Patriot Coal Bondholders Seek Trustee for Bankruptcy
Two Patriot Coal Corp. (PCXCQ) bondholders, claiming the majority of its 99 units in bankruptcy don’t have obligations to unions and retirees, are seeking the appointment of a trustee to oversee how assets are distributed.
The U.S. mining company’s bankruptcy is being mismanaged because it assumes all the units have obligations to the collective bargaining or retiree health care agreements of the United Mine Workers of America, Aurelius Capital Management LP and Knighthead Capital Management LLC, said in court papers filed yesterday in U.S. Bankruptcy Court in St. Louis. Their bid for a trustee sets up a dispute over how bondholders and unions are treated in the Chapter 11 case.
Patriot filed for bankruptcy in July, seeking to reorganize and shed some of the $1.6 billion it estimates is owed to pay for lifetime health care for 8,100 retirees. The company said in a statement today that it will oppose the bondholders’ request.
The motion “is a misguided, costly and disruptive distraction at a time when the company is focused on achieving the cost savings it needs to reorganize successfully and protect the interests of all stakeholders,” Michael Freitag, a Patriot spokesman, said in the statement.
Aurelius and Knighthead own 3.25 percent notes due 2013 and a majority of the 8.25 percent notes due 2018, the funds said. They seek an independent Chapter 11 trustee to oversee the case and said that without one, the company is moving “inexorably towards liquidation.”
“Compounding the problem, rather than moving expeditiously to take the non-obligor debtors out of bankruptcy, the debtors- in-possession have spent nine months negotiating with the UMWA about these illegal proposals,” the funds wrote.
Patriot has proposed moving retiree health-care benefits to a trust, known as a Voluntary Employee Beneficiary Association or VEBA. The VEBA would be funded by all of the company’s 99 units, including 13 of them that don’t have obligations to unions and retirees, the funds said.
While the amount Patriot would owe retirees under the new agreements hasn’t been determined, it’s estimated at $1 billion, according to court papers.
Patriot has proposed pay cuts and benefit changes for unionized employees in bankruptcy, and also sued Peabody Energy Corp. (BTU) to force its former parent to keep paying for the health- care costs of certain retirees who were employed by Peabody before Patriot’s 2007 spinoff.
The company’s bankruptcy filing came after U.S. coal demand tumbled amid increased competition from cheaper and natural gas and as it faced stricter environmental regulations. Patriot said it was at a disadvantage to competitors because 41 percent of its workforce is unionized.
Separately, Wilmington Trust Co., a trustee for the company’s $250 million in 8.25 percent notes, today objected in court papers to a motion to form an equity committee.
Shareholders who seek to form a committee to represent their interests in the case can’t prove that there will be any money left over for equity once bondholders are repaid, Wilmington Trust said.
The company has said it needs to reduce its labor costs by at least $150 million, and the company’s bonds trade at a discount, signs that there will be no money left for shareholders, Wilmington said.
Patriot’s shares most recently traded at 10 cents on the dollar March 28. Its 3.25 percent senior convertible notes due 2013 last traded at 12.08 cents on the dollar, and its 8.25 percent notes last traded at 48.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The case In re Patriot Coal Corp., 12-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).
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