Patriot Coal Corp. (PCXCQ) won court approval of the terms of a reorganization that will allow it to exit bankruptcy with fewer retiree obligations, saving $130 million annually for the next four years.
U.S. Bankruptcy Judge Kathy Surratt-States in St. Louis today approved the company’s disclosure statement, which gives creditors the details of the exit plan so they can vote on it. The plan includes an agreement with Peabody Energy Corp. (BTU) that will compensate retired miners for health-care benefits, which the judge also approved today.
The plan includes funding with a $250 million agreement with Knighthead Capital Management LLC to backstop two rights offerings in a reorganized Patriot. Settlements with Peabody and Arch Coal Inc. would bring the company another $150 million in value, according to court papers.
The Peabody settlement will fund $310 million for Patriot retirees. Peabody agreed to make payments through 2017 and fund a group that will determine future benefits for the retirees.
In 2007, Peabody spun off operations and reserves in central and northern Appalachia and the Illinois Basin to form Patriot Coal.
Patriot filed for bankruptcy in July 2012, citing a drop in coal demand and $1.6 billion in lifetime health-care obligations for its retirees. It said the spinoff left it responsible for the benefits of too many retirees, saddling it with liabilities of $1.3 billion or more.
The agreement between Patriot and Peabody, both based in St. Louis, faced only one objection. Mark Thomas Coady of Taylorville, Illinois, said he worked for more than 20 years in a Peabody mine and wants all of what the company once promised him.
“I am a retired and disabled coal miner and feel that Peabody’s spinoff of Patriot was unfair and illegally done,” Coady wrote in a letter to the judge.
Peabody said that Patriot was a viable company when it was spun off and that its acquisition of a separate company, Magnum Coal Co., along with a drop in coal demand and increased regulation, imposed its financial burden. In 2008, Patriot bought Magnum, which had acquired three Arch units in 2005.
During reorganization, Patriot won court approval of a proposal to reduce pensions and benefits to 13,000 unionized workers and retirees.
The United Mine Workers of America continued to press for contributions from Peabody, as well as Arch Coal. Patriot’s reorganization plan was also based on an agreement with workers completed in August after the company made more concessions under the threat of a strike.
Under a five-year contract that calls for wage changes and health-care benefits similar to those of nonunion employees, Patriot said its improved cost structure should help it succeed after it emerges from bankruptcy.
To contact the reporters on this story: Joseph Whittington in bankruptcy court in St. Louis at email@example.com; Tiffany Kary in U.S. bankruptcy court in New York at 1459 or firstname.lastname@example.org