The United Mine Workers of America 1974 Pension Trust (1974 Plan) said two noteholders for Patriot Coal are barking up the wrong tree if they think Patriot’s plan liability can be separated between union and non-union Patriot subsidiaries.
Aurelius Capital Management LP and Knighthead Capital Management LLC on March 28 filed a motion at the U.S. Bankruptcy Court for the Eastern District of Missouri asking that a Chapter 11 trustee be appointed to manage Patriot’s non-union subsidiaries. The two noteholders said that the non-union subsidiaries are being unfairly burdened by the obligations of the unionized subsidiaries. That motion is due for hearing on April 23.
“Aurelius’s and Knighthead’s Motion relies on the assertion that, because 86 so-called Non-Obligor Debtors do not currently or historically have legacy relationships with the UMWA or its retirees, their estates should be administered separately from the estates of the 13 Obligor Debtors,” said the 1974 Plan filing. “Aurelius and Knighthead have all but ignored the nature of the 1974 Plan’s potential withdrawal liability claim.”
The withdrawal liability of Patriot and its subsidiaries is joint and several as to all debtors, the plan said. The 1974 Plan is a multiemployer pension plan that provides pension benefits to approximately 93,000 eligible participants and beneficiaries who are retired or disabled former hourly coal production employees and their eligible surviving spouses. Five bankrupt Patriot subsidiaries are currently operating and are parties to collective bargaining agreements (CBAs) that require contributions to the 1974 Plan: Heritage Coal Co.; Eastern Associated Coal LLC; Apogee Coal Co. LLC; Hobet Mining LLC; and Highland Mining Co. LLC.
“The Motion fails to address the significant, joint and several claim against all of the Debtors – Obligor Debtors and Non-Obligor Debtors alike – that would be triggered in the event that the Debtors withdraw from the 1974 Plan,” said the plan. Upon the applicable obligor debtors’ withdrawal from the 1974 Plan, the plan will have a claim in excess of $959m against each and every debtor, the plan added.
Moreover, any amount payable to the 1974 Plan with respect to the debtors’ withdrawal liability obligations is immediately due in a lump sum with respect to all debtors, and cannot be paid in installments, nor reduced to reflect the discounted present value of such installments, it added.
Aurelius and Knighthead on April 12 filed with the court their objection to Patriot’s plan to reject union obligations. “In exchange for abrogating the Obligor Debtors’ agreements with the [UMWA] and its pension funds, the Motion asks this Court to transfer to the UMWA a significant portion of the Non-Obligor Debtors’ current and future assets,” the noteholders argued. “In return, the Non-Obligor Debtors will receive nothing. Literally, nothing. Moreover, the Debtors ask this Court to approve that proposal even though they fail entirely to explain how they determined the scope of relief they seek to give the UMWA, why that relief is commensurate with the UMWA’s claims at the Obligor Debtors, or how that relief will impact those Obligors’ many other creditors, the Noteholders among them.”
UMWA entities made other April 12 filings at the bankruptcy court related to Patriot Coal proposals to slash union costs.
For example, the UMWA 2012 Retiree Bonus Account Trust joined the objection of the UMWA 1974 Pension Trust and UMWA 1993 Benefit Plan to Patriot Coal’s motion to reject collective bargaining agreements and to modify retiree benefits. “The Debtors have failed to show that withdrawal from the Account Plan is necessary to an enterprise-wide plan of reorganization through which the Debtors will successfully emerge and continue as going concerns,” the bonus trust wrote. “Nor have the Debtors shown how the modest reduction afforded by the withdrawal from the Account Plan is fair and equitable, particularly in light of proposed bonus payments to management that constitute more than the Debtors’ annual payment to the Account Plan.”
Cliffs joins other unionized companies in protesting Patriot’s plans
Cliffs Natural Resources and its unionized Oak Grove Resources LLC (longwall mine in Alabama) and Pinnacle Mining Co. LLC (longwall mine in southern West Virginia) subsidiaries were the latest on April 12 to file objections to a Patriot plan that would essentially dump UMWA obligations on other UMWA operators. Other recent UMWA-represented protesters were the Energy West Mining affiliate of PacifiCorp and Alabama coal producer Drummond Co.
“The Court should deny the Motion because Debtors seek to cease contributing to (and withdraw from without meeting their withdrawal liability) the multiemployer pension plan known as the United Mine Workers of America (‘UMWA’) 1974 Pension Plan (‘1974 Plan’ or ‘Plan’); Debtors have failed to show that rejection of their accrued and ongoing 1974 Plan obligations is necessary to their reorganization; and Debtors fail to treat all affected parties fairly and equitably as required by the Bankruptcy Code,” said Cliffs in the April 12 filing. “If Debtors are permitted to evade their financial obligations pursuant to the 1974 Plan, the remaining contributing employers, including Cliffs, will be left to absorb the Debtors’ obligations (in Cliffs’ case the amount of additional new liability is estimated to exceed $100 million), creating a substantial financial burden on all of these employers. The potential for domino effect is unmistakable.”
Cliffs added: “Moreover, the other employers who contribute to the 1974 Plan are Debtors’ competitors who possess not only 1974 Plan obligations, but also other pension and health contribution obligations pursuant to applicable collective bargaining agreements. Indeed, if Debtors’ Motion is granted, they would reduce their operating costs while at the same time increase their competitors’ costs.”
Ohio-based coal operator Robert Murray’s unionized Ohio Valley Coal Co. (longwall mine in Ohio) and Ohio Valley Transloading Co. operations filed an April 12 brief with the court supporting their earlier objections to the same Patriot actions that Cliffs is protesting.
“Rather than being permitted to impose potentially significant harm on its competitors in order to better position itself, the Debtors should be required to negotiate a solution that incorporates other cost saving mechanisms and business strategies, while continuing to participate in the [multi-employer pension plans] MEPPs in some manner,” said the Ohio Valley brief. “For example, there is a potential ‘hybrid’ approach to Patriot’s withdrawal from the MEPPs that avoids significant potential liability to which the Rejection Motion speaks, but nevertheless, imposes substantially less financial harm to the MEPPs and its non-debtor participating employers. Through this hybrid approach, Patriot would withdraw from the MEPPs (and be assessed corresponding withdrawal liability, which would constitute a claim in the Patriot bankruptcy proceedings), and then, subsequently participate in the MEPPs as a new employer in a new and separate employer pool (the ‘Alternative MEPP Approach’). If the Alternative MEPP Approach were to occur, Patriot would be insulated from the MEPPs’ historical underfunding, and as a new participating employer in a new employer pool within the MEPP, have significantly lower exposure to future mass withdrawal liability.”
The Ohio Valley companies added: “This is true because Patriot’s mass withdrawal liability would only take into account its participation in the new employer pool. The benefit afforded to the MEPP and its non-debtor participating employers, including Ohio Valley Coal, is that Patriot will remain a contributing participating employer in the MEPP, although, at substantially lower contribution rates. In order for the Alternative MEPP Approach to occur, however, the current MEPP would be required to approve certain amendments to the MEPP and approval by the [federal Pension Benefit Guaranty Corp.] PBGC would also be required.”