The Real Story Behind the Patriot Coal Bankruptcy…

And Why the UMWA is Fighting for Fairness at Patriot

On July 9, Patriot Coal Company filed for Chapter 11 bankruptcy reorganization in the Southern District of New York. Patriot cited, among other things, “substantial and unsustainable legacy costs,” which include the health care benefits owed to retirees and widows, and “many provisions that restrict the ability of signatory employers to deploy labor and operate their mines in a flexible and cost‑effective manner” contained in the current National Bituminous Coal Wage Agreement (NBCWA) it agreed to with the UMWA last year.

Patriot’s filing showed very clearly that the company intends to attempt to get out of its obligations to active miners, retirees, widows and dependents.

While corporate bankruptcies are not uncommon, Patriot’s case is anything but business as usual. Instead, it is the endgame of a process that started years ago when Peabody Energy’s leadership devised a scheme to rid his company of its contractual obligations.

Born to fail

Patriot’s bankruptcy has been seen by many financial and coal industry observers as a result of the industry’s current weaknesses. While the downturn in the marketplace may have played a role in Patriot’s action, the truth is that Patriot was a company created to fail.

Patriot was formed October 31, 2007, when Peabody Energy spun off all of its operations east of the Mississippi River where its workers were represented by the UMWA, as well as a few other operations. Included in that spin-off were many of Peabody’s long-term health care obligations to its retirees.

Greg Boyce, Peabody’s CEO, said that the time, “We’re reducing our legacy liabilities roughly $1 billion, and reducing our expense and cash spending in the neighborhood of $100 million as well.”  Greg Navarre, Peabody’s CFO, said, “Our retiree health care liability and related expense will be reduced by 40%…In total, our legacy liabilities, expenses and cash flows will be nearly cut in half.”

A year and a half before Patriot was created, Arch Coal spun off its union operations in West Virginia—along with the long-term obligations that went with them—into a company called Magnum Coal. Business media at the time noted the revolving door of senior personnel between the two, including Bob Bennett, who moved to Magnum from Peabody and is now Senior V.P. and Chief Marketing Officer at Patriot.

The result was two new companies, each with a large amount of long-term financial obligations and insufficient production capability to pay for them.

Less than a week after Patriot was founded, former Peabody Chairman and Patriot Board Member Irl Engelhardt and then-CEO Richard Whiting, another Peabody alum, sat down with Magnum President Paul Vining, another veteran of Peabody and Arch, to discuss a possible merger. In a May 14, 2008, filing with the SEC, Patriot revealed that “Prior to the [Patriot] spinoff, Peabody and Magnum had held preliminary inconclusive discussions about a possible acquisition of Magnum by Peabody.” On July 23, 2008, Patriot acquired Magnum and with it, health care obligations towards another 1,294 retirees. Vining became Patriot’s Chief Operating Officer.

Patriot began borrowing money at high interest rates to meet operational needs and other obligations. The high price of coal, especially metallurgical coal, over the past several years meant that Patriot could continue making enough money to meet its debt burden and could keep its stock price high.

But when the bottom dropped out of the coal market, this house of cards—purposefully created by Peabody and Arch in an attempt to get out of their responsibilities to their retired and active UMWA workers—collapsed. And that is just what Peabody and Arch had choreographed. It should be noted that Mr. Whiting left the company and Mr. Englehart was made CEO of Patriot earlier this year.

Patriot Coal represents Peabody’s and Arch’s scheme to shed themselves of their obligations under the NBCWA to maintain health care benefits for active employees and their families, as well as retirees, their dependents and surviving spouses. These companies had promised, in contract after contract, to provide those benefits. But now, via Patriot, they intend to rid themselves of these obligations.

The Fight for Fairness

About 2,000 active UMWA members work at Patriot operations, about half of the company’s hourly employees. More than 10,000 retirees receive their health care from Patriot. In all, more than 22,000 active members, retirees and their dependents receive health care benefits from Patriot. The UMWA has no intention of letting corporate greed run roughshod over their rights.

The UMWA has retained a New York bankruptcy law firm, Kennedy, Jennik & Murray, P.C., and filed a motion to move the case from New York to West Virginia. Patriot mines no coal in New York (nor does anyone else), and prior to June 1, 2012, had no offices or subsidiaries in New York. This case needs to be heard in the coalfields, where the people who will be affected by this case live and work, and where the company’s operations and suppliers are located. In addition, the UMWA has been appointed to the Creditor’s Committee as part of the bankruptcy proceeding.

The UMWA’s Fight for Fairness at Patriot has only just begun. The union is launching a multi-faceted worldwide strategic campaign to expose not only the moral issues underlying this struggle, but also the enormous consequences coalfield communities and other working communities will feel if the flow of hundreds of millions of dollars in benefit payments into their local economies is suddenly shut off.

We are mobilizing workers throughout the national and international labor movement, reaching out to religious, civil rights and other community groups, and preparing a number of tactical remedies in order to send Patriot an unmistakable message of solidarity.

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