Patriot Coal Corp., one of the largest U.S. producers of thermal coal, filed for Chapter 11 bankruptcy reorganization on July 9 as a mild winter and low natural gas prices have led to the lowest coal demand in 24 years.

Coal fueled 35 percent of U.S. electricity generation during the first four months of this year, down from 44 percent during the same period of 2011. Patriot is one of a number of U.S. coal producers, including Peabody, Arch Coal and Alpha Natural Resources to have sustained significant share price losses in the past year.

“The coal industry is undergoing a major transformation and Patriot’s existing capital structure prevents it from making the necessary adjustments to achieve long-term success,” Patriot chief executive officer Irl F. Engelhardt said in a statement that cited lower thermal coal prices, canceled customer contracts and rising costs for environmental liabilities for increasing pressure on the company in recent months.

Patriot has lost more than US$7 billion in value. The company reduced its thermal coal production by more than 3.6 Mt (4 million st), trimmed costs and laid off 1,000 employees and contractors this year.

Patriot and all of its highly owned subsidiaries filed voluntary petitions for reorganization in the Bankruptcy Court for the Southern District of New York. The company said it has taken this action “in order to undertake a comprehensive financial restructuring. Patriot expects its mining operations and customers shipments to continue in the ordinary course throughout the organization process.”

The company’s Chapter 11 petition listed US$3.57 billion in assets and $3.07 billion in debts. Patriot has 13 active mining complexes in Appalachia and the Illinois Basin. The company sold 28.2 Mt (31.1 million st) of coal last year of which 76 percent was sold to domestic and international power generators. Its biggest creditors include banks, banks, utility and coal companies, heavy mining equipment manufacturers, machinery, mine supply and fuel suppliers, CSX transportation and others, Bloomberg News reported.

At the end of May Patriot’s board appointed long-time Peabody Coal CEO Irl Englehardt to succeed Richard Whiting, who has served as Patriot’s CEO since 2007. Englehardt has served as Patriot’s chairman since its spinoff from Peabody Coal in 2007.

In conjunction with the reorganization, Patriot said it has obtained a commitment for US$802 million in financing from a consortium of banks including Citigroup, Barclays, and Bank of America Merrill Lynch.

“The coal industry is undergoing a major transformation and Patriot’s existing capital structure prevents it from making the necessary adjustments to achieve long-term success,” said Engelhardt. “Our objective is to use the reorganization process to address important issues in an orderly way and make the company strong and more competitive.”

The company said it had been impacted “by a number of challenges that are affecting the coal industry including reductions in U.S. thermal coal demand due to competition from low-priced natural gas, challenging environmental regulations affecting the cost of producing and using coal, and weaker international and domestic economies.”

Patriot has reacted to lower domestic demand by reducing production and increasing sales to export markets. “During recent months, the cancellation of customer contracts, lower thermal coal prices and rising expenditures for environmental and other liabilities have severely constrained the company's liquidity and financial liability,” the company said.