Patriot Coal (OTC: PCXCQ) said Oct. 9 that it has achieved several major milestones toward successful emergence from bankruptcy, which the company detailed in a Disclosure Statement and an amended Plan of Reorganization filed that day with the U.S. Bankruptcy Court for the Eastern District of Missouri.
Patriot has reached an agreement with Knighthead Capital Management LLC to financially sponsor Patriot’s emergence from bankruptcy, which it has been in July 2012.
In addition, after months of litigation and negotiation with Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI), Patriot has entered into settlements with both companies. Patriot is largely made up of unionized mines formerly owned by Peabody and Arch.
These agreements will provide Patriot with a significant liquidity infusion and position it to obtain the exit financing necessary to emerge from Chapter 11 as a strong, well-capitalized business. Also, the agreements will result in funding for the United Mine Workers of America (UMWA)-sponsored Voluntary Employee Beneficiary Association (VEBA) trust of more than $400m to provide healthcare coverage for UMWA retirees.
“Reaching these agreements represents a pivotal juncture in Patriot’s restructuring. With Knighthead’s financial backing and the funding provided by Peabody and Arch, Patriot is now well-positioned to secure exit financing,” said Patriot President and CEO Bennett Hatfield. “This sets a clear path forward for Patriot to emerge from Chapter 11 by year-end as a strong competitor in the coal industry.”
Under the terms of the reorganization plan, Patriot will receive an infusion of $250m in new capital through a rights offering backstopped by Knighthead. Under agreements with the UMWA, Patriot will make $75m in direct cash payments to the VEBA, plus future payments from royalty and profit sharing commitments.
Patriot and the UMWA also reached a global settlement with Peabody that will provide the VEBA and Patriot with significant additional funding. Under the terms of the settlement, Peabody will provide $310m, payable over four years through 2017, to fund the VEBA and settle all Patriot and UMWA claims involving the Patriot bankruptcy. Additionally, Peabody will provide liquidity totaling approximately $140m to Patriot in the form of letters of credit. The final agreement is expected to be signed in the coming weeks and presented to the court for approval at a Nov. 6 hearing.
Under the terms of Patriot’s settlement with Arch, Patriot will receive $5m in cash and a release of a $16m letter of credit posted in Arch’s name. In addition, certain expiring coal leases in Patriot’s Logan County mining complex in southern West Virginia will be extended and Patriot will receive $16m in cash for the sale of certain non-strategic metallurgical coal reserves in northern West Virginia. As with the Peabody settlement, the final Arch agreement is expected to be signed in the coming weeks and presented to the court for approval at the Nov. 6 hearing.
As a result of the transaction with Knighthead and Patriot’s settlement with Peabody, the VEBA is expected to receive more than $400m in cash over the next four years, and will have continuing income from royalty payments and profit sharing opportunities. These agreements resolve all matters with the UMWA.
“I am pleased that we have been able to reach agreements that provide the UMWA with hundreds of millions of dollars in retiree healthcare funding,” added Hatfield. “The best result for the UMWA and its members is for Patriot to emerge from bankruptcy as a healthy company that will continue to provide jobs and benefits, and we are now on track to achieve that goal.”
Patriot Coal is a producer and marketer of coal in the eastern United States, with 11 active mining complexes in Appalachia and the Illinois Basin. Patriot ships to domestic and international electricity generators, industrial users and metallurgical coal customers, and controls approximately 1.8 billion tons of proven and probable coal reserves.