Peabody, the largest U.S. coal producer ranked by sales, may be responsible for liabilities for the treatment of black lung disease that were assumed by Patriot when it was spun off from Peabody in 2007, according to a February filing. Peabody may be responsible for the liabilities, which are expected to be less than $150 million, should Patriot be unable to fund them, according to the filing.
Arch, the fourth-biggest producer, may have to cover contracts from Patriot unit Magnum Coal Co., according to Arch filings.
Patriot filed for protection in U.S. Bankruptcy Court in Manhattan yesterday. The St. Louis-based company, whose Chapter 11 petition listed $3.57 billion in assets and $3.07 billion in debts, is the biggest casualty so far of the slump in the U.S. coal industry, which has cut tens of millions of tons of production following a mild winter and after natural-gas prices dropped to their lowest in a decade.
Patriot’s reorganization may accelerate the closing of some of its high-cost Appalachian mines, reducing the region’s surplus of production, Curt Woodworth, a New-York based analyst with Nomura Securities International Inc., said in a note today.
Magnum was acquired by Patriot in 2008 from investors including hedge fund ArcLight Capital Partners LLC. Three years earlier, Magnum had bought mines from Arch, which guaranteed some of Magnum’s obligations to supply coal, according to Arch filings.
If Patriot fails to deliver 10 million tons from Magnum under contract, Arch will have to do so, said Lucas Pipes, an analyst at Brean Murray Carret & Co. in New York. The deliveries would cost Arch less than $100 million, he said, citing conversations with the company.
Kim Link, a spokeswoman for Arch, and Vic Svec, a spokesman for Peabody, didn’t immediately respond to messages seeking comment.
The New York Stock Exchange announced today it would stop trading in Patriot shares and begin proceedings to delist them.
Other U.S. coal stocks fell. James River Coal Co. (JRCC:US) slid 25 percent to $2.16 in New York, the biggest decline since Dec. 1, 2008. Arch fell 8.4 percent and Peabody 3.7 percent.
Patriot has an $802 million loan to finance its operations in bankruptcy and said yesterday it expects mining and customer shipments to continue. The loan arranged through Citigroup Global Markets Inc., Barclays Bank Plc, and Merrill Lynch, Pierce, Fenner & Smith Inc. still requires court approval.
Standard & Poor’s Ratings Services said today it cut its rating on Patriot to D, its second-lowest ranking, from CC.
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