(July 11th, 2012) The canary in Patriot Coal’s (PCX) mine is dead. On Monday, Patriot Coal filed for Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. The company also announced that it has obtained a commitment for $802 million in debtor-in-possession financing. Not surprisingly, Patriot Coal’s shareholders are suffering a brutal sell-off, as the stock first sold off 72.10%, to $0.611, during the regular trading session when news of a potential bankruptcy filing first broke. Then, after the filing became official, the stock continued lower, trading as low as $0.34 in after-hours trading.
However, I’d like to use this opportunity to point out that this news was no news to the bond market. Patriot Coal’s 4/30/2018 maturing, 8.25% coupon, senior unsecured note, CUSIP 70336TAC8, did trade in a wide range on Thursday with every single trade hitting the market after news of the imminent bankruptcy broke. But, the bond not only failed to make a new 52-week low, but the asking price on the bond finished the day at 37 cents on the dollar, 32.93% above the 52-week low. While shareholders were watching the remaining value of their investments get destroyed, the bond market continued doing what it’s been doing for several weeks now: positioning for recovery rates.
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