Patriot Coal, which underwent one round of Chapter 11 bankruptcy reorganization earlier this decade, announced May 12 that it is engaged in active negotiations for the sale of substantially all of the company’s operating assets to a strategic partner.
The company is also engaged in ongoing discussions with key stakeholders as it evaluates a range of strategic alternatives to maximize the value of its assets. In conjunction with these activities, Patriot and its wholly-owned subsidiaries on May 12 filed voluntary petitions for restructuring under Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Virginia, in Richmond, Va. The company intends to complete its review of strategic alternatives and present a value-maximizing restructuring plan to the court as quickly as possible.
Patriot said it expects its customer shipments and mining operations to continue in the ordinary course during the restructuring process. The company has received a commitment for $100 million in debtor in possession (DIP) financing led by a consortium of the company’s secured debt holders to support its continued operations. Upon approval by the court, the DIP financing, combined with cash generated from ongoing operations, will provide enough liquidity to support the business during the restructuring process.
Bob Bennett, President and Chief Executive Officer of Patriot, said: “In light of the challenging market conditions, and after a comprehensive review of our alternatives, the Board and management team have determined that this process represents the best path forward for Patriot and its stakeholders. Patriot is dedicated to operational and environmental excellence and, as always, we remain committed to operating safely and serving our customers throughout this restructuring process. We greatly appreciate the continued support of our customers and our suppliers and the ongoing hard work of our employees.”
One of its first-day motions was to be allowed to sign and perform under coal sales contracts during the course of this Chapter 11 case. “Because Coal Sale Contracts are long term agreements (sometimes continuing for several years), and because Coal Sale Contracts often cover very large quantities of coal and involve millions of dollars in aggregate purchase price, counterparties may be unwilling to transact with the Debtors without specific authorization from this Court,” the company wrote. “If the Debtors had to seek Court approval every time they wished to enter into a new Coal Sale Contract, the Debtors believe that they would be at a competitive disadvantage to their competitors, resulting in a loss of customers and revenues, thus endangering their chances of successfully restructuring. In the highly competitive coal market, the Debtors must be able to enter into Coal Sale Contracts quickly and efficiently or else they risk losing revenue if certain counterparties are unwilling to accept any perceived risk regarding whether the Coal Sale Contracts are within the ordinary course of the Debtors’ business.”
The term “Debtors” is used because Patriot Coal and various subsidiaries have sought Chapter 11, with another first-day motion being to combine the cases for administrative purposes.
Patriot Coal, now based in West Virginia after moving from an initial corporate headquarters in St. Louis, is a producer and marketer of coal in the eastern United States, with eight active mining complexes in Northern and Central Appalachia. It has shut down operations in western Kentucky. Patriot ships to domestic and international electricity generators, industrial users and metallurgical coal customers, and controls approximately 1.4 billion tons of proven and probable coal reserves.