ICON Magnum LLC, which leases a massive dragline located in southern West Virginia to Patriot Coal, filed a Dec. 10 objection with Patriot’s federal bankruptcy court about Patriot’s short schedule to reject that lease agreement.
ICON said it leases to the debtors a dragline in Madison, W.Va., that cost approximately $12.5m, weighs about 4,075 tons, and has a length of 411 feet. The dragline is currently used within a mine and will cost millions of dollars to remove, the company added. A dragline is basically a giant crane with a scoop, known as a “bucket,” that is used to set aside the rock and soil over coal seams at strip mines.
“Through the Rejection Notice, the Debtors seek to reject the lease and abandon the dragline, deemed ‘expendable property,’ effective as of December 12, 2012, without setting forth a reasonable process or timeline for abandonment,” ICON added. “In order to avoid additional claims against the Debtors’ estates, the effective date of rejection of the lease and the abandonment of the dragline should be extended to December 31, 2013.”
In May 2008, ICON, as lessor, and Magnum Coal and 32 of its subsidiaries, entered into a Master Lease Agreement for the purpose of establishing the terms and conditions by which ICON would lease equipment from time to time to the lessees. Patriot later acquired Magnum Coal. Also in May 2008, pursuant to the Master Lease Agreement, ICON, as lessor, and Hobet Mining LLC, entered into Schedule 1 to the Master Lease Agreement whereby ICON agreed to acquire at a cost of $12.5m a certain Bucyrus Erie model 1570 dragline.
In November 2008, the Master Lease Agreement was amended to add Patriot Coal and related Patriot entities as signatories to the Master Lease Agreement. Patriot and various subsidiaries on July 9 filed for Chapter 11 protection at the U.S. Bankruptcy Court for the Southern District of New York.
On Nov. 29, the debtors filed the rejection notice. Given the value and size of the equipment, the Master Lease Agreement contains specific provisions governing the return of the equipment, ICON noted. Upon termination of the Master Lease Agreement, the agreement requires the debtors to, among other things:
- provide ICON with a written, in depth condition/field service report confirming that the equipment has been properly tested, inspected, and examined;
- make all repairs required to place the equipment in operating order, repair, and condition; and
- provide a detailed inventory of all components of the equipment.
Section 10(b) of the Master Lease Agreement further requires the debtors to deliver the Equipment to a site directed by ICON. In addition, the debtors are required to, upon request, store the equipment for up to one year, with reasonable storage fees to be paid by ICON, during which time the debtors, at the expense of ICON, need to maintain and insure the equipment in accordance with the provisions of the Master Lease Agreement.
“The Rejection Notice does not ensure that the specific provisions in the Master Lease Agreement governing the return of the Equipment will be followed,” ICON told the court. “In fact, the Rejection Notice does not set forth a reasonable process for the abandonment and return of the Equipment. The Rejection Notice merely states that the Debtors seek to abandon the Equipment ‘to the lessor or sublessor party to the Lease Agreement associated with such [Equipment].’ The Debtors seek an Effective Date that is only two days away. This proposed Effective Date gives ICON only two days to arrange for the retrieval, storage, insurance, and maintenance of the Equipment. This extremely short time frame is unreasonable, unworkable and should be extended to December 31, 2013. Failure to provide a reasonable timeline for the return of the Equipment will only increase the claims against the Debtors’ estates.”
Notable is that in November, Patriot agreed with environmental groups to limit its future “large scale” surface mining, which, along with a need to rework its finances and also respond to current slack steam coal market conditions, mitigates its continued need for a major piece of equipment like this dragline.