By Joseph Checkler
NEW YORK--A judge Tuesday said Patriot Coal Corp. (PCX) could
start borrowing on most of an $802 million bankruptcy loan from a
group including Citigroup Inc. (C), Barclays PLC (BCS, BARC.LN) and
Bank of America Corp. (BAC), one day after the coal provider filed
for Chapter 11 bankruptcy protection.
Judge Allan L. Gropper of U.S. Bankruptcy Court in Manhattan
approved Patriot's use of $677 million of the loan, which the
company hopes will help keep it afloat as it tries to reorganize in
bankruptcy. Judge Gropper was filling in for Judge Shelley C.
Chapman, who was assigned the case but not available.
The judge said he would approve that large, immediate amount
"with some reluctance."
The debtor-in-possession loan is one of the larger ones since
the 2008 financial crisis.
Judge Gropper said he had problems with Patriot's "enormous"
request to "roll up" $302 million in existing lines of credit into
the new loan, money that Patriot doesn't expect to tap immediately,
but the request still drew the ire of the judge because of the
prebankruptcy lenders' insistence on the $302 million being
included.
"I don't see any indication--much less evidence--of immediate
and irreparable harm to the debtors if you don't roll up $300
million of letters of credit," Judge Gropper said. He said an
official committee of unsecured creditors hasn't been appointed in
the case as of yet to argue the loan's merits.
After a break, Patriot called Blackstone Group LP (BX) Senior
Managing Director Paul "Flip" Huffard to testify as to whether
Patriot could have secured a loan without the $302 million roll-up
being included this early in the case.
"There would be no consent" from the lenders, said Mr. Huffard,
who has been involved in Patriot's restructuring. He added that the
company looked for alternative financing for about three weeks. Mr.
Huffard told Judge Gropper that having such a large amount
immediately available to the company sends a positive message that
the company is "open for business."
The judge later said, in ruling that the money would be made
available, "What we're doing is simply maintaining the status
quo."
Patriot plans to use the money to refinance its debt and fund
its operations during bankruptcy.
"We believe that we have a very strong and reorganizable
company," said Davis Polk & Wardwell's Damian S. Schaible, a
Patriot lawyer, in opening remarks.
Judge Gropper also approved Patriot Coal's other so-called
"first-day" motions, including allowing the company to use its bank
accounts and pay its more than 4,000 part-time and full-time
employees, who are owed more than $34 million over the next 30
days. The company said in a filing it has cut 1,000 employees and
contractors since the beginning of 2012.
Patriot and 98 of its affiliates filed for Chapter 11 on Monday,
saying Patriot has $3.6 billion in assets and $3.1 billion on
liabilities. The filing came less than two months after the company
disclosed it had hired Blackstone to help it with its
restructuring.
The company said it had reacted to lower demand by reducing
production and increasing sales to coal-hungry markets overseas.
However, in recent months, the cancellation of customer contracts,
lower power-plant coal prices and rising expenditures for
environmental and other liabilities have severely constrained its
liquidity and financial flexibility, the company said.
Aside from the coal-industry issues, Patriot said it has about
$100 million in liabilities related to retiree benefits and almost
$200 million related to the 1969 "Black Lung Act" that requires the
company to pay benefits on retirees suffering from pneumoconiosis,
a disease that can afflict coal workers.
Patriot Coal was formed in 2007 from assets split from top U.S.
coal-mining company Peabody Energy (BTU). Patriot's mines are
concentrated in central Appalachia, a region plagued by high costs
after more than a century of mining there depleted much of the
easy-to-access coal.
Benchmark Central Appalachian coal futures on the New York
Mercantile Exchange are down about 30% from a year ago.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
Write to Joseph Checkler at joseph.checkler@dowjones.com