Peabody Energy Corp. tumbled to an all-time low a day after being sued by coal union pension trustees seeking to force the company to fund retiree liabilities.
Peabody and Arch Coal Inc., both named in the suit, slumped after the multi-employer pension fund said the two should be liable for at least $767 million associated with a spinoff to Patriot Coal Corp., which filed for bankruptcy in May, court documents show.
The suit comes in a bad week for U.S. coal companies. On Thursday, the New York Stock Exchange moved to delist the shares of Alpha Natural Resources Inc. Walter Energy Inc., a steelmaking-coal company, filed for bankruptcy on Wednesday.
“Coal’s just hit by continued bad headlines on all fronts,” Jeremy Sussman, an analyst at Clarkson Platou Securities Inc. in New York, said by phone Friday.
Peabody fell 8.5 percent to a record low $1.29 on the New York Stock Exchange. Arch lost 3 cents, or 10 percent, to 26.5 cents. Both companies’ shares have declined more than 90 percent in the past year.
Patriot filed for bankruptcy for the second time in three years citing employee obligations and a drop in coal prices. It’s seeking to sell assets to Blackhawk Mining LLC or find a better bidder at auction in September. That sale would shift the assets “free and clear” of liabilities.
According to the United Mine Workers of America 1974 Pension plan and its trustees, that includes pension liabilities, which would leave thousands of retired miners in the lurch.
The trustees asked a federal judge in Washington on Thursday to force Peabody and Arch into binding arbitration to determine the extent of the companies’ responsibilities as participants in the plan.
The coal companies’ so-called withdrawal liability stands at “at least $767 million,” according to the court filing.
If the court refuses to compel arbitration, it should declare that the companies have incurred the liability, the trustees said.
In an e-mailed statement, Arch said while it has “the utmost sympathy for the thousands of miners” who have suffered during coal’s slump, “it is absurd to suggest” that the company has the liability obligations.
Peabody spokesman Vic Svec didn’t immediately respond to telephone and e-mail messages seeking comment. In a statement on the suit, Peabody said the trustees’ claims “are completely without merit.”
Patriot consists of unionized units transferred through sale or spinoff to Patriot by Arch and Peabody, including units covered by the pension plan.
Francis Lawall, a partner in the Philadelphia office of Pepper Hamilton LLP who concentrates on bankruptcy law, said he sees the suit as a move to get the issue decided outside of bankruptcy court, given conflict between the bankruptcy code and the Employee Retirement Income Security Act when it comes to multi-employer pension liability.
Unions face a steep challenge in getting courts to find Peabody and Arch liable, said Douglas Blackburn, a lawyer and coal industry analyst in Richmond, Virginia.
A bill led by Senator Shelley Moore Capito, a Republican from West Virginia, to transfer funds from the Surface Mining Control and Reclamation Act to pension funds may help address shortfalls if it passes, he said.
The case is United Mine Workers of America Pension Plan v. Peabody Energy Corp., 15-1138, U.S. District Court, District of Columbia (Washington).