Barring successful objections to the proposed sale to LC Energy by the losing bidders, Lily’s sale was expected to be approved by early February by Judge Frank Otte of the U.S. Bankruptcy Court for the Southern District of Indiana. If endorsed by the judge, the transaction was expected to close soon afterward, according to Lily attorney David Krebs.
Lily, owner of the idled Landree underground mine in Sullivan County, Ind., filed for Chapter 11 bankruptcy reorganization on September 23, 2013. On December 18, a stalking horse bid was submitted by Redwine for $9 million in cash plus back-end royalties totaling another $9 million, Krebs said.
Redwine’s offer and a $9.325 million bid by Third Set Advisors, formed by Central Appalachian coal producer Quest Energy Group, were rejected during the auction. “Two bids were submitted by counsel for Lily Group,” Lily said in a court filing following the auction. “The first bid, by Third Set Advisors, provided for an initial cash price of $9,325,000 with a similar royalty payment as the Redwine stalking horse bid, but provided that no deposit would be due either upon acceptance of the bid or at a hearing to approve the bid, and further that the closing would be extended for a significant period of time while financing was sought.”
LC Energy’s bid “exactly mirrored the Redwine stalking horse bid amounts ($9,000,000 in a credit bid at closing and the same royalty payment structure, again as a credit bid),” Lily added.
According to the filing, Redwine representatives informed attorneys for Lily, the Lily Group creditors committee and LC Energy just hours before the auction that Redwine had not been able to secure financing “and was, therefore, not prepared to withdraw the financing contingency of the stalking horse bid or to submit a deposit of $100,000 as required” in the court’s sale order. As a result, Redwine’s stalking horse bid was rendered “a non-bid, but Redwine did offer to continue to be involved with the process and, if necessary, manage the Lily Group’s assets.”
Krebs said LC Energy planned to reopen Landree and attempt to produce enough coal to satisfy an existing coal supply agreement with Indianapolis Power & Light Co. (IP&L) Landree ceased production on September 16, but has been maintained to allow for a quick restart of production.
In addition to the mine, Lily’s assets include 38.9 million tons of low-sulfur, low-chlorine coal with an average heat content of 13,400 Btu/lb. Other assets include a fully operational coal preparation plant, all of the mining infrastructure build-out, mining equipment and a rail load-out facility, besides the IP&L contract.
Under the original contract, Lily was supply 200,000 tons from Landree in 2012 and 400,000 tons in both 2013 and 2014. However, the deal has been amended several times to reduce the scheduled amounts from Landree.
IP&L has filed a request with the bankruptcy court to cancel the coal contract. The utility has expressed doubt that Landree, if it reopens, could produce enough coal to meet the contract commitments.