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Patriot Coal Secures Financial Sponsor, Plans Bankruptcy Emergence By Year-End

Patriot Coal Corp. (PCXCQ) late Wednesday said it has achieved several major milestones toward successful emergence from bankruptcy.

In a filing in the U.S. Bankruptcy Court for the Eastern District of Missouri, the firm said it reached an agreement with Knighthead Capital Management, LLC to financially sponsor Patriot's emergence from bankruptcy. In addition, after months of litigation and negotiation with Peabody Energy Corp. (BTU) and Arch Coal, Inc. (ACI), Patriot has entered into settlements with both companies.

These agreements will provide the company with a significant liquidity infusion and position it to obtain the exit financing necessary to emerge from Chapter 11 as a strong, well-capitalized business.

Additionally, the agreements will result in funding for the United Mine Workers of America or UMWA -sponsored Voluntary Employee Beneficiary Association or VEBA trust of over $400 million to provide healthcare coverage for UMWA retirees.

The company will receive an infusion of $250 million in new capital through a rights offering backstopped by Knighthead and will make $75 million in direct cash payments to the VEBA, plus future payments from royalty and profit sharing commitments.

The company and the UMWA also reached a 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 involving the Patriot bankruptcy.

Additionally, Peabody will provide liquidity totaling $140 million to the company in the form of letters of credit. The final agreement is expected to be signed in the coming weeks and presented to the Court for approval at the November 6 hearing.

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

Additionally, some expiring coal leases in Patriot's Logan County mining complex will be extended and Patriot will receive $16 million in cash for the sale of some non-strategic metallurgical coal reserves.

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

As a result of the transaction with Knighthead and the company's settlement with Peabody, the VEBA is expected to receive more than $400 million in cash over the next four years, and will have continuing income from royalty payments and profit sharing opportunities. These agreements resolve all matters with the UMWA.

by RTTNews Staff Writer

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