Judge Approves Patriot Coal's Requests to Pay Vendors, Taxes

Date : 07/16/2012 @ 2:38PM
Source : Dow Jones News
Stock : Peabody Energy Corp. (PC) (BTUUQ)
Quote : 0.383  0.0 (0.00%) @ 2:07AM

Judge Approves Patriot Coal's Requests to Pay Vendors, Taxes

Patriot Coal Corp. (QB) (USOTC:PCXCQ)
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   By Joseph Checkler 
 

NEW YORK--A judge on Monday approved a slew of Patriot Coal Corp.'s (PCXCQ) requests to keep operating its business normally, including motions to keep paying its vendors and its taxes until a final hearing on the matter.

Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan approved those requests and others in her initial appearance in the case. Last Monday, Judge Chapman wasn't available so another judge approved Patriot's more dire "first-day" requests, including allowing the company to tap 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).

The "critical" vendors approval will allow Patriot to pay up to $12 million--but probably less--of the money it owed to certain creditors before it filed for bankruptcy protection. The company will ask to use the rest of the money it put aside to pay those vendors at a hearing in August.

The key vendors include the maker of the oxygen breathing units that coal miners use, as well as a company that makes the shelters built into mines in the event of an explosion. A lawyer for Patriot said he pushed the company to only request to pay vendors it deemed necessary to its business.

Judge Chapman opened the hearing by disclosing several of her personal and professional connections with individuals and firms working on the case, including her career as a partner with Wilkie Farr & Gallagher LLP, which represents a group of lenders in the case. The judge also said she spent time working at Sidley Austin LLP alongside Marshall S. Huebner, Patriot's lead lawyer in the case.

Huebner, now of Davis Polk & Wardwell LLP, said he had no problems with Chapman's history and agreed with the judge that her past connections wouldn't interfere with her impartiality.

Patriot and 98 of its affiliates filed for Chapter 11 protection a week ago, less than two months after the company disclosed it had hired Blackstone Group LP (BX) to help it restructure.

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 widespread coal-industry issues, Patriot 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.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

-Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow him on Twitter at @JoeCheckler


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