By Tiffany Kary and Dawn McCarty, Bloomberg, Jul 9, 2012
Patriot Coal Corp. (PCX) filed for bankruptcy after milder winters and a shift to natural gas sent coal demand to a 24-year low.
The company’s Chapter 11 petition listed $3.57 billion in assets and $3.07 billion in debts. The filing in U.S. Bankruptcy Court in Manhattan said dozens of the company’s units would join in the filing.
“The coal industry is undergoing a major transformation and Patriot’s existing capital structure prevents it from making the necessary adjustments to achieve long-term success,” Patriot Chief Executive Officer Irl F. Engelhardt said in a statement that cited lower thermal coal prices, canceled customer contracts and rising costs for environmental liabilities for increasing pressure on the company in recent months.
Patriot already has a loan to finance operations in bankruptcy and expects its mining operations and customer shipments to continue through the case, the company said in its statement. The $802 million loan, which still requires court approval, is through Citigroup Global Markets Inc., Barclays Bank Plc, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers.
The company will also seek court approval to pay employees and continue health care and other benefits, according to the statement.
Patriot has 13 active mining complexes in Appalachia and the Illinois Basin and controls an estimated 1.9 billion tons of coal reserves, according to its website. It sells thermal coal to electricity generators and metallurgical coal to steel and coke producers.
Wilmington Trust Company, and U.S. Bank National Association were among Patriot’s largest unsecured creditors, according to court papers. The filing listed BlackRock Inc., State Street Corporation and The Vanguard Group Inc. as entities that control 5 percent or more of the voting stock in the company.
Shares closed at 61 cents after falling from an intraday high of $2.09 today in New York Stock Exchange composite trading. They tumbled 73 percent this year through July 5.
The company’s $250 million in 8.25 percent notes due 2018 traded at 34 cents on the dollar as of 5:17 EST today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its $200 million in 3.25 percent notes due 2013 last traded at 26 cents on the dollar at 5:20 EST today.
U.S. coal use in the first quarter was the lowest for that period since 1988, according to the Energy Information Administration. Utilities have switched some power plants to cheaper natural gas as regulations restricting emissions make coal costlier to burn. Gas fell to a decade low in April amid a surplus of the fuel.
This year, Patriot has reduced thermal coal production by more than 4 million tons, trimmed costs and laid off 1,000 employees or contractors, according to a May 9 filing with the U.S. Securities and Exchange Commission.
Patriot has worked to refinance debt since at least May, when it said it hired Blackstone Group LP while meeting with lenders to complete loan and credit facilities. Also that month, Engelhardt took over as Patriot’s chief executive officer after Richard M. Whiting resigned.
The company postponed closing a $625 million, 9.5 percent five-year loan after saying May 14 that a key customer might default on a contract for coal that had fallen as much as $30 a ton below the original contracted price. The same day, the company cut a 2012 forecast for sales of steelmaking coal.
On June 1, Patriot filed a complaint in federal court in Charleston, West Virginia, alleging that Fort Meyers, Florida- based Keystone Industries LLC breached a contract to buy “hundreds of thousands of tons” of coal. Later that month, Principal Accounting Officer Christopher Knibb resigned and was replaced by Chief Financial Officer Mark Schroeder, according to filings with the SEC.
Patriot got 87 percent of its 2011 revenue from coal mined in the Central Appalachian region of the U.S., which includes Kentucky and West Virginia. Its operating costs in Appalachia were $71.06 a ton last year while the average price of Central Appalachian coal futures was $75.86.
The bankruptcy case is In re Patriot Coal Corp.; 12-bk- 12900; U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Tiffany Kary in New York at firstname.lastname@example.org; Dawn McCarty in Wilmington, Delaware at email@example.com.