Patriot Coal Corp. (PCXCQ)’s disputes with its former parent and creditors intensified as Peabody Energy Corp. (BTU) contested a probe over Patriot’s 2007 spinoff and creditors differed over whether the company is more likely to liquidate with a trustee.
Peabody yesterday objected to Patriot’s proposal to investigate possible claims, saying the coal producer already plans to pursue a lawsuit and has set aside $2 million to fund it. In a filing in U.S. Bankruptcy Court in St. Louis, where both companies are based, Peabody said that it is already cooperating with information requests and restoring old e-mails and records at its own cost.
“None of this is legitimately necessary to ‘investigate’ a potential adversary proceeding against Peabody,” the company said in its filing. “If it were, Patriot would not have proposed already to set aside $2 million for a litigation trust to fund litigation against Peabody.”
In its request to probe Peabody, Patriot said the 2007 transaction that created it rid Peabody of $600 million in health-care and environmental liabilities.
“Patriot was solvent, adequately capitalized and positioned for success,” Peabody said in its objection, adding that the company controlled 1.2 billion tons of coal reserves and saw its stock price quadruple to $80 a share from $18 in the year after it was spun off.
Separately, Patriot creditors and lenders said yesterday that approving two noteholders’ request to appoint a trustee in the company’s Chapter 11 case may trigger a liquidation.
Patriot filed for bankruptcy in July, seeking to reorganize and shed some of the $1.6 billion it estimates is owed for lifetime health care for 8,100 retirees. On April 23, a judge is scheduled to consider the company’s motion to reduce benefits by changing an agreement with the United Mine Workers of America, which represents about 42 percent of its 4,000 employees.
The judge will also consider a request by noteholders Aurelius Capital Management LP and Knighthead Capital Management LLC to appoint an independent Chapter 11 trustee. Aurelius and Knighthead own 3.25 percent notes due this year and a majority of the 8.25 percent notes due in 2018, the funds said in court papers.
Patriot, its unsecured creditors and its bankruptcy lenders all said in objections filed yesterday that appointing a trustee would trigger a default on the company’s bankruptcy operating loan.
“Ironically, the noteholders point to a potential financial covenant default down the road as a reason for appointing a trustee, without acknowledging that the relief they request would ensure and greatly accelerate the crisis they allegedly want to avoid,” Patriot said.
Patriot also disputed the noteholders’ main argument for appointing a trustee -- that most of Patriot’s 99 units in bankruptcy don’t have obligations to its unions and retirees and can therefore be reorganized separately.
Any separation of Patriot’s units “would be utterly impracticable and severely damaging to the debtors’ business operations, resulting in value degradation for all of the debtors’ stakeholders,” Patriot said.
Citigroup Inc.’s Citibank and Bank of America Corp., agents to the loan, both said that the appointment of a trustee would constitute a default. Patriot’s access to cash collateral would end and lenders would “cease extending further credit,” Citibank said.
Wilmington Trust Co., as indenture trustee for Patriot’s $250 million in 8.25 percent senior notes due in 2018, said it supports the motion to appoint a trustee.
Patriot seeks to force the noteholders to disclose details of all their investments by April 23 or be barred from participating in the case, according to a separate motion filed yesterday. By complying with a bankruptcy rule that groups of investors state their holdings to the court, Patriot and the U.S. Trustee, a bankruptcy watchdog for the Justice Department, can “fully and accurately evaluate the actions and intentions of the noteholder group,” Patriot said.
Patriot also has been at odds with the noteholders and some creditors over whether it can keep the exclusive right to file its reorganization plan after May 5. Patriot has asked a judge to extend its control. Aurelius and Knighthead and a committee of its unsecured creditors say the bankruptcy should be opened up to proposals from an outside investor or buyer.
The case In re Patriot Coal Corp., 12-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).