Both General Electric Capital and Macquarie Corporate & Asset Funding filed Sept. 10 objections with the bankruptcy court of Patriot Coal, saying the coal producer can’t “cherry pick” mining equipment it wants to get rid of from other equipment covered by the same master leases.
Patriot Coal, a major coal producer in western Kentucky and West Virginia, filed for Chapter 11 protection on July 9 at the U.S. Bankruptcy Court for the Southern District of New York. It more recently asked the court to let it reject parts of leases for equipment it no longer needs.
In its Sept. 10 objection, GE Capital said it leases a variety of equipment to Patriot Leasing Co. LLC under three master lease agreements. “By the Rejection Notice, the Debtors improperly seek to reject and abandon five individual pieces of equipment under one of the GE Leases without rejecting the applicable master lease,” GE Capital contended. “This ‘cherry picking’ is impermissible as a matter of law. GE Capital further objects to suggestions made in the Rejection Notice that the Debtors should be excused from their statutory obligation to timely perform all post-petition obligations under the GE Leases, including, but not limited to, the obligation to prepare and return equipment in accordance with the express terms of the GE Leases.”
GE Capital also objected to the adequacy of the Rejection Notice since it fails to provide adequate and sufficient information to enable GE Capital to: understand what action the bankrupt Patriot companies propose to take; or identify the individual pieces of equipment that they propose to “abandon.”
“GE Capital, therefore, objects to the Rejection Notice and respectfully requests that the Debtors be directed to comply with their obligations under Section 365(d)(5) of the Bankruptcy Code to timely perform all obligations arising under the GE Leases since the commencement of these cases,” GE Capital wrote.
“The Debtors apparently recognize that what they seek to accomplish is not sanctioned by the Bankruptcy Code, so the Rejection Notice has been prepared in a fashion that disguises its purpose, which is to selectively eliminate individual items of the Leased Equipment, thereby modifying the Lease,” GE Capital contended. “For example, the Rejection Notice identifies GE Capital’s equipment as ‘Expendable Property’ which ‘shall be abandoned pursuant to section 554(a) of the Bankruptcy Code.’ However, GE Capital’s equipment is not property of the estate, so section 554(a) is inapplicable. Of course, section 365(a) is also inapplicable since the Debtors are not seeking to reject the Lease.”
Macquarie had similar arguments to offer in its own Sept. 10 objection related to a Master Lease Agreement, dated July 29, 2011, which is set up with certain schedules within the agreement. “Simply put, the Debtors are not permitted to cherry pick from the Schedules, choosing to retain certain equipment and jettisoning others, and thereby unilaterally deprive Macquarie of the full benefit of its bargain,” the company said about five pieces of leased equipment Patriot wants to get rid of.
“The Debtors also cannot credibly argue that within a single schedule the equipment leased can be severed from the other equipment leased under that same Schedules and treated separately,” Macquarie added. “The terms of the relevant Schedules here do not provide the equipment is being leased or otherwise treated as individual units. To the contrary, the equipment in each Schedule is defined as a single unit with one, not multiple, rent charged. As further evidence of the non-severability of the equipment leased under the individual Schedules, each of the Schedules provides, for example, that as of a certain date, the Debtors have the option to purchase ‘all but not less than all of the Equipment.’ Accordingly, the Debtors’ ability to reject or assume its executory contracts is tempered by the fact that the Bankruptcy Code and uniform case law requires that it be an all or nothing proposition with respect to each lease.”