruptcy July 1, it was revealed that not only were Blackjewel’s Eastern employees given rubber paychecks, the company also had failed to deposit employee contributions into their 401(k) and health savings accounts across the board.
Apparently, the federal government wants Blackjewel to prove it’s using the deposit money for what it said it would.
“These funds should go for their designated purpose and not be used for any other purpose unless specifically approved by the Court,” the objection says. “Accordingly, the United States requests that the Court confirm with the debtors that the $1,528,000 designated to pay prepetition benefits withholding amounts has actually been used for that purpose.”
If not, the government wants “action to be taken by the Court” to claw back any money Blackjewel may have left and use it for that.