At a time when it is facing problems with financing, and rumors on Wall Street about a possible bankruptcy, Patriot Coal (NYSE: PCX) President and CEO Richard Whiting wrote a May 22 letter to employees that reassures them the company is making progress “during these challenging times in our industry.”
Whiting noted: “Our management team has acted swiftly to ensure that we are well-positioned in the current operating environment. We have reduced thermal coal production by over four million annual tons, delayed expansions under the Met Build-Out program, and worked closely with our customers to address their changing needs. In addition, we have implemented major cost reduction initiatives, including assuming full operation of several mines and facilities that were previously managed by contractors and adjusting our workforce appropriately.”
Patriot is also addressing a number of challenges that current market conditions have created. Recently, the company adjusted its forecast for the year to reflect a possible default by a key customer on a contract for Appalachia met coal. “We continue to be in discussions with the customer and other potential buyers for this allotment of coal, and we are confident it will ultimately be sold – although not at the original contract price, which was measurably higher than the current spot market,” Whiting added. “As you know, we and other coal producers have encountered similar business situations in the past and we have successfully achieved satisfactory resolutions.”
Earlier in May, it was announced that Patriot has entered into a commitment letter for a new revolving credit facility and new term loan facility for a total of $625m. “We are continuing to work with our lenders to strengthen our finances, including the refinancing of our debt obligations that become due in March 2013,” Whiting noted. “We have engaged The Blackstone Group and continue to work with Davis Polk & Wardwell, our long-standing counsel, to achieve an optimal financing package. As we work through these matters, we continue to have access to our current credit facilities.”
Whiting asked employees to keep in mind that the coal industry is inherently cyclical. “For that reason, our leadership team has extensive prior experience in managing through variable and difficult markets,” he wrote. “You may recall, for instance, that in 2009 we successfully navigated through one of the greatest market dislocations in history. I am confident we will do so again.”
Also on May 22, Patriot issued a public statement pointing out that it entered into a commitment letter for a new revolving credit facility and new term loan facility for a total of $625m from Citigroup Global Markets Inc., Barclays Bank PLC and Natixis, New York Branch. “Patriot Coal Corporation is continuing to work with these lenders to strengthen its finances, including the replacement of its current credit facilities well before certain of its debt obligations become due in March 2013,” said the announcement. “Patriot Coal Corporation has engaged The Blackstone Group and continues to work with Davis Polk & Wardwell LLP, its long-standing counsel, to achieve an optimal financing package.”
Patriot’s stock price has been hammered in recent days as the rumors swirled, and in recent months by the overall coal market decline. The stock had a 52-week high of $24.99 per share, but opened May 23 at only $2.31 per share, inching up to $2.36 per share at mid-day.
St. Louis-based Patriot, spun off a few years ago from Peabody Energy (NYSE: BTU), is a leading producer and marketer of coal in the eastern U.S., with 13 active mining complexes in Appalachia and the Illinois Basin. It ships to domestic and international electricity generators, industrial users and metallurgical coal customers.