The Patriot reorganisation

PATRIOT Coal has secured a financial sponsor, reached key funding settlements and is planning to emerge from bankruptcy by year’s end.

Noel Dyson

Knighthead Capital Management has agreed to financially sponsor Patriot’s emergence from bankruptcy.

In addition, after months of litigation and negotiation with Peabody Energy Corporation and Arch Coal, Patriot has entered into settlements with both.

The agreements will give Patriot a significant liquidity infusion and position it to get the exit financing needed to come out of Chapter 11 as a strong, well-capitalised business.

Additionally, the agreements will give funding for the United Mine Workers of America-sponsored Voluntary Employee Beneficiary Association trust of more than $US400 million ($A423 million).

The trust is to provide healthcare cover for UMWA retirees.

“Reaching these agreements represents a pivotal juncture in Patriot’s restructuring,” Patriot president and CEO Bennett Hatfield said.

“Patriot is now well positioned to secure exit financing. This sets a clear path for Patriot to emerge from Chapter 11 by year-end as a strong competitor in the coal industry.”

Under the plan Patriot will get $250 million in capital through a rights offering backstopped by Knighthead.

Pursuant to agreements with the UMWA, Patriot will make $75 million in cash payments to VEBA plus future payments from royalty and profit sharing commitments.

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

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

Additionally, Peabody will provide Patriot with $140 million in the form of letters of credit.

The final agreement is expected to be signed in the coming weeks and presented to the Bankruptcy Court for approval at the November 6 hearing.

Under the terms of Patriot’s settlement with Arch, it will receive $5 million and a release of a $16 million letter of credit posted in Arch’s name.

In addition, certain expiring coal leases in Patriot’s Logan County mining complex will be extended and Patriot will get $16 million cash for the sale of certain non-strategic metallurgical coal reserves.

As with the Peabody settlement, the Arch deal is expected to be signed in the coming weeks and presented for approval at the November 6 hearing.

The $400 million going to VEBA, along with the royalties, will settle all matters Patriot has with the UMWA.

“I am pleased we have been able to reach agreements that provide the UMWA with hundreds of millions of dollars of retiree healthcare funding,” Hatfield said.

“The best result for the UMWA and its members is for Patriot to emerge from bankruptcy as a healthy company that will continue to provide jobs and benefits and we are now on track to achieve that goal.”

Patriot’s fall into bankruptcy last year was a tangible sign of the hard times hitting the US coal industry.

It cited falling coal prices as one of the drivers for its Chapter 11 push.

Perhaps its emergence from bankruptcy will also mark the signs of a turnaround.

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