The closer we get to the 30th the more blood we might see, just hold on to your hat.
Here is what the rumor mill is saying...
Patriot Coal 8.25% notes due 2018 fell four points, to 33/37, on a Debtwire report that the embattled company could breach its leverage covenant by the end of the month and is seeking potential DIP lenders, according to sources. Only odd lots have changed hands, in the high-30s, but the market quote is an all-time low for the $250 million issue of CCC/Caa2 senior notes, which were in the mid-90s at the outset of the year, trade data show.
Patriot had amended its credit agreement in January via Bank of America changing the maximum-leverage ratio to 4x for the period ending March 31, 4.25x through June 30, 3.75x through Sept. 30, and 3x thereafter. The minimum-interest-coverage ratio became 2.25x through June, then, 2.75x through September and 3x thereafter. Debtwire reported the company is "expected" to trip the leverage covenant June 30, citing sources. But others who are bullish on the credit say they don't expect that to be the case even though it is possible, given the uncertainties facing coal names recently, according to sources.
As LCD reported, legacy holders of the 8.25% have been selling off their existing positions but have not yet organized before finding out the fate of the stalled financing led by Citi. The Debtwire report noted that an ad hoc group of holders of the $200 million in 3.25% convertible notes due May 2013 have organized with legal advisor Stroock & Stroock & Levan. Sources say the convertible notes are well out of the money right now and are subordinate to the 8.25% notes.
Patriot started to see a precipitous drop in its bonds after a series of adverse news pushed them down 30% in May. Also in May, Citi, Barclays and Natixis were about to launch a new $250 million revolving credit line due 2016 and a $375 million second-lien term loan due 2017. Proceeds were to be used to refinance existing debt and the convertible notes due next year, the filings show.
The bank meeting was scheduled for the May 15, but Patriot announced that same day a “key” customer was defaulting on a contract that would have an impact on Patriot's numbers going forward. There is still debate over whether this will be enough of an impact to derail the financing.
News emerged shortly thereafter that the company hired Blackstone Advisors while trying to culminate a recently announced refinancing. The bonds plummeted 25 points in the span of 24 hours during May 21 and May 22, to the 40s.
Trying to stop the rapid decline in both the bond and the share price of its publicly traded equity PCX, Patriot gave what it called an “update” that day on the financing, along with a letter from its then CEO, saying it continued to work with these lenders to strengthen its finances, including the replacement of its current credit facilities before certain of its debt obligations become due in March 2013.
In addition to hiring Blackstone, the company said it hired Davis Polk & Wardwell LLP, to help “achieve an optimal financing package.”
The company then announced a new leadership team May 29, including inserting the board chairman Irl Engelhardt as CEO to take over for Richard Whiting, who had headed the company since 2007.
St. Louis, Mo.-based Patriot produces thermal coal and has operations and coal reserves in Appalachia and the Illinois Basin. – Max Frumes
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