In a move to help hundreds of active and retired United Mine Workers of America (UMWA) members, Judge Shelley Chapman on Nov. 27 ordered that the Patriot Coal Chapter 11 cases be moved from New York to near Patriot Coal’s headquarters in St. Louis.
The judge, sitting in the U.S. Bankruptcy Court for the Southern District of New York, had been handling the combined cases of Patriot and various of its subsidiaries since their filing on July 9. The UMWA, which represents many of the Patriot workers, wanted it transferred to Charleston, W.Va., closer to many of the Patriot operations. Patriot said the New York court was a better venue since it is more sophisticated in bankruptcy matters and near its major lenders.
“The narrow question before the Court is deceptively simple – should the chapter 11 cases of Patriot Coal Corporation and its ninety-eight affiliated debtors be transferred to another district?” wrote Judge Chapman. “The broader question before the Court, however, is dauntingly complex – what is justice? In order to answer the narrow question the Court must attempt to answer the broader question and give meaning to the ‘interest of justice’ test for venue transfer set forth in [federal code]. This decision will thus address not only the relatively scant case law on venue transfer in large bankruptcy cases but will also examine the historical basis of the concept of venue; the decades-old controversy surrounding the domicile/affiliate rule; and, last but not least, the meaning of justice in the context of the Patriot cases.”
The judge added: “The employees’ lives and livelihoods depend on the outcome of these cases. The retirees’ health and access to health care depend on the outcome of these cases. Indeed, without the dedication and sacrifice of the coal miners and their families, there would be no coal, and there would be no Patriot Coal. That being said, this chapter 11 proceeding is not a two-party dispute. It is not ‘UMWA v. Patriot.’ It is not ‘us v. them.’ It is a collective proceeding in which the Bankruptcy Court is charged with applying the Bankruptcy Code and other applicable law to achieve the overarching goal of chapter 11 – to maximize the value of the Debtors’ estates for the benefit of all stakeholders and guide the Debtors, if at all possible, through chapter 11 and beyond to emergence as a stronger company, financially and operationally. This decision will determine which bankruptcy court will have that privilege and responsibility.”
The judge said that while St. Louis may not be as convenient as Charleston for some employees and retirees, it is by no means remote from coal country. “Indeed, the evidence reflects that more Patriot retirees live in the Illinois Basin than in West Virginia or any other location,” the judge noted. “St. Louis is accessible by car or bus from southern Illinois, southern Indiana, and Kentucky. St. Louis is also a convenient and accessible transportation hub for the many parties-in-interest and professionals who will be required to travel to hearings. And, as was demonstrated by the video broadcast of the Hearing, technology can and should be utilized to allow unlimited real-time access to these proceedings for those who are unable to travel to St. Louis.”
The judge concluded: “As it would have been a great privilege to preside over these cases, it is with considerable regret that the Court concludes that the Patriot chapter 11 cases shall be transferred to the United States Bankruptcy Court for the Eastern District of Missouri, in the interest of justice pursuant to [federal code].”
Patriot worked out deal with Arch on agreement termination
Patriot Coal and its related subsidiaries filed a Nov. 27 request with the New York bankruptcy court asking for approval of an agreement between Patriot and its Magnum Coal Co. LLC unit, and Arch Coal (NYSE: ACI) and Arch Coal Sales.
Arch has agreed that it will not contest the Patriot companies’ motion filed Sept. 20 to reject certain coal sales agreements, and also the currently existing surety agreement executed in March 2008 by and between Arch Coal and Magnum, as amended by Amendment No. 1, dated as of February 2009, and Amendment No. 2 dated as of April 2011, and the guarantee, dated as of April 2011.
These deals will be terminated and replaced and superseded by a new surety agreement and guarantee dated Nov. 27 between Patriot and Magnum, and Arch Coal. Under some of the agreements to be rejected, Magnum agreed to sell, and Arch Coal Sales agreed to buy, the coal required to satisfy Arch Sales’ independent obligations under certain “Third Party Contracts.”
Arch has agreed not to contest any of the relief sought in the rejection motion, including the entry of an order by this court effectuating the rejection of the rejected agreements and declaring, inter alia, that the debtors do not have any obligations under the Third Party Contracts.
Concurrent with the execution of the agreement, the parties entered into the surety agreement, which replaced and superseded the terminated agreements.
Under the terminated agreements, Patriot posted a letter of credit in favor of Arch equal to approximately 46% of the amount of the surety bonds posted by Arch in favor of Magnum, which secured mining permits at former Arch mines controlled by Magnum. The terminated agreements required Magnum to use “best faith” efforts to replace the surety bonds and release Arch from its obligation to post them. Under the terminated agreements, if one of the rejected agreements was terminated for any reason: Arch could demand that Magnum cease coal production under the permits secured by the surety bonds; and Magnum was required to post a letter of credit equal to the full amount of the surety bonds.
Under the new surety agreement, Magnum agrees to use “commercially reasonable efforts” to replace the surety bonds within seven years of the date of the surety agreement and agrees to post a letter of credit equal to the full amount of the surety bonds if it fails to replace the surety bonds within three years after emergence from bankruptcy following the court’s confirmation of a plan of reorganization for the debtors.
Patriot guaranteed Magnum’s obligations under the terminated agreements and guarantees Magnum’s obligations under the surety agreement.