CHARLESTON, W.Va. -- Patriot Coal announced Monday it had filed for Chapter 11 bankruptcy protection to allow it to "undertake a comprehensive financial restructuring" amid one of the toughest coal markets in years.
Patriot said it has obtained a commitment for more than $800 million in financing from four different banks and would seek federal court permission to use the money to finance ongoing operations during its restructuring.
"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 Patriot Chairman and CEO Irl 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."
The bankruptcy announcement comes just five weeks after St. Louis- based Patriot announced a major management shakeup that included Engelhardt replacing Richard Whiting as CEO.
Ben Hatfield, who was promoted to president of Patriot as part of the shakeup, said in a statement, "We remain firmly committed to serving our customers and to being a good employer by maintaining safe, productive operations as we undertake this process. The skills of our employees and the quality of our service provide an excellent platform for Patriot's future success. We appreciate the ongoing dedication of our employees, whose hard work is critical to our success and the future of our Company."
Last year, Patriot produced nearly 22 million tons of coal at its Appalachian operations, which is less than the 29 million its mines generated in the Illinois basin. In West Virginia, Patriot's largest mines are the Hobet 21 mountaintop removal operation along the Boone-Lincoln border and the Federal No. 2 underground mine in Monongalia County, both union operations.
Coal's share of electricity generation in the United States is dropping, as mine operators are facing much tougher competition from cheap natural gas supplies. Production in West Virginia is down this year, and while employment has risen over the past three years, some companies have this year begun to announce significant layoffs.
In February, Patriot announced it was closing its Big Mountain complex in Boone County, a move that cost 215 United Mine Workers members their jobs, said union spokesman Phil Smith. Patriot also announced reduced production that cut work hours and overtime at its Rocklick and Wells complexes, both also in Boone County. Patriot cited the depressed market for coal to produce electricity and a downward trend in demand for steel-making coal.
Industry analysts have been concerned about Patriot's ability to secure a $625 million loan before it must repay earlier debts that are due next March. In mid-May, Patriot also warned that a "key customer" might default on its contract to buy 1.2 million tons of steel-making coal in 2012 and 2013. Current spot market prices for that coal are $25 to $30 per ton lower than the price in that customer's contract, Patriot said.
Patriot's Federal No. 2 Mine -- once touted as a model of labor-industry cooperation on safety issues -- has been caught up in a more than two-year criminal investigation and civil lawsuits over allegations of faked methane sampling. In Southern West Virginia, lawsuits by citizen groups have forced the company to agree to settlements that could force it to spend tens of millions of dollars to clean up selenium pollution from its mountaintop removal sites.