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US trustee recommends bankruptcy court deny Cloud Peak's plan to auction assets

A U.S. trustee filed an objection to Cloud Peak Energy Inc.'s plan to auction off its assets because the company included bid protections for a yet-to-be-identified bidder.

The coal producer, which filed for bankruptcy protection earlier in May, recently proposed holding an auction for its assets June 26 if there is more than one interested bidder.

Acting U.S. trustee Andrew Vara wrote in a May 28 filing with the U.S. Bankruptcy Court for the District of Delaware that the coal producer is seeking court approval to provide a stalking horse bidder with a breakup fee and expense reimbursement of up to 3% of the assets' purchase price. The trustee said there has not been a stalking horse bidder identified, so "the request for approval of the bidding protections at this stage should be denied as premature."

The bidding protections are also unwarranted partially because Cloud Peak has not disclosed the value of the transaction.

"Bidding protections should not be awarded, if at all, until after an acceptable offer has been received from a stalking horse who has provided a demonstrated benefit to the estate, all interested parties are given notice and an opportunity to be heard, and the court has determined that the fee was an actual and necessary cost and expense of preserving the estates," according to the filing.

Several insurance companies also objected to the company's auction plan, saying the bidding procedures and asset purchase agreement should be denied because they "could result in the impermissible abandonment of environmental obligations," according to a May 28 filing.