Patriot Coal lender Deutsche Bank eyes denial of proposed asset sale

By Kali Hays

New York, June 17 – Patriot Coal Corp.’s ABL term loan lender Deutsche Bank AG objected to the company’s proposed bid procedures for the sale of operating assets and a term sheet with prospective buyer Blackhawk Mining LLC on Wednesday, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Patriot Coal filed a letter of intent with the court regarding the sale on June 3. Under the terms of the letter, Blackhawk would issue $643 million in new debt securities to Patriot’s secured lenders plus class B units, providing the lenders an ownership stake in Blackhawk.

Blackhawk would also assume or replace surety bonds supporting reclamation and related liabilities associated with the purchased assets.

Though the agreement with Blackhawk is subject to higher and better offers, Blackhawk would receive a $19 million break-up fee and reimbursement of up to $5 million of its expenses if it is not ultimately the high bidder, if Blackhawk terminates the purchase agreement or if the sale does not close by Sept. 25, subject to an extension of the closing date.

In its objection, Deutsche said that the bid procedures and term sheet “cannot be approved” and that Blackhawk’s offer “is nothing more than a proposal to consider a conditional transaction” that “includes no binding commitments at all.”

Regarding the conditional refinancing of Patriot’s secured debt, which includes $300 million of Blackhawk’s existing debt facilities, Deutsche said that it’s doubtful such a transaction will succeed.

“A new money refinancing of this magnitude seems out of the question given the state of the coal industry and so, to succeed, not only must the debtors cram down various groups of secured lenders, Blackhawk will have to convince its own lenders (of which there are multiple classes, each likely requiring 100% approval) to convert their debt into a new facility in a combined company,” the objection stated.

Moreover, Deutsche said that the proposed break-up fee and amount of expense reimbursement is “unconscionable” and is being used to induce Blackhawk to pursue a transaction that “provides the estates with no deposit and no consequence if it fails to come to a deal with the debtors.”

The lender said that “there is simply no business justification” for the proposed procedures and asked the court to deny Patriot’s motion for approval.

Patriot Coal, a Richmond, Va.-based miner, producer and seller of thermal coal, filed for bankruptcy on May 12 in the U.S. Bankruptcy Court for the Eastern District of Virginia. The Chapter 11 case number is 15-32450.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.