The federal judge who ordered a group of bankruptcy professionals to report conversations with Bloomberg LP reporters involving troubled rare-earths mining company Molycorp Inc. changed his mind Wednesday and granted the news organization more time to mount a legal challenge.

Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., said he may have erred in denying Bloomberg a chance to challenge the order he issued last week. That order required some 120 professionals involved in Molycorp's chapter 11 case to file sworn statements about any conversation they had with Bloomberg reporters concerning the mining company in recent months.

Wednesday's reversal sets the stage for a full-scale court fight over a bankruptcy ruling that Bloomberg, the Reporters Committee for Freedom of the Press and other news organizations view as a threat to their ability to gather news. The dispute over contacts with reporters erupted amid heated battles between senior lender Oaktree Capital Management and junior creditors over Molycorp's fate.

Bloomberg asked Judge Sontchi on Tuesday to suspend his order and schedule an emergency hearing so it could challenge a court order that it believes has First Amendment implications. The judge turned Bloomberg down, but said Wednesday he "made a mistake in denying the motion to shorten time and depriving Bloomberg of an opportunity to address the court in regard to the substance" of the order.

The statements concerning contacts with Bloomberg reporters were filed, presumably, by Molycorp's financial and legal advisers and by the professionals working for creditors in the bankruptcy case. The documents have been kept under seal. Judge Sontchi said he hasn't looked at them, and issued an order that they are not to be disseminated until the dispute over whether the order was proper is decided.

Bloomberg has been reporting on Molycorp's contentious bankruptcy case, which is headed either to an auction or a reorganization. Battling creditors have been pushed into a mediation and concern seems to have arisen that information was leaking out of the mediation into Bloomberg stories.

Molycorp, its creditors and Oaktree haven't said in court papers what justifies the broad-ranging disclosure order, which doesn't specify what information may have leaked. In court Tuesday, Luc Despins, a lawyer for Molycorp's creditors, said the people ordered to report on their conversations with reporters were represented by lawyers and consented to the order.

Bloomberg argues that court action should be narrowly tailored, but the Molycorp court order requires people working on Molycorp's case to file "a sworn declaration regarding communications about Molycorp that they may have had, or known about others having, with reporters from Bloomberg in the last 60 days."

Bloomberg raced to federal court on Tuesday after Judge Sontchi denied its appeal of a ruling that the news organization says poses a direct threat to its First Amendment right to gather the news, pleading for an emergency hearing to block the order.

Falling commodity prices sent Molycorp to chapter 11 protection last year, looking for a way out of an overload of debt. Molycorp piled on bond debt when prices for rare earths soared, then piled on more debt in the form of loans from Oaktree when prices fell and it ran into financial trouble. Oaktree and junior creditors have been engaged in a pitched battle over the dwindling value in the company.

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

(END) Dow Jones Newswires

January 20, 2016 16:35 ET (21:35 GMT)

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