Patriot Coal reaches agreements, sees end to bankruptcy - WTRF 7 News Sports Weather - Wheeling Steubenville

UPDATES: Patriot Coal reaches agreements, sees end to bankruptcy

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  • Agreement settles issues dating back to Patriot's separation from Peabody

  • Patriot settles health care issues with UMWA and Peabody; still negotiating with Arch

  • Bankruptcy court to take up settlement Nov. 6

Patriot Coal Corp. says it could emerge from bankruptcy protection by the end of the now that it has settled issues with the United Mine Workers of America, Peabody Energy Corp. and Arch Coal Inc.

There are still some matters to be resolved, but the four parties issued statements Oct. 9 and 10 saying many of the major ones had been settled.

Among those is the status of retiree health benefits, a problem that led the UMWA to stage protests in West Virginia and elsewhere.

Settlement Basics

According to a statement issued late Oct. 9, Patriot said it has reached an agreement with Knighthead Capital Management to sponsor its emergence from bankruptcy. Patriot also said it has reached settlements with Peabody Energy Corp. and Arch Coal Inc. The agreements will provide Patriot "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," the statement said.

Under the terms of the plan, Patriot will receive an infusion of $250 million in new capital through a rights offering backstopped by Knighthead.

According to its website, Knighthead Capital Management is a New York-based registered investment adviser founded in 2008. The firm focuses on long-short investments and specializes in event-driven, distressed credit and special situation opportunities across a broad array of industries.

A recent article on the website of Real Estate Weekly said Knighthead has $4 billion in assets under management.

"Reaching these agreements represents a pivotal juncture in Patriot's restructuring.  With Knighthead's financial backing and the funding provided by Peabody and Arch, Patriot is now well-positioned to secure exit financing," Patriot President and Chief Executive Officer Bennett K. Hatfield said in the statement. "This sets a clear path forward for Patriot to emerge from Chapter 11 by year-end as a strong competitor in the coal industry."

UMWA Concerns

Patriot said the agreements will result in funding for the United Mine Workers of America-sponsored voluntary employee beneficiary association trust of more than $400 million to provide healthcare coverage for UMWA retirees.

According to a statement issued by the UMWA, Peabody will make payments totaling $310 million over the next four years. The money will be applied to future retiree health care benefits. Payments of $90 million will be made in 2014, followed by payments of $75 million each year at the beginning of 2015 and 2016, with a final payment of $70 million at the beginning of 2017.

Patriot has agreed to contribute $15 million to the VEBA in 2014, with up to an additional $60 million to be paid into the fund over the following three years. This is in addition to the production-based royalty payments Patriot will make to the VEBA in upcoming years that could provide more than $15 million, according to the UMWA.

For its part, the UMWA has agreed to relinquish the value of virtually all of its 35 percent stake in Patriot, which the union received as a result of a May 29 ruling by federal Bankruptcy Judge Kathy Surratt-States. The union has also agreed to halt its months-long public relations and direct action effort related to Peabody in St. Louis and elsewhere regarding the effects of the Patriot Coal bankruptcy, according to the UMWA.

"I am very pleased that we have been able to reach this agreement with Peabody and Patriot," UMWA International President Cecil E. Roberts said in a news release. "This is a significant amount of money that will help maintain health care for thousands of retirees who earned those benefits though years of labor in America's coal mines. This settlement will also help Patriot emerge from bankruptcy and continue to provide jobs for our members and thousands of others in West Virginia and Kentucky.

The UMWA statement notes that Patriot Coal was spun off from Peabody in 2007 and entered Chapter 11 bankruptcy reorganization on July 9, 2012. Surratt-States' ruling on May 29 allowed Patriot to quit paying health care benefits for retirees, and authorized the establishment of the VEBA, with initial funding of $15 million from Patriot and the 35 percent equity stake, to take over that responsibility, the UMWA said.

Several thousand of those retirees worked for subsidiaries of Arch Coal that were acquired by Patriot after the spinoff, the UMWA said. Arch has not yet settled with the UMWA on the matter.

"Arch still can step up and meet its obligation to these retirees," Roberts said. "We will continue to encourage them to do so in the coming days.

"This settlement, as significant as it is, still does not provide the level of funding needed to maintain health care for these retirees forever," Roberts added. "That is why we are continuing our efforts to pass bipartisan legislation in Congress that will put these retirees under the Coal Act, meaning their long-term health care benefits would be secured at no additional cost to taxpayers," Roberts said.

In a statement issued by Patriot, Hatfield said, "I am pleased that we have been able to reach agreements that provide the UMWA with hundreds of millions of dollars in retiree healthcare funding. 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."

Arch Coal

Under the terms of Patriot'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. Certain 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 certain 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 Nov. 6 hearing.

Arch issued its own statement in regard to the negotiations with the UMWA. It noted that a U.S. district court recently dismissed an ERISA claim the union had filed against Arch.

"In the wake of the U.S. District Court decision in favor of Arch, we have put forth a good faith offer to the UMWA for a settlement that would resolve all pending and potential legal claims brought by the UMWA, and we are in discussions with them on a potential resolution," Robert G. Jones, Arch Coal's senior vice president-law, general counsel and secretary, said.

Peabody Energy

Peabody has agreed to provide $310 million, payable over four years through 2017, to fund the VEBA and settle all Patriot and UMWA claims involving the Patriot bankruptcy

Peabody's existing contractual commitment to fund health care benefits for a certain group of Patriot retirees would terminate on Dec. 31. After that date, all health care benefits would be funded by the VEBA.

Peabody will also provide a $41.525 million letter of credit to secure the benefits of retirees, and it will replace $15 million in cash collateral secured by Patriot for federal black lung benefits.