Patriot Coal Corp. (PCXCQ) should lose control of its reorganization next month, opening the bankrupt mining company to proposals from outside investors or a buyer, creditors and noteholders said.
A committee of unsecured creditors, noteholders Aurelius Capital Management LP and Knighthead Capital Management LLC, and the United Mine Workers of America today filed separate objections to Patriot’s bid to extend exclusive control over its bankruptcy by about four months.
“When exclusivity comes to an end on May 5, 2013, parties in interest should be free to file viable plans of reorganization and move these cases promptly toward a successful reorganization,” unsecured creditors said in a filing in U.S. Bankruptcy Court in St. Louis.
Patriot filed for bankruptcy in July, citing falling coal demand and $1.6 billion in lifetime health-care obligations for its 8,100 retirees. Patriot, based in St. Louis, is seeking to trim costs by negotiating with unionized employees. The company has said it must shed at least $150 million more in labor expenses to avoid liquidating in bankruptcy, an outcome it says would be worse for retirees, employees and creditors.
Patriot seeks 120-day extensions to deadlines of May 5 to file a plan and July 4 to win creditor support, giving the company those exclusive rights until Sept. 2 and Nov. 1.
The company needs an exit strategy to leave bankruptcy, requiring an investor to repay the bankruptcy loan, pay top priority claims in full, fund a trust Patriot has proposed to pay retirees, and give the company working capital to stay in business, creditors said. Ending exclusivity may allow a buyer or investor to step forward, said the UMWA, which represents about 42 percent of Patriot’s 4,000 employees.
“After 10 months and one previous extension of exclusivity, the debtors have no buyer and no investors, having barely commenced a search for them, and no plan to reorganize on a standalone basis, and are poised on the brink of a confrontation with the majority of their mining workforce,” the union said.
The two noteholders said Patriot’s failure to file a reorganization proposal by now shows the company has made “little headway.”
“Meanwhile, the debtors lurch towards liquidation,” Aurelius and Knighthead said. “By their own account, they may default on their post-petition financing facility as soon as this July -- barely more than 60 days from now.”
The noteholders have proposed an independent trustee to oversee the case, and seek to have the company separate some units from others. Of Patriot’s 99 units in bankruptcy, 86 have no liability to the company’s unions, they said.
Patriot’s exclusivity request and bid to cut costs by changing its UMWA agreements are set for a court hearing April 23. Patriot has proposed giving the union a 35 percent stake in the reorganized company.
The case In re Patriot Coal Corp., 12-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).
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