Patriot dodges loan default

PATRIOT Coal has avoided defaulting on its loan by arranging an agreement with its debtor to relax certain financial covenants.
Patriot dodges loan default Patriot dodges loan default Patriot dodges loan default Patriot dodges loan default Patriot dodges loan default

Courtesy Patriot Coal

Staff Reporter

The bankrupt company said in July court papers that falling prices for metallurgical coal had cut into the company’s earnings forecasts over the past year.

“As the court is aware, in the past year the debtors have had to contend with continuous and sharp declines in the demand for and price of metallurgical coal and the negative effects that such downward trends have had on the debtors’ internal financial forecasts,” Patriot said in papers filed in Manhattan Bankruptcy Court on July 30.

“Accordingly, because these downward trends in the coal markets have continued unabated, the debtors currently believe there is a substantial likelihood that if the amendment is not approved they may not comply with the current earnings before interest, tax, depreciation and amortization thresholds beginning in the third quarter of 2013.”

A default on the loan could have prevented lenders from having to finance Patriot for the remainder of its bankruptcy case but instead an agreement was settled on Wednesday night to lower the operating earnings thresholds in return for additional fees.

According to Bloomberg, debtor-in-possession revolver lenders backing the $125 million bankruptcy credit line would receive a payment of 0.5% of their commitment.

Meanwhile, the DIP term loan lenders would receive a 1.5% fee on their outstanding $375 million first-out and $302 million second-out loan tranches.

The amended loan agreement also requires Patriot Coal to obtain committed bankruptcy exit financing by October 31.

A bankruptcy hearing to approve the Patriot amendment is scheduled for August 20.

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