Under filings with the U.S. District Court for Eastern Missouri, Patriot agreed with Knighthead Capital Management, LLC to sponsor its Chapter 11 withdrawal. This will result in funding for the United Mine Workers of America-(UMWA) sponsored Voluntary Employee Beneficiary Association (VEBA) trust of more than $400 million to provide healthcare coverage for UMWA retirees. Patriot was spun off from Peabody in 2007, and entered Chapter 11 bankruptcy in Q3 2012.

Patriot officials called the events a “pivotal” stage. “With Knighthead’s backing and the funding provided by Peabody and Arch Coal, Patriot is now well-positioned to secure exit financing,” said Patriot CEO Ben Hatfield.  “This sets a clear path forward for Patriot by year-end as a strong competitor in the coal industry.”

Under the plan, Patriot will receive $250 million in capital through a rights offering backstopped by Knighthead. Under its UMWA agreements, meanwhile, Patriot will make $75 million in direct cash payments to the VEBA, along with future royalty and profit sharing commitments.

Patriot officials and the UMWA further agreed to a global settlement wherein Peabody will provide the VEBA and Patriot significant additional funding. Peabody will also provide $310 million over four years through 2017 to fund the VEBA thus settling all Patriot and UMWA claims involving the bankruptcy. 

Peabody will also provide liquidity totaling $140 million to Patriot through letters of credit. Finalization is expected in the coming weeks and will be presented for court approval on November 6. 

For their part, UMWA representatives said they agreed to relinquish the 35% interest in Patriot they received after a May 29 ruling by Judge Kathy Surratt-States; the union also agreed to halt its campaign protesting the effects of the Patriot Coal bankruptcy.

“I am very pleased that we have been able to reach this agreement with Peabody and Patriot,” said UMWA International President Cecil E. Roberts. “This will help maintain health care for thousands who earned those benefits though years of labor in America’s coal mines.”