Patriot Coal Corp. averted a bankruptcy showdown with its miners on Thursday, after the union representing its workers and the company's proposed suitor agreed on a new employment pact.

Patriot attorney Michael Slade said in bankruptcy court that talks between the company, the United Mine Workers of America union and proposed Patriot buyer Blackhawk Mining LLC yielded an agreement on "material terms" of a new collective bargaining agreement for Patriot's unionized workers at what would be the postmerger company.

Representatives of Patriot, the UMWA and Blackhawk couldn't immediately be reached for comment on Thursday.

Like a similar deal reached with the nonprofit organization hoping to buy a smaller subset of Patriot's assets, this agreement is subject to ratification by union members. The union will ask its members to vote on the accord once the bankruptcy court has granted Patriot's request to reject the existing collective bargaining agreements covering miners at Patriot.

After hearing arguments over Patriot's request to scrap the existing labor agreements, Judge Keith Phillips of the U.S. Bankruptcy Court in Richmond, Va., on Tuesday strongly recommended the sides sit down to try to reach a new deal.

Mr. Slade, the union and Blackhawk thanked the judge for encouraging the meeting, which took place in New York Wednesday and lasted approximately 8-1/2 hours. "I know I've put the parties to task, but hopefully it was worth the effort," Judge Phillips said on Thursday. "I'm very pleased you were able to work this out."

Blackhawk has offered to issue about $650 million in debt to Patriot's creditors in exchange for the bulk of the company's mines, while an affiliate of nonprofit Virginia Conservation Legacy Fund would take on approximately $400 million in liabilities associated with Patriot's remaining mines.

VCLF has said it hopes to continue operating the company's Federal mining complex as well as to begin reforestation efforts for acquired land.

Rival bids for the assets are due on Friday, and if any are received, an auction is slated to be held next week. Winning bids are ultimately subject to bankruptcy-court approval.

Neither buyer wanted to take on Patriot's existing collective bargaining agreements, which Patriot officials testified was in large part due to the agreements' requirement that Patriot contribute to a multiemployer pension plan. The plan, which required annual contributions from Patriot of roughly $20 million, is severely underfunded, and Patriot could be on the hook for anywhere from $700 million to $900 million in liabilities if it withdraws from the plan.

The fate of the pension plan under the new deal between Blackhawk and the union wasn't immediately clear on Thursday, though Blackhawk has long insisted it won't be held to those obligations.

"In my opinion, no buyer would buy that business subject to that liability," Marc Puntus, Patriot's investment banker, testified Tuesday.

Patriot had sought the right under bankruptcy law to reject the collective bargaining agreements, which the union fought. Judge Phillips presided over a trial on the dispute on Tuesday but declined to rule before giving the union and Blackhawk one last shot at resolving their differences.

Now, with the union's agreement, Judge Phillips on Thursday indicated he'd approve Patriot's request to reject the existing collective bargaining agreements, paving the way for the union to complete the new deals with Patriot's would-be buyers.

Write to Jacqueline Palank at jacqueline.palank@wsj.com

 

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(END) Dow Jones Newswires

September 03, 2015 14:55 ET (18:55 GMT)

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