Court allows Patriot to reject equipment leases, JMAC contract

The bankruptcy court for Patriot Coal issued a pair of Aug. 1 orders that granted Patriot various forms of relief, including termination of a number of mining equipment leases and a contract to buy coal for re-sale from West Virginia coal producer JMAC Leasing.

Patriot Coal, a major producer in West Virginia and western Kentucky, sought Chapter 11 protection on July 9 at the U.S. Bankruptcy Court for the Southern District of New York. One of its first-day motions was a request to let it reject certain agreements.

For example, said the motion about the “JMAC Agreement”: “The Debtors hereby seek to reject the letter of confirmation dated October 4, 2011 (the ‘JMAC Agreement’) between Patriot Coal Sales LLC and JMAC Leasing Inc. (‘JMAC’). Pursuant to the JMAC Agreement, JMAC supplies steam coal to Patriot Coal Sales LLC at a specified price. The Debtors have determined that the contract price under the JMAC Agreement is substantially above current market price and that the Debtors can source coal on more economical terms pursuant to other contracts or the Debtors’ mining operations. The Debtors estimate that rejection of the JMAC Agreement would save their estates approximately $3.6 million.”

The judge approved that rejection in one of the Aug. 1 orders. The only operation listed under JMAC Leasing at the U.S. Mine Safety and Health Administration is the “nonproducing” No. 1 strip mine in Wyoming County, W.Va. MSHA shows the controlling party for JMAC Leasing as Everett (Gordon) Justice.

Deals rejected with apparently related Indiana companies

In the same Aug. 1 order, the judge also signed off on the rejection of the “American Freedom Agreement.” Said the rejection motion: “The Debtors hereby seek to reject the Consulting Agreement dated November 1, 2009 (the ‘American Freedom Agreement’) between Patriot Coal Corporation and American Freedom Innovations, LLC (‘American Freedom’). Pursuant to the American Freedom Agreement, Patriot Coal Corporation retained American Freedom to provide consulting and lobbying services. The Debtors have determined, in the sound exercise of their business judgment, that the services provided pursuant to the American Freedom Agreement are no longer necessary, and rejecting the American Freedom Agreement would allow Debtors to avoid accruing ongoing payment obligations. Accordingly, the Debtors seek to reject the American Freedom Agreement to relieve the Debtors’ estates of an unnecessary burden and save approximately $7 million in total.”

The Aug. 1 order shows American Freedom Innovations with an address in Evansville, Ind. Also rejected in the Aug. 1 order was a 2009 “joint project agreement” with American Patriot Energy LLC, which shares the same Evansville address as American Freedom Innovations. Patriot said in its rejection motion that under the American Patriot agreement, the parties “agreed to evaluate and, if appropriate, jointly undertake various energy-related ventures and other commercial opportunities.”

Also rejected in that same Aug. 1 order were equipment leases with various parties, including Bank of the West, CapitalSource Bank, Fifth Third Leasing and Komatsu Financial LP.

Second order gets rid of more equipment leases, three DPL contracts

A second Aug. 1 rejection order, signed by Judge Shelley Chapman, got rid of several equipment leases with RBS Asset Finance. It also rejected three coal contracts with Dayton Power & Light.

In a first day motion, Patriot had asked to reject the DPL agreements. The rejection motion said: “The Debtors hereby seek to reject (i) the Settlement and Amendment executed on June 12, 2009 (the ‘2009 Settlement Agreement’) between Dayton Power and Light Company (‘DPL’) and Patriot Coal Corporation, (ii) the Coal Supply Agreement dated January 1, 1996, originally executed by Ashland Coal, Inc. and DPL, as amended and assigned (the ‘1996 Coal Supply Agreement’) and (iii) the Master Fuel Purchase and Sale Agreement dated June 12, 2009 (the ‘2009 Coal Supply Agreement’) between DPL and Patriot Coal Sales LLC.”

The motion added: “The 1996 Coal Supply Agreement provided for the supply of coal to DPL. The 2009 Settlement Agreement resolved certain claims under the 1996 Coal Supply Agreement and required payment by Patriot Coal Corporation to buy out certain coal delivery obligations thereunder. While the 2009 Coal Supply Agreement, executed in conjunction with the 2009 Settlement Agreement, required Patriot Coal Sales LLC to supply coal to DPL, there are no current or expected coal deliveries to DPL under such agreement. The Debtors have determined, in the sound exercise of their business judgment, that (i) rejecting the DPL Agreements would benefit the Debtors’ estates by terminating ongoing payment obligations under the DPL Agreements and (ii) the DPL Agreements provide no ongoing benefit to the Debtors’ estates. The Debtors estimate that rejecting the DPL Agreements will save the Debtors’ estates approximately $6 million in total.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.