Patriot Coal: Approvals put company on track to emerge by end of year

By Lisa Kerner

Charlotte, N.C., Nov. 6 - Patriot Coal Corp.'s disclosure statement was approved on Nov. 6 by the U.S. Bankruptcy Court for the Eastern District of Missouri, according to an attorney familiar with the case.

The plan confirmation hearing is scheduled for Dec. 17, the attorney said.

Treatment of creditors under Patriot Coal's amended plan will include the following:

• Debtor-in-possession facility claims, administrative claims, priority tax claims and other priority claims will be paid in full in cash;

• Holders of other secured claims will either be paid in full in cash, have their claims reinstated, receive proceeds from the sale of the collateral securing the claims or receive that collateral;

• Holders of eligible senior notes parent claims will receive a share of rights and a stock allocation. Those not eligible to receive the rights will receive a share of a cash consideration;

• Holders of convertible notes claims and general unsecured claims will receive a share of rights and a stock allocation. Those not eligible to receive the rights will receive a share of a convenience class distribution;

• Holders of convenience class claims will receive a share of a cash convenience class distribution; and

• Holders of interests in Patriot Coal and section 510(b) claims will receive no distribution.

Union settlement approvals

Also on Wednesday, the court approved settlements with Peabody Energy Corp. and Arch Coal, Inc. after months of litigation and negotiation.

As previously reported, the agreements result in more than $400 million in funding for the United Mine Workers of America (UMWA)-sponsored Voluntary Employee Beneficiary Association (VEBA) trust to provide health-care coverage for UMWA retirees.

In accordance with the agreements with the UMWA, the company will make $75 million in direct cash payments to the VEBA, plus future payments from royalty and profit-sharing commitments.

Patriot Coal and the UMWA also reached a global settlement with Peabody that will provide the VEBA and the company with significant additional funding.

Under the settlement, Peabody will provide $310 million, payable over four years through 2017, to fund the VEBA and settle all Patriot and UMWA claims related to the Patriot bankruptcy.

According to the UMWA, a $90 million payment will be made in 2014, followed by payments of $75 million each year at the beginning of 2015 and 2016, with a final $70 million payment at the beginning of 2017.

Peabody Energy said its contractual commitment to fund health-care benefits for a specified group of Patriot retirees would terminate on Dec. 31. After that, all health-care benefits would be funded by the VEBA.

Also, Peabody will provide $140 million of liquidity to Patriot Coal in the form of letters of credit.

Peabody said in an 8-K filed with the Securities and Exchange Commission that about $56 million of this credit support is tied to Patriot's Coal Act obligations that Peabody agreed to fund at the time of the Patriot spinoff and Patriot's Federal Black Lung obligations, for which Peabody could be held responsible if Patriot fails to fund the obligations when due.

For its part, the UMWA said it agreed to relinquish the value of virtually its entire 35% stake in Patriot, which the union received as a result of a May 29 ruling.

As of June 30, Peabody had roughly $274 million in accumulated post-retirement health-care benefit obligations to Patriot on account of Patriot retirees under the NBCWA agreement.

Peabody said it also had about $351 million in other accumulated post-retirement health-care benefit obligations to Patriot retirees under a Section 9711 Coal Act liabilities assumption agreement and salaried employee liabilities assumption agreement as of June 30. These obligations will continue.

Under the company's settlement with Arch, Patriot Coal will receive $5 million in cash and a release of a $16 million letter of credit posted in Arch's name.

Rights offering, exit

The court also authorized Patriot Coal to move forward with its proposed rights offerings in conjunction with its plan. The plan will be fully backstopped by Knighthead Capital Management, LLC and certain affiliates, according to a Patriot Coal news release.

In addition, the court approved an agreement with Barclays and Deutsche Bank to arrange new exit financing and post-emergence credit facilities of $576 million.

"Today's actions by the court represent important milestones on Patriot's path to emergence as a strong, well-capitalized competitor in the coal industry," said Patriot president and chief executive officer Bennett K. Hatfield.

"We remain on schedule for emergence from bankruptcy in mid-to-late December."

Patriot Coal, a St. Louis-based miner, producer and seller of thermal coal, filed for bankruptcy on July 9, 2012 in the U.S. Bankruptcy Court for the Southern District of New York. The case was transferred to the U.S. Bankruptcy Court for the Eastern District of Missouri under Chapter 11 case number 12-51502.

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