Patriot Coal seeks assumption of Peabody agreements

Patriot Coal on Aug. 28 asked its bankruptcy court for approval to assume several contracts with Peabody Energy (NYSE: BTU), which spun Patriot off in an IPO in 2007.

Patriot and subsidiaries are seeking an order approving an agreement between certain of the debtors and Peabody COALTRADE LLC, Peabody Terminals LLC, James River Coal Terminal LLC and Elkland Holdings LLC where Patriot will assume: a Throughput and Storage Agreement, dated October 2007, by and among Peabody Terminals, James River Coal Terminal and Patriot Coal Sales LLC, as amended in 2010 and 2011: a Coal Terminaling Agreement dated May 2011 by and between Peabody Terminals and James River Coal Terminal and Patriot Coal Sales; the Second Amended and Restated Transloading Agreement dated December 2011 by and among Eastern Associated Coal LLC and Elkland Holdings; the Amended and Restated Road Use Agreement dated January 2011 by and between Eastern Associated Coal and Elkland Holdings; the Amended and Restated Road Use Agreement dated January 2011 by and between Pine Ridge Coal Co. LLC and Elkland Holdings; the Coal Washing Agreement dated May 2011 by and between Eastern Associated Coal and Elkland Holdings; and the Transaction Confirmation dated November 2011 between Patriot Coal Sales and Peabody COALTRADE.

Also, certain coal supply agreements between Patriot Coal Sales and Peabody COALTRADE will be replaced and superseded by an agreement dated Aug. 24 between Patriot Coal Sales and Peabody COALTRADE entered into in the ordinary course of business.

This motion seeking the court’s approval of this Patriot/Peabody agreement encompasses a request that the court approve each of its constituent elements, including the assumption of the assumed agreements, the coal supply agreement and a cure payment of $384,944.66 to be paid by the date that is thirty days after entry of the order, agreed to by the parties in connection with the assumption of the assumed agreements.

“The Agreement, which incorporates the Debtors’ assumption of the Assumed Agreements and the execution of the Coal Supply Agreement, which replaces and supersedes the Prior Agreements, is in the best interests of the Debtors and their estates,” said the Patriot motion. “Patriot and Peabody have numerous business arrangements, including those memorialized in the Assumed Agreements, that are mutually beneficial, and assumption of the Assumed Agreements will ensure the continuation of benefits to Patriot. Replacement of the Prior Agreements with the Coal Supply Agreement will result in an improvement to Patriot of the negotiated terms on which it will sell certain coal to Peabody. Further, the Agreement contains an express reservation of rights and preservation of claims between the Parties. Consequently, the Debtors seek entry of the Order authorizing the Debtors to assume the Assumed Agreements and enter into the Coal Supply Agreement pursuant to sections 363(b) and 365(a) of the Bankruptcy Code.”

Patriot and subsidiaries sought Chapter 11 protection on July 9 at the U.S. Bankruptcy Court for the Southern District of New York. Effective July 10, the New York Stock Exchange (NYSE) suspended trading of its common stock and on Aug. 6 the common stock was delisted from the NYSE. It is now traded under the ticker symbol PCXCQ on the OTCQB marketplace, operated by OTC Markets Group Inc.

In the first six months of 2012, Patriot sold 13 million tons of coal, of which 78% was sold to domestic and global electricity generators and industrial customers and 22% was sold to domestic and global steel and coke producers.

Said Peabody in its Aug. 3 Form 10-Q report: “The Company believes that its only material exposure to the bankruptcy of Patriot relates to up to $150 million in possible federal and state black lung occupational disease liabilities. As Patriot noted in its Annual Report on Form 10-K/A for the year ended December 31, 2011, it has posted $15 million in collateral with the U.S. Department of Labor (DOL) in exchange for the right to self-insure its liabilities under the Federal Coal Mine Health and Safety Act of 1969 (Black Lung Act). If Patriot is unable to meet its black lung liability obligations, the Company believes that the DOL will first look to this collateral for payment. The Black Lung Act allows the DOL to seek recovery from other potentially liable operators as well. The Company may be considered a potentially liable operator for purposes of the Black Lung Act with respect to the black lung liabilities of Patriot at the time of the spin-off.”

Peabody added: “The Company also has a small number of commercial arrangements with Patriot, and believes its potential exposure under these agreements would not have a material adverse effect on its consolidated results of operations, financial condition or cash flows.”

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.