Patriot Coal Corp. has lined up a deal to sell most of its operating mines to Blackhawk Mining LLC.

Blackhawk is offering to swap out some of Patriot Coal’s funded debt, which tops $791 million, for new debt securities totaling about $643 million and a slice of equity.

The proposed transaction involves rights offerings to raise up to $50 million for a new Blackhawk company to be created as part of a chapter 11 plan, Patriot’s second of recent years.

Patriot passed through bankruptcy in 2012 and 2013 and emerged, only to retreat to chapter 11 again in May, blaming low demand for coal.

Patriot President and Chief Executive Bob Bennett said, “We feel strongly that the proposed transaction with Blackhawk is in the best interest of Patriot, and its employees and stakeholders.”

The new company to be created out of the proposed deal won’t be taking on Patriot’s contracts with the United Mine Workers of America, its obligations to retirees or its employee-benefit plans, court papers say.

The offer was outlined in papers filed in the U.S. Bankruptcy Court in Richmond, Va., hours ahead of a key hearing for cash-strapped Patriot.

The company is due in court Wednesday to seek final approval of $100 million bankruptcy financing that puts it on the fast track to a sale. Unsecured creditors and lenders left outside the deal negotiations have questioned the bankruptcy financing package.

Patriot’s offer from privately owned Blackhawk speeds up the timeline required by the financing, requiring a sale to close by Sept. 25 if the deal is to hold.

Blackhawk will acquire complexes known as Panther, Rock Lick, Wells, Kanawha Eagle, Midland Trail/Blue Creek and Paint Creek, as well as the Stanley Fork, Cub Branch and the Franco preparation plant and load-out in Logan County, and all controlled river docks.

Not included in the sale to Blackhawk are Patriot’s Federal Complex in northern West Virginia and some other assets. They will be sold separately.

If other bids emerge, Blackhawk’s offer will be tested at an auction in August. Patriot is offering Blackhawk a $19 million breakup fee and up to $5 million of expenses as consolation if there is a competition and Blackhawk is beaten.

According to court papers, the transaction came together in negotiations that included senior lenders and holders of second-lien debt. Knighthead Capital Management, LLC, Caspian Capital LP and Davidson Kempner Capital Management LP are among the investment funds involved in the deal.

The Wall Street Journal

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