August 4, 2015
Categories: Confirming a Plan » Financing a Case »

Patriot Coal Corporation – which finds itself operating under bankruptcy court protection for the second time in less than four years – sought court authorization to enter into certain Backstop Commitment Agreements and approval of procedures for the implementation of rights offerings contemplated by the Plan of Reorganization that Patriot Coal has proposed.

More details from the motion:

On July 13, 2015, the Debtors filed the Plan [Docket No. 499] and the Disclosure Statement [Docket No. 498]. The Plan is predicated on, among other things, the agreement of Blackhawk Mining LLC (“Blackhawk”) to purchase certain of the Debtors’ assets and assume certain liabilities through the creation of a new company (the “Combined Company”) pursuant to the Blackhawk APA (such transaction, the “Blackhawk Transaction”). The Blackhawk Transaction, if consummated, would deliver to the Debtors’ secured creditors $650 million of Combined Company indebtedness plus 30% of the pro forma Combined Company equity, and provide for the assumption of certain other liabilities, including certain surety bonds and related obligations.

The Plan contemplates the consummation of two Rights Offerings in order to raise $50 million of cash on the balance sheet for the Combined Company, which will be used to fund the Combined Company’s go-forward operations. The Rights Offerings are a central component of the Plan and their successful implementation is a condition precedent to the consummation of the Blackhawk Transaction under the Blackhawk APA. As such, the terms of the Rights Offerings have been extensively negotiated by the Debtors, certain of their key stakeholders, and Blackhawk. 

Pursuant to the Blackhawk Transaction, Holders of Allowed Prepetition Term Loan Facility Claims and those Holders of Allowed Prepetition Notes Claims that satisfy the requirements set forth in the Prepetition Notes Eligibility Certificate (collectively, the “Eligible Holders”) will receive subscription rights (the “Rights”) to purchase Combined Company Second Lien PIK Loans and, for Eligible Holders of Allowed Prepetition Notes Claims, New Class B Units in the Rights Offerings. Specifically, in connection with the Blackhawk Transaction:

  • each Holder of Allowed Prepetition Term Loan Facility Claims will have the right to subscribe for its Pro Rata share of $49,400,000 of Combined Company Second Lien PIK Loans (the “Patriot First Lien Rights Offering”); and
  • each Eligible Holder of Allowed Prepetition Notes Claims shall have the right to subscribe for its Pro Rata share of (a) $40,000,000 of Combined Company Second Lien PIK Loans and (b) New Class B Units of the Combined Company representing 24.0% of the aggregate equity of the Combined Company (the “Patriot Second Lien Rights Offering” and, together with the First Lien Rights Offering, the “Rights Offerings”).

The aggregate subscription price for the Combined Company Second Lien PIK Loans offered for purchase in the First Lien Rights Offering shall be $19,000,000 and the aggregate subscription price for the Combined Company Second Lien PIK Loans and New Class B Units offered for purchase in the Second Lien Rights Offering shall be $31,000,000. However, the aggregate amount of cash to be raised in, and thus the subscription price for, the Rights Offerings will be subject to a potential reduction to the extent that the aggregate amount of the Debtors’ Prepetition ABL Facility Claims, Prepetition LC Facility Claims, and DIP Claims is less than $353,263,955 (such difference, a “DIP/LC Improvement”), in accordance with the terms of the Blackhawk APA. Specifically, the Blackhawk APA contemplates that a DIP/LC Improvement will result in the following reductions in the amount of cash to be raised in the Rights Offerings:

  • with respect to a DIP/LC Improvement greater than $27 million and up to $46 million, amounts over $27 million shall be allocated to reduce the amount of cash to be raised in the Patriot First Lien Rights Offering on a dollar for dollar basis; and
  • with respect to a DIP/LC Improvement of greater than $46 million and up to $77 million, amounts over $27 million up to $46 million shall be allocated to reduce the amount of cash to be raised in the Patriot First Lien Rights Offering on a dollar for dollar basis and amounts over $46 million up to a DIP/LC Improvement of $77 million shall be allocated to reduce the amount of cash to be raised in the Patriot Second Lien Rights Offering on a dollar for dollar basis to as low as zero. 

Although the amount of the DIP/LC Improvement will reduce the aggregate price of the Rights Offerings, the aggregate amount of the (a) Combined Company Second Lien PIK Loans made available to Eligible Holders in the First Lien Rights Offering and (b) Combined Company Second Lien PIK Loans and New Class B Units made available to Eligible Holders in the Second Lien Rights Offering will not be affected by the DIP/LC Improvement.

Any participation in the Patriot First Lien Rights Offering and Patriot Second Lien Rights Offering, as applicable, shall be Pro Rata for each Eligible Holder, based on such Holder’s face amount ownership of the Prepetition Term Loan Facility or Prepetition Notes, as applicable, relative to the total face amount of the Prepetition Term Loan Facility or Prepetition Notes, as applicable (such owner’s “Pro Rata Percentage”).

The Rights Offerings process will run in parallel to, but independently of, the Plan solicitation process.

The Backstop Commitment Agreements will serve the critical function of ensuring that the Debtors have sufficient proceeds from the Rights Offerings to meet their obligations under the Plan and the Blackhawk APA. Pursuant to the Backstop Commitment Agreements, the Rights Offering Backstop Parties (as defined herein) will agree to purchase any Combined Company Second Lien PIK Loans and, as applicable, New Class B Units that have not been duly subscribed for pursuant to the Rights Offerings. By ensuring the Rights Offerings will be fully subscribed, the Backstop Commitment Agreements will eliminate uncertainty surrounding the Debtors’ ability to raise the full $50 million in cash for the Combined Company’s balance sheet and the jeopardizing effect that such failure would have on the Debtors’ efforts to consummate the Blackhawk Transaction. The Backstop Commitment Agreements may provide for usual and customary reimbursement of reasonable and documented expenses. Importantly, the Backstop Commitment Agreements will not contain any fees payable to the Rights Offering Backstop Parties in connection with their commitments. 

The First Lien Rights Offering shall be backstopped by certain funds and/or accounts managed or advised by Knighthead Capital Management, LLC, Caspian Capital LP on behalf of its advisees, Davidson Kempner Capital Management LP, on behalf of funds and accounts managed by it (including Midtown Acquisitions L.P.), and Hudson Bay Absolute Return Credit Opportunities Master Fund Ltd. (collectively, the “First Lien Backstop Parties”). The Second Lien Rights Offering shall be backstopped by certain funds and/or accounts managed or advised by Knighthead Capital Management, LLC, Caspian Capital LP on behalf of its advisees, and Davidson Kempner Capital Management LP, on behalf of funds and accounts managed by it (including Midtown Acquisitions L.P.) (the “Second Lien Backstop Parties” and, together with the First Lien Backstop Parties, the “Rights Offering Backstop Parties”).



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