Patriot Coal gets OK of Blackhawk asset sale agreement, bid procedures

By Kali Hays

New York, June 23 – Patriot Coal Corp. received approval of bid procedures and a definitive purchase agreement on Tuesday with Blackhawk Mining LLC for the sale of a majority of its operating assets, according to a Tuesday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Assets included in the Blackhawk sale are Patriot’s Panther, Rock Lick, Wells, Kanawha Eagle, Midland Trail/Blue Creek, Paint Creek and Logan County mine complexes along with all related river docks and some non-mining assets.

As previously reported, the company filed a letter of intent in early June whereby Blackhawk would issue $643 million in new debt securities to Patriot’s secured lenders plus class B units, providing the lenders an ownership stake in Blackhawk.

In addition, Blackhawk would assume or replace surety bonds supporting reclamation and related liabilities associated with the purchased assets.

The transaction is set to be completed under a Chapter 11 plan, with a disclosure statement to be approved by Aug. 4 and a final confirmation order received by Sept. 24, under the proposed agreement.

Additional terms of the sale include the following:

• Replacement in full of Blackhawk’s existing funded debt of up to $300 million with new first-lien term loans, replacement of up to $109 million of debt under Patriot’s existing debtor-in-possession facility with first-lien term loans and replacement of $237 million of existing drawn letters of credit with first-lien term loans and existing undrawn letters of credit issued with new letters of credit issued under a first-lien letter-of-credit facility;

• Post closing, Blackhawk will issue up to $297 million of a second-lien PIK loan to holders of an existing Patriot senior secured term loan and an existing Patriot second-lien PIK note;

• Post closing, Blackhawk will issue class B membership interests to the holders of the Patriot second-lien PIK notes;

• Post-closing Blackhawk will receive at least $50 million of cash from the proceeds of rights offerings, and Blackhawk will provide at least $30 million of cash;

• To the extent of any reduction in the amount of cash raised in the first-lien and second-lien rights offerings, a like amount of first-lien term loans will be backstopped by funds and/or accounts managed or advised by Knighthead Capital Management, LLC, Caspian Capital LP and Davidson Kempner Capital Management LP for cash at a price of $0.85 if Blackhawk is unable to issue first-lien term loans in the market in order to provide cash on the balance sheet to satisfy the condition to closing; and

• Blackhawk will enter into new collective bargaining agreements ratified by the UMWA, or a final order must be entered for Patriot to reject all collective bargaining agreements.

• If the sale fails to close by Oct. 9 either party retains the right to terminate the sale.

Bid procedures

As the proposed sale is subject to higher and/or better offers, Blackhawk is entitled to a break-up fee of $12 million and expense reimbursement of up to $5 million if it is not the ultimate buyer of the assets.

Under the initial letter of intent, the break-up fee was set at $19 million.

As previously reported, initial overbids must be at least equal to the Blackhawk bid, plus cash equal to the proposed bid protections and an additional $5 million in cash or cash equivalents.

Also approved under Tuesday’s order are bid procedures related to the sale of Patriot’s Federal complex, which is not included in the Blackhawk agreement.

Though the company does not have a stalking horse bidder for the Federal complex and other excluded assets, the deadline for selecting one is 5 p.m. ET on July 14.

Bids for the Federal complex must at least equal the stalking horse bid amount, plus cash equal to the amount of any bid protections and $2 million in cash or cash equivalents.

Competing bids for both sales are due by 5 p.m. ET on Aug. 7, and the auctions would be held on Aug. 13.

Patriot Coal, a Richmond, Va.-based miner, producer and seller of thermal coal, filed for bankruptcy on May 12 in the U.S. Bankruptcy Court for the Eastern District of Virginia. The Chapter 11 case number is 15-32450.

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