Patriot Coal Wins Leave to Cut Retiree Pensions, Benefits
Stock Chart for Patriot Coal Corp (PCXCQ)
Patriot Coal Corp. (PCXCQ), the bankrupt mining company, won court approval of a proposal to reduce pensions and benefits to 13,000 unionized workers and retirees.
U.S. Bankruptcy Judge Kathy Surratt-States in St. Louis today approved the company’s request after a week-long hearing earlier this month in which protesters gathered outside the courthouse. The union said in a statement after her ruling that it intends to appeal in a federal court. Patriot said it won’t impose the cuts without first trying to negotiate a resolution.
Patriot has already been through 12 rounds of negotiations with the United Mine Workers of America, disputing the outlook for coal prices, the fairness of its proposal to retired miners and the possibility of recoveries from a potential lawsuit over Peabody Energy Corp (BTU)’s 2007 spinoff of Patriot.
“As it happens so much in life, a mutually satisfactory resolution was out of reach,” Surratt-States said in the ruling. She overruled objections from the unions and said that without relief from its retiree costs, the company would be forced to liquidate.
The ruling will save more than 4,000 jobs, and Patriot will continue to honor old contracts while it continues to negotiate, Patriot said today in a statement.
“The savings contemplated by this ruling, together with other cost reductions implemented across our company, will put Patriot on course to becoming a viable business,” Patriot Chief Executive Officer Bennett Hatfield said in the statement.
Patriot said it needed to cut retiree benefits now or run out of money by 2014, pitting the survival of the bankrupt coal miner against health care and pensions for 13,000 retired miners and their families. A liquidation would be a worse outcome for retirees than the proposed cuts, Patriot said.
The UMWA called the ruling “wrong” and said it will continue to meet with the company this week to see if it can reach an agreement on how to help Patriot through its “rough period” without significantly reducing its members’ living standards.
“As often happens under American bankruptcy law, the short-term interests of the company are valued more than the dedication and sacrifice of the workers, who actually produce the profits that make a company successful,” UMWA President Cecil Roberts said.
The UMWA said it would continue to try to hold Peabody and Arch Coal Inc. (ACI) responsible for Patriot’s financial situation.
The UMWA has contended that Patriot hasn’t been quick enough to take action against Peabody, which profited by spinning off Patriot in 2007, giving it 16 percent of its assets and 40 percent of its retiree liability.
Patriot acquired more retiree liabilities when it bought Magnum Coal in 2008. Magnum had been cut from a similar cloth, as Arch Coal created it in 2005, designing it to fail by giving it 12 percent of its assets and 97 percent of its retiree health-care liabilities, the UMWA has said in court papers.
Patriot has more than three times as many retirees as miners, and 90 percent of its retirees never worked for Patriot.
Patriot has said in court papers that it is considering whether the 2007 transaction that created it “constituted an actual or constructive fraudulent transfer” that could recoup money to be shared among all its creditors. It says the spinoff rid Peabody of $600 million in health-care and environmental liabilities, and on April 23, won court permission to deepen its probe of whether a lawsuit is possible.
Separately, Patriot has already sued Peabody over whether the former parent can reduce benefits to retirees if Patriot does. Surratt-States also ruled today that Patriot’s request to have the court declare that Peabody’s obligations won’t be changed by its own actions is denied.
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. St. Louis-based Patriot had already been negotiating with the UMWA for four months, and since its Chapter 11 filing it has submitted four new proposals, each one with more concessions, the company said.
“This is about preserving jobs,” Hatfield testified on May 1. “I think if they listen to our proposal they will understand that.”
He said the current coal market is the worst he’s seen in his 30 years in the industry, and that if Patriot liquidates, he thinks, the union jobs will go away forever. “I am not out to bust the union,” Hatfield said.
The United Mine Workers of America, or UMWA, which represents about 42 percent of Patriot’s 4,000 employees, said the proposal sought changes that were necessary only in light of the company’s self-imposed liquidity and earnings targets. Meanwhile, it would strip 13,000 retirees of benefits earned in decades of collective bargaining, reversing programs first implemented after President Harry S. Truman seized U.S. coal mines 1946, the organization said.
“Patriot hopes to break the union,” Fred Perillo, a lawyer for the UMWA, said in closing arguments May 3. He said Patriot can’t survive without its union, and that the UMWA’s stance is “no contract, no work.”