Sept 16 (Reuters) - Bankrupt Patriot Coal Corp is in “advanced stage” talks with a new potential bidder for the bulk of its assets, which could set up a contested auction on Monday, a company lawyer said on Wednesday.
Patriot lawyer Stephen Hessler told the U.S. Bankruptcy Court in Richmond, Virginia, that if the unidentified party made a bid, it would likely be similar to the deal proposed by Blackhawk Mining LLC. He did not elaborate.
Bids are due Friday for Patriot’s assets, which includes mines in West Virginia and reserves in other states. An auction, if necessary, will be held on Monday.
Patriot has said it will run out of cash as soon as next month and needs to close its sale and confirm a plan to exit bankruptcy on an unusually tight schedule.
Judge Keith Phillips on Wednesday scheduled a confirmation hearing for Oct.5 and overruled creditors who said they need much more time to investigate if the bankruptcy exit plan, which will be amended on Friday, is fair.
“There is a liquidity crisis and I don’t think that is being made up,” said the judge.
Blackhawk initially proposed acquiring Patriot’s assets not for cash but by issuing to Patriot’s creditors new debt and a stake in the company that will own the assets.
Due to financing problems, Blackhawk’s proposal is being reworked, and the final details will be in the plan that Patriot has said it will file on Friday.
Creditors told the judge on Wednesday that they are going to receive much less than what they had been initially promised.
Jeffrey Jonas represents investors holding some of Patriot’s $250 million term loan, and he said his clients’ investment “went up in smoke literally overnight” under the revised bid from Blackhawk.
Ken Ziman, who represents the agent for a $200 million credit facility, said that due to the new Blackhawk bid, he would file a motion to convert the case to a Chapter 7 liquidation if Patriot failed to confirm its plan on Oct. 6.
Coal companies have been hard hit by falling coal prices, tougher regulations and an economic slowdown in China.
Walter Energy and Alpha Natural Resources recently filed for bankruptcy and Arch Coal Inc, one of the country’s biggest coal producers, has proposed a debt swap to avoid Chapter 11.
The current bankruptcy is Patriot’s second in three years. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Cynthia Osterman)