Patriot Plans Bankruptcy Exit After Accord With Peabody
Patriot Coal Corp. and Peabody Energy Corp. (BTU) reached an agreement that will compensate retired miners for health-care benefits, one of three agreements that will help Patriot exit bankruptcy.
Peabody, the largest U.S. coal producer, will pay $310 million for retirees’ health care under the accord with its former unit and a labor union that represented the retirees.
“We are pleased to resolve the uncertainty among Patriot retirees by providing substantial funding,” Peabody Chief Legal Officer Alexander Schoch said today in a statement.
An agreement with Arch Coal Inc. to resolve a similar dispute will bring $150 million to its bankruptcy estate, Patriot said yesterday in court papers filed in St. Louis.
The two settlements, and an agreement with Knighthead Capital Management to backstop a rights offering that will fund $250 million for Patriot’s bankruptcy exit, are the cornerstones of a reorganization plan that will save the company $130 million a year over the next four years, Patriot lawyers wrote.
Patriot hopes to win court approval of an outline of that plan on Nov. 6 on an expedited schedule that will allow it to exit bankruptcy quickly, the company said.
In 2007, Peabody spun off operations and reserves in Central Appalachia, Northern Appalachia and the Illinois Basin to form Patriot Coal.
St. Louis-based Patriot filed for bankruptcy in July 2012, citing a drop in demand and $1.6 billion in lifetime health-care obligations for its retirees. It said the spinoff left it responsible for the benefits of three times as many retirees and dependents as active employees, saddling it with liabilities of $1.3 billion or more.
Peabody said Patriot was a viable company when it was spun off, and that its acquisition of a separate company, Magnum Coal Co., along with a drop in coal demand and increased regulation, caused its financial burden.
During Patriot’s reorganization, it won court approval of a proposal to reduce pensions and benefits to 13,000 unionized workers and retirees. The United Mine Workers of America continued to press it for contributions from Peabody, as well as Arch Coal.
In 2008, Patriot bought Magnum Coal, which had acquired three Arch units in 2005.
Under the Peabody agreement, which is subject to court approval, Peabody agreed to make payments through 2017 and fund a group that will determine future benefits for Patriot retirees and settle all claims related to Patriot’s bankruptcy, St. Louis-based Peabody said in the statement.
The agreement requires that Patriot have an effective plan for reorganization, Peabody said.
The case In re Patriot Coal Corp. (PCXCQ), 12-bk-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).