Court approval for Patriot Coal reorganisation

A US court in St. Louis has given approval to Patriot Coal’s proposed terms of reorganisation, which will allow the company to exit from bankruptcy with fewer retiree obligations, saving US$ 130 million/year for the next four years.

US bankruptcy judge Kathy Surratt-States – the same judge whom first ruled in favour of Patriot Coal in the company’s battle with America’s largest mining union – approved Patriot Coal’s disclosure statement. This statement provides creditors with the details of the company’s exit plan, so they can then vote on it. The plan includes an agreement with Peabody Energy Corp. that will compensate retired miners for health-care benefits.

Settlements and agreements

In October, Patriot Coal reached an agreement with Knighthead Capital Management, LLC, to financially sponsor the company’s emergence from bankruptcy. The US$ 250 million agreement will backstop two rights offerings in a reorganised Patriot. According to court papers, settlements between Patriot and Peabody Energy and Arch Coal Inc. would add a further US$ 150 million in value.

The Peabody settlement is set to provide US$ 310 million for Patriot retirees. The company agreed to make payments through 2017, as well as fund a group that will determine future benefits for the retirees.

Peabody Energy has faced criticism from the United Mine Worker’s Union (UMWA) for the role the union sees it as playing in the eventual bankruptcy of Patriot.

‘Set up to fail’

Patriot was created by Peabody in 2007, in a move that spun off operations and reserves in central and northern Appalachia, as well as the Illinois Coal Basin. The UMWA accuses Peabody of giving Patriot 16% of its assets and 40% of its retiree liability, thus setting it up to fail as a means of disposing of unprofitable assets.

Patriot acquired further retiree liabilities when the company acquired Magnum Coal in 2008. Magnum had been created in similar circumstances to Patriot, having been spun off from Arch Coal in 2005 in a move that saw Arch transfer 12% of its assets and 97% of its liabilities to Magnum.

When Patriot filed for bankruptcy in July 2012, citing a decreasing demand for coal and an obligation to pay US$ 1.6 billion in lifetime healthcare benefits for its 8100 retirees, over 90% of the retirees had never worked for Patriot.

A lawsuit filed against Arch Coal and Peabody Energy by the UMWA was dismissed at the end of September. The UMWA asserts that coal industry workers are entitled to lifetime benefits, a position that has been held since 1946, when President Harry Truman took control of the nation’s coal mines during a strike. However, in a 13-page order, Judge Joseph R. Goodwin granted motions by Peabody and Arch to dismiss the lawsuit.

Plans for reorganisation

Patriot’s plans for reorganisation come with approval to reduce pensions and benefits to 13,000 unionised workers and retirees. The UMWA and Patriot reaches an agreement in August, which included a limit to wage cuts to US$ 1/hour, down from US$ 7/hour that was allowed by Surratt States in her initial ruling in June. As of January 2015, workers will also be eligible for a US$ 0.50/hour pay rise.

The latest ruling allows Patriot to “immediately commence the process to solicit votes on its plan of reorganisation as outlined in filings with the court,” the company said in a statement.

Patriot’s CEO, Bennett K. Hatfield, said the court’s ruling “represent an important milestone on Patriot’s path to emergence [from bankruptcy].” “The rights offering and the settlements with Peabody and Arch lay the foundation for completion of our exit financing in the next few weeks. We remain on schedule for emergence from bankruptcy in mid to late December.”

 

Read the article online at: https://www.worldcoal.com/coal/07112013/court_approval_for_patriot_coal_reorganisation_237/