Patriot Coal Corp., a large U.S. coal producer, announced it and substantially all of its wholly-owned subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. Chapter 11 gives companies a chance to restructure rather than close.
“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,” said Patriot Chairman and CEO Irl F. Engelhardt. “Our objective is to use the reorganization process to address important issues in an orderly way and make the company stronger and more competitive.”
The court granted Patriot interim approval of its $802 million Debtor-in-Possession (DIP) financing (DIP) from Citigroup Global Markets, Barclays Bank and Merrill Lynch. Pierce, Fenner & Smith Inc., as joint lead arrangers, has granted Patriot interim authorization to access immediately $677 million of the DIP financing. The DIP financing and cash from the company’s ongoing operations will provide Patriot with financial flexibility to operate its business in the ordinary course, including funding post-petition payments to suppliers and meeting other customary business obligations, during the reorganization process.
In addition, the court also granted interim authorization for Patriot to continue to pay wages and provide health care and other benefits to employees, use existing cash management systems, and take certain other actions to help ensure that Patriot’s mining operations and customer shipments continue in the ordinary course.
“We remain firmly committed to serving our customers and to being a good employer by maintaining safe, productive operations as we undertake this process,” said Patriot President and COO Ben Hatfield. “The skills of our employees and the quality of our service provide an excellent platform for Patriot’s future success. We appreciate the ongoing dedication of our employees, whose hard work is critical to our success and the future of our company.”
Patriot’s business outlook has been impacted by a number of challenges that are affecting the coal industry, including reductions in U.S. thermal coal demand due to competition from low priced natural gas, challenging environmental regulations affecting the cost of producing and using coal, and weaker international and domestic economies. The company has reacted to the lower domestic demand by reducing production and increasing sales to the export markets. During recent months, the cancellation of customer contracts, lower thermal coal prices and rising expenditures for environmental and other liabilities have severely constrained the company’s liquidity and financial flexibility.