CHARLESTON, W.Va. --
A federal bankruptcy judge said a loan he tentatively approved during a hearing Tuesday would allow Freedom Industries to pay its employees and also pay to clean up a chemical leak into the Elk River earlier this month.
The coal-processing chemical known as Crude MCHM contaminated the West Virginia American Water system in Charleston and led officials to tell residents in nine counties not to drink, wash or cook with their water for days.
Freedom filed for Chapter 11 bankruptcy, which allows companies to reorganize under bankruptcy protection, on Friday. In Tuesday's hearing, U.S. Bankruptcy Judge Ronald Pearson called the case "one of the most unique Chapter 11 cases I've ever seen."
Freedom's president, Gary Southern, and chief financial officer, Terry Cline, testified at the hearing, which lasted a little more than six hours.
Southern told the judge, "Freedom Industries, from where I sit, is in a death spiral." Customers aren't buying from Freedom, he said, and suppliers aren't selling to them.
About 80 percent of Freedom's business is providing protection against freezing for coal, Southern testified Tuesday. The other 20 percent, which Southern called the chemistry business, includes the chemical that leaked into the Elk.
The company's busiest time is usually November through March, Southern said.
Cline said Freedom had already put $300,000 toward remediation of the spill, and told the judge the overall cost to the company might be $800,000. But Southern testified later that Freedom had already contributed $800,000 toward remediation costs.
Mark Freedlander, an attorney for Freedom, said company officials weren't willing Tuesday to discuss culpability for the chemical spill.
About an hour after Freedom filed for bankruptcy Friday, the company filed an emergency motion for "debtor-in-possession" (DIP) financing, which would allow it to secure a loan up to $5 million to continue to function in some capacity. The loan would, according to the filing, "provide additional liquidity to [Freedom] in order to allow it to continue as a going concern."
DIP lenders are often among the first agencies to get their money back from bankrupt companies.
Freedom's proposed DIP lender is WV Funding LLC, which was incorporated in West Virginia on Friday, the day Freedom filed bankruptcy.