A US bankruptcy court has ruled that coal plant operator Longview Power cannot draw on US$59 million in disputed letters of credit (L/Cs) without further permission from the court.

The judge in Delaware did however say that the debtor could use cash collateral to fund its case.

Dispute with contractors

Longview contends that it should be allowed to draw on L/Cs put up by three contractors, Siemens Energy, Foster Wheeler North America and Kvaerner North American Construction.

The plant operator blames the contractors' mismanagement for problems at the US$2 billion West Virginia coal plant for forcing it into bankruptcy and Longview should therefore be able to draw on the L/Cs.

Too complex

But the judge decided that the L/C dispute was so complex that it was inappropriate to rule on them when so many questions remained unsettled.

"I believe an order should require, at least on a interim basis, that the debtor should not be able to draw on the L/Cs without further court approval," Judge Brendan L Shannon said.

Debt default

Longview filed for Chapter 11 protection blaming the contractors for a string of design, construction and equipment defects and failures that caused power and equipment failures that reduced operating capacity to 68 per cent.

The coal operator was facing a default on a payment of its debt, including a US$1 billion credit facility from a group of lenders led by Citicorp North America due 30 August 2013, which was also the day of the filing.

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