As the case moved into July, Patriot had a deal to sell most of its Central Appalachian operations to Lexington, Kentucky-based Blackhawk, which agreed to serve as stalking horse bidder in any upcoming court-approved auction.
But the deadline for submitting counter offers to Blackhawk’s has changed. The initial deadline of August 7 is now September 4 following a late June order by Judge Keith Phillips of the U.S. Bankruptcy Court for the Eastern Division of Virginia. Patriot, based in Scott Depot, West Virginia, filed for Chapter 11 bankruptcy reorganization on May 12.
The United Mine Workers of America (UMWA), Patriot’s unsecured creditors committee and U.S. Trustee Judy Robbins had petitioned the court to extend the bidding procedures, arguing a later deadline could attract more offers in addition to Blackhawk’s. Under its non-cash transaction, Blackhawk would issue about $653 million of new debt securities, up from $643 million previously, to Patriot’s secured lenders while providing the lenders an ownership interest in Blackhawk, a growing Central Appalachian and Illinois Basin producer that expects to turn out about 10 million tons of coal in 2015.
Patriot’s largest secured lenders, including Davidson Kempner Capital Management LP, Caspian Capital LP, Knighthead Capital and Hudson Bay Absolute Return Credit Opportunities Master Fund Ltd., had urged the judge to retain the August 7 bid deadline.
Blackhawk is proposing to buy the Kanawha Eagle, Midland Trail/Blue Creek, Paint Creek, Wells, Rock Lick, Panther and Logan County mining complexes in Central Appalachia from Patriot, as well as river terminals Patriot controls. Most of the operations produce metallurgical coal, primarily for overseas markets.
Patriot’s Federal No. underground mine and prep plant in Monongalia County, West Virginia, are not included in the Blackhawk deal. The UMWA represents Federal 2 miners.
Patriot wants to consummate an asset sale by September, although the UMWA and unsecured creditors committee have asserted there is no need for such a timetable.
The unsecured creditors committee and UMWA’s 1974 Pension Plan experts contended that Blackhawk, or any other buyer, could afford to wait because “much of Patriot’s coal is sold overseas under contracts negotiated three months later, Patriot’s metallurgical coal is high quality, or Patriot can sell its coal as a debtor in possession.”
But the secured lenders said all of those opinions were “beside the point.”
Patriot, they said, is on track to run out of cash in November. As a result, “every coal buyer knows that it cannot rely on Patriot to deliver coal after November, and every potential bidder for Patriot’s assets has known for at least one month it must act now to buy Patriot as a going concern. The earlier a solvent buyer can acquire Patriot’s coal, the greater the sale price for that coal, the greater the value to the buyer, and the more the buyer will pay.”
The secured lenders have provided debtor-in-possession financing to Patriot while it navigates the time-consuming Chapter 11 process. They support Blackhawk’s proposal.
“It is Blackhawk’s judgment that it needs to acquire the debtor’s metallurgical coal assets in order to sell them under long-term contracts,” they said. “As a buyer of the business, Blackhawk wants to make its own decisions on metallurgical coal sales and not be saddled with decisions made by predecessor management.”
Indeed, Blackhawk’s position is one like any prospective buyer would take, they added. The secured lenders implored the court “not to jeopardize the debtors’ best chance of reorganization by driving Blackhawk away.”
Blackhawk is not going anywhere, according to Jesse Parrish, the company’s director of strategic planning and corporate communications, and the company is confident its offer eventually will be accepted.