Retired coal miners may seek to bring claims against Peabody Energy Corp. (BTU:US) and Arch Coal Inc. (ACI:US) if bankrupt Patriot (PCXCQ:US) Coal Corp. won’t cover what it has called $1.3 billion in “unsustainable” medical benefits.
A group of 16 retirees, representing about 10,000 retirees whose benefits are being paid by Patriot, traveled from West Virginia to meet with company officials, Patriot’s creditors’ committee and the U.S. Trustee yesterday in New York. The former miners say they worked for predecessor companies Peabody or Arch, not Patriot.
“We want to make sure other creditors, the court and the public know that Peabody and Arch are responsible for the obligations they made to the miners,” Arthur Traynor, a lawyer for the group, said by phone before the meeting. “They are responsible as well for Patriot’s financial condition.”
Peabody spun off Patriot in 2007. The following year, Patriot bought Magnum Coal Co., which had acquired three Arch units in 2005. Patriot filed for bankruptcy July 9 in New York, saying those transactions left it responsible for the benefits of three times as many retirees and dependents as active employees, saddling the company with liabilities estimated at $1.3 billion or more.
“Patriot was a viable company when it was spun off in 2007, and substantial events inside and outside Patriot’s control significantly altered its future,” Vic Svec, a Peabody spokesman, said in an e-mail today. He cited Patriot’s Magnum acquisition, a drop in coal demand and increased regulation.
Miners are represented in the bankruptcy through two of seven seats on a creditors’ committee -- one for the United Mine Workers of America, which represents about 42 percent of Patriot’s 4,000 employees, and one for the union’s 1974 Pension Plan and Trust, which pays benefits to one working miner for every 10 pensioners, according to court papers.
The creditors’ committee hasn’t announced any lawsuits against Peabody or Arch. Adam Rogoff, a lawyer for the committee, didn’t respond to a call and e-mail seeking comment on whether the panel is considering suing the companies. Under bankruptcy law, claims can be made against corporate predecessors if a “fraudulent conveyance,” or transfer of money with the intent to hurt creditors, can be proven.
It’s unclear whether Peabody and Arch could be held liable, given that creditors would have to prove in court that a fraudulent conveyance occurred, said Chris Haberlin, an analyst at Richmond, Virginia-based Davenport & Co. A public spinoff of a coal company hasn’t resulted in bankruptcy recently, leaving Patriot without a precedent, he said.
“This type of situation has not arisen before,” Haberlin said in a phone interview.
Patriot was unable to answer several of the miners’ questions at yesterday’s meeting, including what the company has done to probe Peabody’s potential responsibility for its financial situation, and why Peabody currently pays some retiree obligations and not others, said Jamie Horwitz, a spokesman for the miners.
The need to address labor and retiree obligations is one reason why Patriot wants the deadline to file a bankruptcy plan extended to May 5 from Nov. 6, the company said in court papers filed yesterday.
Patriot is expected to propose how it might continue to meet any obligations to the retirees after U.S. Bankruptcy Judge Shelley Chapman in Manhattan rules on whether the case should be sent to West Virginia, Traynor said. Patriot’s proposal will help determine what kind of claims the group of retirees tries to make against Peabody or Arch, he said.
Aaron Palash, a spokesman for Patriot, declined to comment on the company’s coverage of the medical benefits. Patriot, Peabody and Arch are all based in St. Louis.
Larry Knisell, 63, of Morgantown, West Virginia, worked for Peabody for 28 years before retiring in 1999 for medical reasons. A 1984 mining accident led to leg injuries that have required five knee reconstructions, and more surgeries are needed, he said in a phone interview.
“I never worked a day for Patriot,” Knisell said. “I feel I have no ties to Patriot whatsoever.”
Gary Asher, 68, worked for Peabody’s Eastern Gas unit for 30 years, retiring in 1996. His medications for Parkinson’s disease, a brain disorder that causes tremors, cost $1,300 a month, a sum now covered by Patriot, he said.
“If I lost my health benefits, this is what it would do to me: I wouldn’t walk, or eat,” Asher said in a phone interview.
More than 150 retired miners have written letters to Chapman during the past 30 days, asking the court to consider their plight.
“I began work for Arch Coal Co. in my younger years with the understanding and agreement that once I retired my health care would be taken care of for the rest of my life,” Albert Prince, 71, of Lyburn, West Virginia, who worked at Arch for 37 years and retired in 2003, wrote to Chapman. “Please take our lives, ‘the little people,’ into consideration.”
Peabody, the largest U.S. coal producer by sales, said in a July regulatory filing that it may be responsible for less than $150 million in liabilities for the treatment of black lung disease that were assumed by Patriot in the spinoff.
Aside from $1.3 billion in liabilities covered by Patriot, a Peabody unit pays health-care liabilities valued by Patriot at $696.8 million as of Dec. 31. Patriot administers the payments, according to court papers.
Arch may be responsible for medical benefits for a small group of union-represented individuals who retired as of September 1994 only if Patriot doesn’t reorganize and leave bankruptcy, said Kim Link, an Arch spokeswoman. Link said she didn’t know how much the potential obligations might cost.
Arch, the fourth-largest U.S. coal producer, also has said in regulatory filings (ACI:US) that it may have to cover contracts from Magnum Coal.
Patriot has been asked by its union and the U.S. Trustee, an arm of the Justice Department that oversees bankruptcies, to move its bankruptcy to West Virginia, where most of its employees and operations are based. Chapman heard arguments on the issue Sept. 11.
Patriot listed assets of $3.57 billion and debt of $3.07 billion as of May 31 in its Chapter 11 filing. The company has 12 active mining complexes in Appalachia and the Illinois Basin and controls an estimated 1.9 billion tons of coal reserves, according to court papers. It sells thermal coal to electricity generators and metallurgical coal to steel and coke producers.
The case is In re Patriot Coal Corp., 12-bk-12900, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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