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CHARLESTON, W.Va. -- Patriot Coal has secured new financing to help it emerge from bankruptcy and has worked out a deal with Peabody Energy and Arch Coal to assist in funding future benefits for Patriot retirees, the companies and the United Mine Workers union announced Thursday.The move provides $400 million -- from Peabody and Patriot -- to cover health-care benefits for retired miners, giving the UMW about one-quarter of the $1.6 billion union officials estimate they need for a long-term solution for more than 20,000 retired miners and their families."This is a significant amount of money that will help maintain health care for thousands of retirees who earned those benefits through years of labor in America's coal mines," said union President Cecil Roberts. "This settlement will also help Patriot emerge from bankruptcy and continue to provide jobs for our members and thousands of others in West Virginia and Kentucky."For St. Louis-based Patriot, the new moves provide an infusion of $250 million in capital from Knighthead Capital Management, a hedge fund that focuses, in part, on investments in distressed companies. Also, Patriot will get $140 million in liquidity from Peabody, in the form of letters of credit.
"Reaching these agreements represents a pivotal junction in Patriot's restructuring," said Patriot CEO Ben Hatfield. "This sets a clear path for Patriot to emerge from Chapter 11 by year-end as a strong competitor in the coal industry."UMW officials, though, are still left with not nearly enough funding for Patriot retiree health-care benefits beyond perhaps 2017, depending on what those benefits end up costing.The union remains in negotiations to somehow get Arch Coal to come up with more money to fund benefits for Patriot miners who used to work for Arch, but the union also is focused on pushing federal legislation to resolve the problem.
"This settlement, as significant as it is, still does not provide the level of funding needed to maintain health care for these retirees forever," Roberts said. "Arch can still step up and meet its obligation to these retirees."Arch Coal, also based in St. Louis, buried its involvement in the new Patriot Coal developments in a news release that focused on its acquisition -- from Patriot -- of additional coal reserves adjacent to Arch's new Leer Mine, an underground operation in Taylor County.Arch noted that it recently won a dismissal from U.S. District Judge Joseph R. Goodwin of a class-action lawsuit seeking payment for UMW retiree health care, but said the company continues to talk with the union."We have put forth a good-faith effort to the UMW for a settlement that would resolve all pending and potential legal claims brought by the UMW, and we are in discussions with them on a potential resolution," said Robert G. Johnes, Arch's senior vice president and general counsel.
Over the past year, the UMW has engaged in a broad campaign to protect pensions and health-care benefits for its members who retired from Patriot, which is undergoing financial reorganization in bankruptcy court.Patriot Coal was founded in 2007 when Peabody Energy sold its union operations east of the Mississippi River to the newly created company. In 2008, Patriot bought Magnum Coal, a company that, in 2005, took over union mines previously operated by Arch Coal. In July 2012, Patriot declared bankruptcy, citing financial problems, especially the costs of health insurance and pensions paid for miners who had worked mostly for Peabody and Arch.A bankruptcy judge allowed Patriot's plan to cut many employee and retiree benefits, but the UMW negotiated a new deal in which the company reinstated many of those benefits.Since then, the union has tried to focus its campaign -- featuring street protests and numerous arrests outside company offices -- on Peabody and Arch. The matter also prompted several legal actions, with various companies suing each other and the UMW suing the companies, in complex arguments over what the industry calls "legacy liabilities."
Patriot employs about 4,100 workers, with about 1,600 of them being represented by the UMW. The company operates a large underground mine in Monongalia County and a huge surface mine along the Boone-Lincoln county border. Another Patriot surface mine, in Logan County, recently had been announced for closure, but Patriot said Thursday that certain expiring coal leases there would be extended.As part of the settlements announced Thursday, Patriot will make $75 million in direct cash payments to the new Patriot Voluntary Employee Benefits Association, a so-called "VEBA" which will pay for retiree benefits. Also, Peabody has agreed to provide $310 million over four years, through 2017, to fund the VEBA, and settle all litigation between Patriot and the UMW against Peabody."I am pleased that we have been able to reach agreements that provide the UMWA with hundreds of millions of dollars in retiree health-care funding," Hatfield said. "The best result for the UMWA and its members is for Patriot to emerge from bankruptcy as a healthy company that will continue to provide jobs and benefits, and we are now on track to achieve that goal."Under a settlement with Patriot, Arch Coal will provide Patriot with $5 million in cash and a $16 million letter of credit posted in Arch's name."This comprehensive settlement with Patriot relieves Arch of costly legal expenses, resolves the distraction of litigation claims, and allows Arch's management team to remain focused on steering the business through current market conditions and preparing for a recovery," said Arch CEO John Eaves.The settlements still need approval from U.S. Bankruptcy Judge Kathy Surratt-States. The judge is expected to rule shortly after a Nov. 6 hearing.
Reach Ken Ward Jr. at email@example.com or 304-348-1702.