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Patriot Coal: bankruptcy court rules it may reject CBAs, cut retiree benefits

Patriot Coal may reject its collective bargaining agreements with the United Mine Workers of America and modify retiree benefits, according to a 102-page opinion released this afternoon by the bankruptcy court overseeing Patriot’s Chapter 11 proceedings.

The ruling is “wrong, unfair, and fails to fully recognize the coming wave of human suffering that will be experienced by thousands of people throughout the coalfields,” said UMWA President Cecil Roberts, whose organization represents more than 1,650 of Patriot’s roughly 4,200 current active employees. “We are disappointed that the Bankruptcy Court failed to see that, and we intend to appeal the ruling to the Federal District Court,” Roberts added.

Although at least one press report earlier this month suggested the UMWA would launch a strike should the court allow rejection of the CBAs, union spokesmen made no mention of such a move following today’s ruling. The UMWA said it plans to continue its public protests against former Patriot parent companies Peabody Energy and Arch Coal – “the architects of this travesty” – with a June 4 rally in Henderson, Ky.

As LCD has reported, the UMWA urged the court not to permit the company to reject its collective bargaining agreements with the union or to terminate the healthcare benefits of retirees, calling the company’s proposals a “cruel joke” on mine workers, and arguing that the company has other avenues open to it to meet its financial goals without hurting these workers and retirees.

Under the company’s proposals, responsibility for union retirees’ healthcare benefits would be transferred to a voluntary employee benefits association (VEBA) that the company would fund with $15 million (see “Patriot Coal ‘exploring’ asset sales to address ‘fragile position’,” LCD, March 15, 2013). The company said the labor pact rejections and benefit modifications would save it $150 million annually.

According to the union, Patriot manipulated its financial goals in order to break the union. The union said that Patriot admitted “that it manufactured its EBITDA and liquidity crises…by setting the DIP covenants at levels that cannot be attained without the relief it demands from labor.”

But, the union said, the company’s assumption regarding coal prices was “probably wrong,” According to the union, coal prices and the company’s cash flow are expected to increase in both 2015 and 2016.

“There is no dispute that for debtors’ survival, concessions are necessary,” Judge Kathy Surratt-States wrote in her opinion. Still, the judge went on, “[t]his court cannot make heads nor tails of where the UMWA believes these additional savings could reasonably come. It appears that at times, the UMWA has merely made arbitrary reductions to debtors’ October 2012 business plan and then determined through self-consultation that those additional savings are ‘achievable.’ It goes without saying that proffers of this nature are insufficient for the court to accept.”

“There are several events that catalyzed [Patriot’s] bankruptcy filing,” Surratt-States wrote. “Above all other reasons however are the liabilities that debtors inherited from Peabody and Arch. [Patriot’s] retiree health care obligations are presently at astronomical levels. The estimated present value of debtors’ retiree benefit obligations exceeds $1.6 billion. Additionally, debtors inherited below-cost coal contracts from both Peabody and Arch whereby the cost to debtors to excavate and prepare the coal exceeds the price at which debtors must sell the coal. Consequently, the cost to debtors to service some of these below-market coal contracts has contributed to the deterioration of debtors’ finances.”

“Was debtor Patriot Coal Corporation created to fail?” Surratt-States asked. “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 the employer cannot realistically fund in perpetuity, particularly given the availability of sophisticated actuarial analysts and cost trend experts.” – John Bringardner