Union, lessors object to Patriot Coal plans

OREANDA-NEWS. June 22, 2015. The United Mine Workers of America (UMWA), Natural Resource Partners and other leaseholders and creditors are objecting to Patriot Coal's plans to sell most of its assets to Blackhawk Mining and auction off the rest.

More than a dozen groups filed separate objections with the US Bankruptcy Court for the Eastern District of Virginia by yesterday's deadline saying Patriot's proposal is, among other things, too unclear and has too short a time frame for creditors to properly consider options. They also claim that the agreement with Blackhawk has provisions that implicitly would block other potential bidders and possibly leave some of Patriot's creditors out of the money.

Patriot has filed for Chapter 11 bankruptcy petition while it sorts out its future.

Patriot's plan "is incomprehensible for parties that do not have a seat at the table where the deal is being written," Natural Resource Partners (NRP) said. The proposal, which was filed on 2 June, leaves open the possibility that the court could approve the agreement with Blackhawk at a hearing scheduled for 23 June, but since the companies have not included the formal asset purchase agreement, "the court is being asked to give an impermissible advisory on the justifiable business purpose of the sale, the good faith of the proposal and the fairness of the proposed prices of the sale," NRP said.

The plan also does not include any cash and is not clear on whether Patriot's leases will be assumed in total by Blackhawk, NRP said. Shonk Land, which leases four properties to Patriot subsidiaries in West Virginia, filed a similar complaint.

An attorney for Blackhawk declined to comment. Patriot also demurred, except to reiterate that it believes the proposed transaction "is in the best interest of Patriot, and its employees and stakeholders."

But the UMWA did not agree, saying that Blackhawk's term sheet "makes it clear" that it will not assume Patriot's obligations to the union including its pension plan and compromises that were hammered out during Patriot's 2013 restructuring.

The US Department of Labor filed an objection saying it was concerned Blackhawk's agreement to assume only future claims of black lung benefits for Patriot miners who continue to work at the properties it has proposed to buy will pass on more than \\$100mn in liabilities to the national trust fund.

The union also said it has given Patriot contact information for four other potential buyers that Patriot's investment bankers have not yet engaged with even though they have "significant coal mining and/or natural resource investments."

Blackhawk has agreed to be the stalking horse bidder to buy most of Patriot's thermal and coking coal mines in West Virginia as well as certain other assets, setting the floor price for auctions, for \\$643mn in new debt securities and stock. But the agreement says the deal must close by 25 September and has other provisions that likely would "chill" the bidding process for other potential buyers, including a break-up and expense reimbursement fee of up to \\$24mn, requirements that other bidders make cash deposits of up to 10pc of the purchase price and that any stalking horse for the Federal mine, which is not included in the sale to Blackhawk, be identified by 14 July.

"The sale process proposes unrealistically short time constraints and deadlines especially since the data room contains insufficient information to allow other bidders to adequately evaluate the assets," the UMWA said. In particular, the 7 August deadline for potential bidders to submit offers does not give those parties enough time to evaluate Patriot's assets "given the complex nature" of them and that Patriot has not provided current financial projections or mine-by-mine data.

The US trustee expressed similar concerns about the timing proposed by Patriot. It also said requiring other potential bidders to put up cash while Blackhawk is only paying debt "creates an unfair barrier to bona fide bidding."