Coal news and updates

Patriot Coal Again Files for Chapter 11 Bankruptcy

Plummeting energy prices sent Patriot Coal Corp. back to chapter 11 bankruptcy protection on Tuesday, just 18 months after it last emerged from court supervised restructuring with hopes of tapping into a revitalized coal market.

The West Virginia coal miner, which came under the control of bondholders during its 2013 stint in bankruptcy protection, said it is in “active negotiations” to sell itself under the supervision of the U.S. Bankruptcy Court in Richmond, Va. It didn’t identify a potential buyer.

Potential purchasers include Blackhawk Mining LLC, a closely-held Lexington, Ky.-based producer that last year bought some of James River Coal Co. ’s assets in bankruptcy, according to people familiar with the matter.

A cash crunch forced Patriot to file for protection, said people familiar with the matter. The company’s secured lenders have agreed to provide a $100 million loan that would allow it to continue operations with the court’s approval.

Restructuring executive Ray Dombrowski, in a court filing, blamed external pricing pressure, increasing regulation and liabilities that survived the earlier bankruptcy for its return trip. The court petition estimated assets and debts each of over $1 billion, and the latter includes $791 million in secured debt.

The Scott Depot, W. Va.-based company has struggled with high costs as power companies turned away from coal-fired plants in favor of cheaper natural gas generated by the U.S. shale energy boom. Demand for coal used in steelmaking also has fallen amid China’s economic slowdown and rising production in Australia. Patriot sells both types of coal.

Patriot isn’t the only coal producer struggling. Walter Energy Inc. is discussing recapitalization options with creditors amid a “challenging…pricing environment,” the Birmingham, Ala.-based company said last week. Xinergy Ltd., a coal-mining company based in Knoxville, Tenn., also filed for chapter 11 protection in April.

Other mining companies, including Arch Coal Inc. and Blackhawk Mining LLC, had their debt downgraded to or assigned below investment grade ratings.

In 2013, Patriot slashed its $3.1 billion debt load and cut labor and environmental obligations in its last stay in bankruptcy. It emerged with backing from hedge fund Knighthead Capital Management LLC, a bet by the New York investment firm that a stabilization of coal prices could allow Patriot to generate big profits.

Instead, coal prices continued to fall as a sharp drop in natural gas prices further depressed the market for thermal coal. A benchmark 2015 settlement price for coal used for power generation fell 17% to $67.80 a metric ton, according to researcher Doyle Trading Consultants. In February 2014, the firm had forecast a price of $87 for the benchmark this year.

“The price of coal in the U.S. is now capped by the gas price, and that’s a problem for coal companies,” said Jim Thompson, a director at researcher IHS Coal. An auditor’s uncertainty about Patriot’s ability to stay in business initially threatened to trigger a default earlier this year, according to court papers.

Earlier this year, Patriot hired advisers at Alvarez & Marsal Holdings LLC, Centerview Partners LP and lawyers at Kirkland & Ellis LLP to explore restructuring options, The Wall Street Journal reported in April.

The company, which employed about 2,900 people as of the end of 2014, participates in the sprawling United Mine Workers of America 1974 multiemployer pension plan. The pension, underfunded by about $2 billion, recently scaled back plans for rate hikes for member companies, fearing the companies can’t afford to contribute much more, The Wall Street Journal reported last month.

The beleaguered coal industry has its bright spots. Appalachian coal miner Murray Energy Corp. last month completed a $1.37 billion investment in Illinois-basin miner Foresight Energy LP, which itself raised $350 million last year in an initial public offering.

Still, the industry’s woes have overshadowed hopes of growth or wider consolidation.

“Declining demand for coal has caused many producers in the coal industry to curtail production, idle mines and lay off workers,” Xinergy Chief Financial Officer Michael Castle said in a court filing last month.

The coal downturn could have further repercussions for workers and communities in Central Appalachia, which has a high concentration of coal mines. Nicholas County in West Virginia recently laid off police and other workers in the wake of seven mine closures in a three-year span.

source: http://www.wsj.com