Patriot Coal files for Chapter 11 – again

July 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Patriot Coal Corporation and its wholly-owned subsidiaries have filed voluntarily petitions for restructuring under Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia.

The Chapter 11 bankruptcy filing lists Patriot Coal’s estimated assets and liabilities at more than $1bn.

The second-largest coal producer in the eastern United States (selling 21.5 million tons of coal in 2013, 48 percent of which was exported), Patriot Coal has been engaged in active negotiations for the sale of substantially all of its operating assets to a strategic partner. These assets include eight active mining complexes employing 2900 people in Northern and Central Appalachia, which extract metallurgical as well as thermal coal.

Additionally, Patriot Coal 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.

Patriot Coal is also involved in ongoing discussions with key stakeholders as it evaluates a range of strategic alternatives to maximise the value of its assets. Potential purchasers include Blackhawk Mining LLC, which bought some of James River Coal’s assets when it was in bankruptcy in 2014.

Formed in 2007, this is the second time Patriot Coal has filed for bankruptcy in the last three years. Falling coal prices and the subsequent erosion of liquidity, a slowdown in the seaborne market, as well as rising pension costs, were cited as the primary reasons for the filing in July 2012. After the restructuring, the company was taken private under debtor control, emerging from bankruptcy in December 2013.

However, early in 2015, Patriot Coal hired advisers Alvarez & Marsal Holdings LLC, Centerview Partners LP and lawyers Kirkland & Ellis LLP to explore restructuring options, including Chapter 11.

Whilst it explores these options, Patriot Coal has confirmed that its customer shipments and mining operations are to continue as usual during the restructuring process. To this end, the company has received a commitment for $100m in debtor in possession (DIP) financing led by a consortium of secured debt holders to support its continued operations. Upon approval by the Bankruptcy Court, the DIP financing, combined with cash generated from ongoing operations, will provide sufficient liquidity to support the business during the restructuring process.

“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,” said Bob Bennett, president and chief executive of Patriot. “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.”

Mr Bennett only assumed his position as president and chief executive in April, following the resignation of Bennett K. Hatfield. Prior to this, he was Patriot Coal’s senior vice president and chief marketing officer.

Although Patriot Coal has taken the Chapter 11 option, many other American coal producers are continuing to operate whilst on the edge of bankruptcy – testament to the struggles coal-mining companies in central Appalachia have faced in recent years. Fellow companies running at elevated risks include Walter Energy (WLT), Peabody Energy (BTU), Alpha Natural Resources (ANR) and Arch Coal (ACI).

As Michael Castle, chief financial officer at Xinergy, another coal producer, stated in a court filing in April 2015: “Declining demand for coal has caused many producers in the coal industry to curtail production, idle mines and lay off workers.”

Fraser Tennant