Patriot said it would close on its exit financing, complete its contemplated rights offering, and emerge from Chapter 11 on Dec. 18.
The St. Louis, Mo., bankruptcy court approved the adequacy of the company’s disclosure statement on Nov. 6. The company filed for Chapter 11 on July 9, 2012, in Manhattan, although the case was transferred to St. Louis later that year after contentious litigation on whether venue should be in New York, as the company wanted, or in West Virginia, as was being pressed by the United Mine Workers of America.
The primary source of conflict in the case was the funding of health care and other benefits for Patriot’s retirees. In a nutshell, the UMWA argued that Peabody Coal and Arch Coal created Patriot in order to off-load their retiree liabilities to a new entity, but the transaction intentionally did not provide Patriot with the ability to generate the income needed to maintain those benefits. That dispute was the subject of heated litigation as the company’s Chapter 11 wound its way through the bankruptcy process.
The key to the company’s reorganization was a settlement reached in the Fall between the company, Peabody, Arch, and the UMWA, with respect to the funding of health and retirement plans for the company’s retirees. Initially, the company had offered the union a 35% stake in the reorganized company to use to finance retiree benefits, but the union rejected that scheme. In the settlement, the union gave up the proposed ownership stake and Peabody, for its part, agreed to contribute more that $400 million to the UMWA-sponsored Voluntary Employee Beneficiary Association trust – $90 million in 2014, $75 million in 2015 and 2016, and a final payment of $70 million at the beginning of 2017. Patriot agreed to pay $15 million to the VEBA in 2014, with an additional $60 million paid into the fund over the following three years, in addition to production-based royalty payments that could provide more than $15 million, and Arch agreed to pay a smaller sum to the VEBA, as well (see “Patriot Coal settles with Peabody, Arch, files amended plan, LCD, Oct. 10, 2013).
In addition to the $175 million of additional liquidity that the company said was provided by the Peabody/Arch/UMWA deal, the company’s plan is funded by a $250 million backstopped rights offering for holders of senior notes (see “Patriot Coal to decide on exit lenders by next week,” LCD, Oct. 28, 2013) and a $576 million exit facility comprised of a $250 million term loan, a $125 million asset-backed revolver, and a $201 million letter of credit facility (see “Patriot Coal eyes $576M exit facility led by Barclays, Deutsche Bank,” LCD, Oct. 31, 2013). As reported, the term facility launched Dec. 11 at L+800, with a 1% LIBOR floor and a 98 offer price, versus original guidance of L+725-775, with a 1% LIBOR floor and a 99 OID. Moody’s assigned a B3 rating to both the term loan and the issuer. – Alan Zimmerman