Frequently Asked Questions About the Patriot Bankruptcy
Q. Why did Patriot Coal Company file for Chapter 11 bankruptcy?
A. The immediate reason is that Patriot’s cash flow dried up. A combination of factors that have driven a significant decrease in market demand, including an unusually warm winter, promulgation of a number of adverse environmental regulations, historically low prices for natural gas, an alternative and competing fuel source, and the breach of coal contracts by two key customers proved to be the tipping point.
Q. What does the UMWA mean when it says that Patriot Coal was “set up to fail?”
A. Patriot’s bankruptcy represents the culmination of a long-term plan by Peabody Energy and Arch Coal to shed themselves of their obligations under the National Bituminous Coal Wage Agreement (NBCWA) and the Coal Act to maintain health care benefits for active and retired employees and their surviving spouses. These companies promised, in contract after contract, to provide those benefits. But they then devised schemes to shift those obligations from themselves onto Patriot Coal.
Q. How did Patriot serve as a vehicle for shifting legacy costs?
A. Patriot Coal was spun off from Peabody Energy in 2007, and with it, all of its unionized properties in Kentucky and West Virginia. In 2005, Arch Coal had put all of its union operations in West Virginia into a company called Magnum Coal. The two new companies faced large long-term obligations that were not matched by their production capabilities. Then Patriot acquired Magnum in 2008, further jeopardizing those long-term obligations.
Q. How does the bankruptcy filing further this scheme?
A. A company in bankruptcy can seek to reject the collective bargaining agreement and negotiate or, upon impasse and with the approval of the bankruptcy court, impose new terms and conditions of employment. In its July 9 filing in the Southern District of New York, Patriot cited as obstacles to future profitability its “substantial and unsustainable legacy costs,” which are the health care benefits and pensions 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” in the current NBCWA. 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.
Q. Why is a case involving coal-mining being heard in New York?
A. Patriot mines no coal in New York, and prior to June 1, 2012, had no offices or subsidiaries in New York. The UMWA has filed a motion, supported by West Virginia Attorney General Darrell McGraw and electric utility giant American Electric Power, to move the case from New York to West Virginia, where the majority of those most directly affected by the bankruptcy reside.
Q. What is the UMWA doing to fix the problems facing Patriot’s active and retired employees?
A. The UMWA has been involved in every aspect since Patriot filed for bankruptcy, including winning a position on the unsecured creditors’ committee. This puts us in a more favorable position to provide input to the bankruptcy judge. The UMWA is keeping active and retired members informed every step of the way in this process and is preparing to mobilize them as needed for direct action.
Q. Could the bankruptcy affect members’ pensions?
A. The UMWA strongly believes that the court does not have the right to terminate pension benefits earned working for Peabody, Arch and Patriot. Possibly, Patriot could attempt to ask the court for contribution modifications to the Plan. However, unlike single employer pension plans that can be terminated in bankruptcies, neither Patriot nor the bankruptcy court can either change or terminate the multi-employer UMWA 1974 Pension Plan. In addition, all the signatory operators, not just Patriot, guaranteed the funding of the 1974 Pension Plan during the term of the 2011 NBCWA.
Q. How could the bankruptcy affect retiree health care?
A. Currently Patriot is required to continue to pay for retiree health care. The UMWA believes that the court has no right to terminate these benefits earned working for Peabody, Arch and Patriot. However, Patriot could attempt to ask the court for modifications to those health benefits. If the court were to approve any such changes, the UMWA will fight to protect those benefits, and will use every legal avenue available to make Patriot, Arch Coal and Peabody Energy fulfill their lifetime obligations to their retirees.
Q. Why should Peabody or Arch be on the hook, when Patriot is a separate entity?
A. Over 90 percent of the retirees Patriot provides benefits for today never worked a single day for Patriot, but rather for subsidiaries of Peabody and Arch. We believe this company was established to fail, and that the spin-offs of Patriot and Magnum were fraudulent transactions. The UMWA intends to enforce the rights of Patriot’s retirees by all means necessary.
Q. How many people will this affect?
A. About 2,000 UMWA members currently work at Patriot operations in West Virginia and western Kentucky. Additionally, more than 10,000 retirees, their dependents and surviving spouses receive health care benefits from Patriot. All told, the UMWA estimates the health care benefits for more than 22,000 people are potentially at risk.