In a continued effort to clear away expensive obligations as it works to emerge from Chapter 11 protection, Patriot Coal on April 2 asked its bankruptcy court to let it modify its life insurance program for non-union employees.
This motion is due for a hearing on April 23, with an objection deadline of April 16. Patriot also has pending at the U.S. Bankruptcy Court for the Eastern District of Missouri a March 14 motion to trim benefits for unionized workers.
Patriot wants to modify the Non-Union Retiree Life Insurance Benefits by capping such benefits at $30,000 for the Non-Union Retirees and terminating such benefits for current active non-union employees, and to terminate the Non-Union Retiree Medical Benefits, effective as of the date that is 60 days after the date of entry of this proposed order.
“As the Court knows, the Debtors have been working on multiple fronts to stabilize their business, address their unsustainable cost structure and preserve jobs and benefits for thousands of families,” said the April 2 motion. To that end, on March 14, the debtors filed their motion to reject collective bargaining agreements and to modify retiree benefits. That motion seeks to achieve approximately $150m in annual cost savings that are necessary for the debtors to survive. Although the relief sought in the March 14 motion will result in painful changes for many of the debtors’ unionized employees and retirees, the alternative – the loss of jobs and benefits for everyone – would be catastrophic, Patriot argued.
While the debtors are addressing their unionized legacy liabilities through continued negotiations with the United Mine Workers of America (UMWA) and the March 14 motion, the debtors have determined that they must also modify the life insurance benefits they provide (the “Non-Union Retiree Life Insurance Benefits”) and terminate substantially all of the retiree medical benefits they provide (the “Non-Union Retiree Medical Benefits”, together with the Non-Union Retiree Life Insurance Benefits, the “Non-Union Retiree Benefits”, and, together with the Union Retiree Benefits, the “Retiree Benefits”) under the relevant plans.
“The Debtors estimate that their consolidated balance sheet liability for the Non-Union Retiree Benefits is approximately $51.3 million,” Patriot added. “The Debtors believe that these benefits must be modified and terminated, as applicable, so that the Debtors may realize cost savings that are critical to their survival. Moreover, it is important and appropriate for the burdens associated with the Debtors’ reorganization to be shared equitably among the Debtors’ stakeholders, and the modification and termination of Non-Union Retiree Benefits is only fair given the sacrifices that the Debtors are demanding from their union employees and retirees and other stakeholders.”
Patriot wants Peabody to answer some tough questions about 2007 IPO
In a separate April 2 motion, Patriot and its Official Committee of Unsecured Creditors asked for leave to conduct discovery on Peabody Energy (NYSE: BTU), the nation’s top coal producer. Peabody spun off Patriot, and with it heavy union liabilities, in a 2007 IPO. Peabody has said repeatedly since Patriot’s July 2012 Chapter 11 filing that it spun off a healthy company and bears no responsibility for it and its current liabilities.
“No party is as central to a full understanding of the path leading from the creation of Patriot Coal Corporation (‘Patriot’) in 2007 to its current bankruptcy than its former parent Peabody Energy Corporation (‘Peabody’),” said the April 2 motion. “Patriot is a Peabody creation. Peabody selected which of its mines would become Patriot’s. Peabody determined what projections would underlie Patriot’s business plan. Peabody decided which liabilities it would retain and which it would unload onto Patriot. And Peabody dictated the contractual terms that govern Patriot’s ongoing obligations to Peabody after the Spinoff (as defined herein).”
Patriot and the committee have begun an investigation to determine whether the spinoff that created Patriot constituted an actual or constructive fraudulent transfer. “Such a claim against Peabody, if cognizable and if successfully asserted, could result in sizeable recoveries for Patriot and its creditors,” the motion said. “By spinning off Patriot, Peabody rid itself of approximately $600 million of retiree healthcare liabilities, along with hundreds of millions of dollars of other liabilities, including environmental reclamation obligations and black lung benefits. Peabody openly touted the benefits of the Spinoff, as it improved Peabody’s ‘operating and geologic risk,’ focused Peabody on ‘high-growth, high-margin markets,’ and ‘[r]educe[d] legacy liabilities by nearly half.’”
For its part, Patriot became responsible for providing retiree healthcare and benefits to thousands of retirees who had never worked a day in their life for Patriot, said the filing. Even today, years later, approximately 49% of retirees covered by Patriot last worked for, or retired from, Peabody or one of its subsidiaries.
Patriot told the court that its initial contacts with Peabody earlier this year in the discovery process have turned up issues. Incidentally, the term “Future Patriot Employees” refers to Peabody executives that moved to Patriot at the time of the IPO. “After several meet-and-confer discussions, it is now clear that the parties have reached an impasse on five key issues,” it said. “First, Peabody refuses to produce any documents from the Future Patriot Employees. Second, Peabody refuses to produce any documents after October 31, 2007, the date of the Spinoff. Third, Peabody has proposed a means of searching for electronic documents that risks overlooking obviously relevant documents stored in centralized locations. Fourth, Peabody refuses to restore backup tapes for more than four restoration points over a three-year period, an arbitrary position that assures that the Movants will not receive scores of relevant documents and will thus be unable to conduct a complete and thorough investigation. Fifth, Peabody refuses to permit the UMWA, a member of the Committee, to receive any discovery materials, despite the Committee’s willingness to enter into a confidentiality agreement with a tight use restriction on the material.”
The discovery motion for Peabody is also subject to an April 16 protest deadline and an April 23 hearing.