Patriot Coal Corp. (PCXCQ)’s plan to withdraw from a multi-employer pension plan might cost it $959 million and harm retired miners and other companies, two contributors to the plan said.
Energy West Mining Co. and Drummond Co. objected in papers filed yesterday in U.S. Bankruptcy Court in St. Louis to Patriot’s proposal to stop contributing to the United Mine Workers of America 1974 Pension Plan. The 35 other contributing companies would have to absorb the costs, and the underfunded plan covering 90,000 retires and spouses might fail, they said.
“Some of these employers may be forced to file bankruptcy themselves, resulting in the potential failure of the 1974 plan,” wrote lawyers for closely held Energy West, based in Huntington, Utah.
Patriot filed for bankruptcy in July, citing falling demand for coal and obligations to pay $1.6 billion in lifetime health care for its 8,100 retirees. The St. Louis-based company yesterday proposed a fifth version of cost-cutting plans to the United Mine Workers of America, which represents about 42 percent of its 4,000 employees. The proposal has yet to be reviewed by the bankruptcy court.
The UMWA called the revised proposal on health care for retired workers a “step forward” in a statement today. It said it’s still analyzing the offer and has yet to reach any agreement, however.
“There are still considerable problems with the company’s intentions to change the existing contract for active workers,” the UMWA said; “We are nowhere near a fair and just agreement regarding that part of this equation.”
Separately today, the UMWA filed an objection in court papers creditors to Patriot’s move to reject collective bargaining agreements. It said the move will strip away health- care coverage and retirement income earned in decades of bargaining. Patriot’s proposal will also rob active workers of “all advantages they have garnered by choosing self- organization under federal statutes,” and essentially returning them to the condition of non-union miners.
Creditors also commented in court papers today on Patriot’s updated proposal on cost-cutting measures to its union yesterday.
The official committee of unsecured creditors in the case said it supports several of the proposal’s points, but that giving 35 percent of new equity in a reorganized Patriot to a trust to pay retiree obligations could be too much. A level of 28 percent or lower could result in a more fair distribution to all creditors, they said.
Two noteholders, Aurelius Capital Management LP and Knighthead Capital Management LLC said the proposal ignores that not all of the company’s 99 units in bankruptcy have obligations to union members and retirees.
Energy West and Drummond, based in Birmingham, Alabama, said Patriot’s withdrawal from the 1974 pension plan isn’t necessary for its reorganization.
Patriot would need to contribute $959 million to withdraw from the plan, they said, citing a calculation based on previous contributions. As of June 2012, the plan’s accrued liability to retirees was $6.44 billion and its asset value $4.66 billion, making it only 72 percent funded, the companies said.
If Patriot withdraws, a claim for $959 million against it should be given the highest priority to be repaid in its bankruptcy, ahead of even secured creditors, Energy West said.
Patriot, the 1974 plan’s second-largest contributor, paid $21 million in 2010, $24.3 million in 2011 and $20.8 million in 2012, according to court papers.
The case In re Patriot Coal Corp., 12-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).
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