--Patriot cites low U.S. coal demand amid cheap natural gas
--Patriot asks bankruptcy judge for permission to continue
operations through case
--Company was formed in 2007 from assets split from Peabody
Energy
(Adds company background in the seventh paragraph, analyst
comment in the eighth paragraph, coal prices in the ninth
paragraph, detail on company plans in the 12th and 15th paragraphs,
debts to former CEO in the 17th paragraph.)
By Matt Day, Katy Stech and Nathalie Tadena
NEW YORK--Patriot Coal Corp. (PCX) filed for Chapter 11
bankruptcy on Monday, becoming the largest casualty of the worst
U.S. market for the power-plant fuel in decades.
U.S. demand for coal has slumped this year as utilities favored
cheaper natural gas, as prices of that fuel hit decade lows amid a
supply glut. Coal mining companies, including Patriot Coal, have
slashed production and laid off workers in an effort to match
supply to weakening demand.
Coal accounted for 35% of U.S. electricity generation during the
first four months of the year, according to the Energy Information
Administration, down from 44% during the same period in 2011.
"The coal industry is undergoing a major transformation and
Patriot's existing capital structure prevents it from making the
necessary adjustments to achieve long-term success," said Chairman
and Chief Executive Officer Irl F. Engelhardt. "Our objective is to
use the reorganization process to address important issues in an
orderly way and make the company stronger and more
competitive."
Patriot Coal said it has obtained a commitment for $802 million
in debtor-in-possession financing. Upon approval by the bankruptcy
court, the new financing and cash generated from Patriot's ongoing
operations will be used to support the business during the
reorganization process, the company said.
In May, Patriot said it was working with private-equity firm
Blackstone Group LP (BX) on a refinancing effort.
Patriot Coal, formed in 2007 from assets split from top U.S.
coal mining company Peabody Energy (BTU), suffered from high costs,
said Michael Tian, an analyst with Morningstar. 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.
"Central Appalachian coal is losing production and is deeply
uncompetitive verses natural gas," Tian said. "These guys have been
cutting production furiously. Despite their best efforts, their
production costs are below where the spot price is. They've been
burning cash."
Benchmark Central Appalachian coal futures on the New York
Mercantile Exchange settled at $56.75 a short ton on Monday, down
31% from a year ago.
Shares plummeted 43% to 35 cents after hours before being halted
around 5:22 p.m. EDT. The coal producer's stock sank 72% during
regular session trading after a report from Bloomberg News said the
bankruptcy filing could come as early as Monday.
The company said Monday 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.
Company executives didn't specify how they expect to reorganize
Patriot's operations, stating broadly that the bankruptcy process
allow it "time and flexibility to address its financial challenges
and position Patriot for long-term viability and success."
The company's 19-page petition was filed in U.S. Bankruptcy
Court in Manhattan and was immediately assigned to Judge Shelley C.
Chapman. Company executives placed Patriot Beaver Dam Holdings LLC
under Chapter 11 protection first and indicated in court papers
that 100 other affiliates would join it, including Patriot Coal
Corp.
The company valued its assets and debts at more than $1 billion.
It said it has more than 10,000 creditors, according to the
petition.
Company executives asked Judge Chapman to approve a series of
motions that would enable the company to operate smoothly
throughout the case, including permission to continue paying its
employees and continue existing customer programs.
Among its top trade creditors were railroad CSX Corp. (CSX),
owed about $6.3 million, and mining technology provider Jennmar
Corp., owed about $4.8 million, according to the petition.
The company also said it owes $5.5 million to recently departed
chief executive Richard M. Whiting, who was replaced in late May by
Mr. Engelhardt as the company sought to complete its
refinancing.
Write to Matt Day at matt.day@dowjones.com
