BX Blackstone Inc

Arch Coal Inc. has picked up the support of its unsecured creditors for a chapter 11 turnaround plan, ending the threat of litigation over the coal operator's failed efforts to stay out of bankruptcy.

Talks aimed at reaching a deal have been under way for sometime. New terms sketched out Friday outline settlements that could ease the company's path out of chapter 11.

Unsecured bondholders are being offered cash and stock under the amended plan, which is slated for preliminary review Wednesday at a bankruptcy court in St. Louis. Court papers filed Friday show the new plan is the result of a compromise that will see senior lenders and senior management pitching in to the pool of assets to be distributed to unsecured creditors.

Last year, Arch tried to cut its debt load outside of bankruptcy by way of an exchange offer with junior bondholders. Senior lenders blocked the deal, a move that pushed Arch into bankruptcy in January. The filing came as other coal producers also sought court protection to address too much debt and harsh industry conditions.

Litigation stemming from the failed debt exchange, as well as the threat of other lawsuits, would be put to rest under Arch's new chapter 11 plan, according to court papers. Funds managed by Blackstone Group's GSO Capital Partners, which holds unsecured bond debt, will receive $5 million to settle a lawsuit it filed in May.

Also in connection with the new plan, the official committee of unsecured creditors will agree to abandon its efforts to bring separate litigation in Arch's bankruptcy, court papers say. GSO is also a member of the official committee, court papers show.

Arch is offering holders of allowed general unsecured claims 6% of the new common stock of the reorganized company, warrants to buy more of the company stock and $30 million in cash. Most of the cash—more than $22 million—is earmarked for bondholders. Court papers say the rest will be paid to general unsecured creditors, a group that includes trade creditors.

Senior managers are surrendering claims to $6 million in incentives to help the chapter 11 plan gain momentum, court papers say. Executive bonuses had been a sore spot for the unsecured creditors committee, which had sought to bring litigation to take back incentives paid out before Arch's bankruptcy.

The new chapter 11 plan terms are expected to resolve a recent request from the committee, supported by GSO, for a mediator to help broker a restructuring deal. The request was set for court review at Wednesday's hearing but has been adjourned, court papers show.

Jacqueline Palank contributed to this article.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

July 05, 2016 12:05 ET (16:05 GMT)

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