Patriot Coal wins court approval to slash UMWA compensation

Patriot Coal (OTC: PCXCQ) said May 29 that the U.S. Bankruptcy Court in St. Louis has authorized “essential changes” to collective bargaining agreements with the United Mine Workers of America, including to benefits for certain UMWA-represented retirees.    

“This ruling represents a major step forward for Patriot, allowing our company to achieve savings that are critical to our reorganization and the preservation of more than 4,000 jobs,” said Patriot President and CEO Bennett Hatfield. “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.”

He added: “For the coming days, we plan to continue operating in the normal course under our current UMWA contracts. Patriot management will continue diligent negotiations with the UMWA leadership to address their concerns about our court-approved proposals. While the Court has given Patriot the authority to impose these critical changes to the collective bargaining agreements, and our financial needs mandate implementation by July 1, we continue to believe that a consensual resolution is the best possible outcome for all parties.”

The ruling would permit Patriot to adjust wages, benefits and work rules for union employees to a level consistent with the regional labor market. Patriot has unionized operations in western Kentucky, southern West Virginia and northern West Virginia.

The court also authorized Patriot to modify payments for UMWA-related retiree healthcare liabilities. The company said it intends to transition certain UMWA-related healthcare obligations to a Voluntary Employee Beneficiary Association (VEBA) trust.

Funding for the VEBA would consist of:

  • a 35% ownership stake in the reorganized company that could be monetized for substantial value;
  • profit sharing contributions up to a maximum of $300m;
  • a royalty contribution for every ton produced at all existing mining complexes; and
  • a portion of future recoveries from certain litigation. Patriot’s obligations to Coal Industry Retiree Health Benefit Act of 1992 (Coal Act) and Black Lung beneficiaries would not be affected by these modifications.

Judge outlines stories of heartbreak that go with this ruling

The court ruling noted: “As of the date of entry of this Memorandum Decision and Order, this Court has received over 900 letters from interested parties, all of which have been read by the Court and placed on the record as correspondence. Many of these letters discuss the imminence of bankruptcy cases for retired coal miners and their families should Debtors be permitted to modify the Collective Bargaining Agreements (hereinafter ‘CBA’ or ‘CBAs’) and the Retiree Benefits. Many discuss the horrendous conditions of the coal mines when those individuals first began to work, and how hard it was to achieve the promises made pursuant to both the previous and the current CBAs. Some discuss how physically, mentally and emotionally grueling being a coal miner was, many of whom worked as coal miners for over 30 years – a sacrifice made with due consideration of the promised health care from cradle to grave.”

The ruling added: “The Court has received numerous medication lists, lists of various coal mining-related diagnoses and personal accounts of the years of hard work, and, all the reasons why these sacrifices were worth it for the promise of health care for life and an earned pension. One retiree in particular informed the Court that when he first began working, he was given two weeks vacation which was taken when instructed by his superior, and when he retired over 30 years later, he had two weeks vacation which was taken when instructed by his superior. Many coal miners talk of six (6) and seven (7) day work-weeks, of over 12 hours a day. Some letters discuss various injuries sustained while working in coal mines, limbs of self and relatives lost, and the lives lost of relatives and friends. None of these letters, or their comments have been lost on this Court. And, as counsel for the UMWA so eloquently stated, many current and retired coal miners do not have cost spreading abilities, because, for many, cost spreading ‘means cutting your pills in half. Cost spreading abilities for retirees means making a choice today over medicine or food. And, if you are a diabetic it means making a very difficult choice indeed. Cost spreading abilities for workers means that they either give up their seniority and go out and face the vicissitudes of the modern day unemployment situation, or accept massive wage cuts….’”

The judge noted the accusation that Patriot Coal, which holds much of the UMWA obligations formerly held by relatively financially health Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI), was a company “created to fail.”

Judge Kathy Surratt-States added: “Was Debtor Patriot Coal Corporation created to fail? Maybe not. Maybe. Maybe the executive team involved at Debtor Patriot Coal Corporation’s inception thought the liabilities were manageable and thus the reality of Debtors’ bankruptcy was more attributed to unwarranted optimism about future prospects. Unions generally try to bargain for the best deal for their members, however, there is likely some responsibility to be absorbed for demanding benefits that the employer cannot realistically fund in perpetuity, particularly given the availability of sophisticated actuarial analysts and cost trend experts. Further, Congress could have incorporated pre-funding requirements for health benefits as it did for pensions when Congress enacted ERISA, but it did not.”

The judge said the bottom line is that without the relief asked for by Patriot, the company will need to be liquidated, and that at least the approved option does hold out some hope of recovery of benefits for affected miners.

Patriot Coal, in Chapter 11 bankruptcy protection since July 2012, is a producer and marketer of coal in the eastern U.S, with 11 active mining complexes in Appalachia and western Kentucky. Patriot ships to domestic and international electricity generators, industrial users and metallurgical coal customers, and controls approximately 1.8 billion tons of proven and probable coal reserves.

In 2012, St. Louis-based Patriot sold a total of 24.9 million tons of coal, which was a reduction of almost 20% from the 31.1 million tons sold in 2011. Patriot is the tenth largest coal-producing enterprise in the U.S. based on 2012 coal production and the sixth largest coal-producing enterprise based on 2012 revenues.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.