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Coal company's bid to cut benefits set for hearing

By Bloomberg News

ST. LOUIS -- Patriot Coal Corp. said Monday it needs to cut retiree benefits now or run out of money in early 2014, pitting the bankrupt coal producer's survival against health care and pensions for 13,000 retired miners and their families.

Patriot will have to liquidate if it doesn't come up with a way to save another $150 million a year, the company's lawyers told U.S. Bankruptcy Judge Kathy Surratt-States in St. Louis Monday. The company seeks approval of a plan to change agreements with unions following 12 rounds of negotiations.

"If we don't get relief we are headed for catastrophic circumstances," Elliot Moskowitz, a Patriot lawyer, said in court. "Without relief we will be forced to liquidate early next year."

The United Mine Workers of America, or UMWA, which represents about 42 percent of Patriot's 4,000 employees, says the proposal still isn't good enough and seeks changes that are only necessary because of the company's self-imposed liquidity and earnings targets. The proposal would strip 13,000 retirees of benefits earned in decades of collective bargaining, reversing programs first implemented after President Harry S. Truman seized U.S. coal mines in 1946, the union said.

Patriot filed for bankruptcy in July, citing falling demand for coal and obligations to pay $1.6 billion in lifetime health care for its 8,100 retirees. At the time, St. Louis-based Patriot already had been negotiating with the UMWA for four months. It has since submitted four new proposals, each one with more concessions, the company said.

From the outset of the case, hundreds of letters have poured in from retirees pleading with the courts not to end their health care.

"I worked underground and with heavy equipment for 34 years," William Persinger wrote in an October letter filed in court documents. "As many coal miners our health is poor, we are at the age we need our medical insurance very bad. Many others that depend on the insurance will die if we lose it."

Patriot's latest proposal revolves around the creation of a voluntary employees' beneficiary association, or VEBA trust, to be funded by a 35 percent equity stake in the reorganized company and royalties from every ton of coal produced at its mining complexes.

Patriot says it can't afford to provide unionized miners with wages as much as 90 percent higher than those of non-union miners, as well as health care coverage and perks such as 47 days of paid time off a year, according to court papers. Patriot already has court approval to reduce obligations to non-union workers.

The UMWA says Patriot has failed to show the cuts are necessary enough to overcome laws intended to prevent companies from using bankruptcy to break unions.

Patriot is using bankruptcy "to eliminate the past gains of these unionized miners, who historically sacrificed hourly compensation and pensions for retiree health care," the UMWA said in court papers. After World War II, the UMWA went on strike to seek national multi-employer health care for its retirees. The union won an agreement after Truman seized the country's coal mines and ordered the Secretary of the Interior to negotiate with the UMWA.

At the core of the dispute between Patriot and the union is the company's value, which depends on the market for coal and any success Patriot has in recovering money through a potential lawsuit against former parent Peabody Energy Corp.

The UMWA says Patriot's arguments are based on the flawed idea that coal prices will remain low for the foreseeable future. Srinivas Akunuri, a valuation expert with PricewaterhouseCoopers' energy practice and a consultant for the union, predicts that coal prices will rebound as consumers seek cheaper alternatives to natural gas.

Patriot "manufactured" its liquidity crisis by setting covenants on its bankruptcy operating loan so the company would default if it doesn't meet its own goals of reducing labor costs, the union said.

The UMWA also contends that Patriot hasn't been quick enough to take action against Peabody, which profited by spinning off Patriot in 2007 and leaving the former unit with 16 percent of Peabody's assets and 40 percent of its retiree liability, according to the union.

Patriot acquired more retiree liabilities when it bought Magnum Coal in 2008. Arch Coal Inc. created Magnum in 2005 and designed it to fail by giving it 12 percent of Arch's assets and 97 percent of its retiree health care liabilities, the UMWA said. Patriot has more than three times as many retirees as miners, and 90 percent of its retirees never worked for Patriot.

Patriot said the bankruptcy loan didn't cause its liquidity problems and was instead a "necessary lifeline." Natural gas prices have risen in recent months while thermal coal prices have not, the company said.

As to Peabody, Patriot has said in court papers that it is considering whether the 2007 transaction that created it "constituted an actual or constructive fraudulent transfer" that could recoup money to be shared among all its creditors. The spinoff rid Peabody of $600 million in health-care and environmental liabilities, said Patriot, which won court permission April 23 to deepen its probe into whether a lawsuit is possible.

Patriot also seeks court permission to get information for its probe from Duff & Phelps Corp. and Morgan Stanley, both of which advised Peabody on the spinoff. Patriot said in court papers filed April 26 that it believes Morgan Stanley has "information related to the liabilities and financial condition of Patriot at the time of the spinoff, as well as the motives for the spinoff."

Patriot gave the bank until April 10 to say whether it would voluntarily share information and didn't receive any commitment, Patriot said.

Separately, Patriot has already sued Peabody over whether the former parent can reduce benefits to retirees if Patriot does. Surratt-States heard arguments on Peabody's motion to dismiss that lawsuit Monday and has yet to rule on the issue.

"Patriot is here to preserve benefits for 3,100 retirees," Jonathan Martin, a lawyer for the company, said in court. "Peabody is here out of pure, unadulterated greed."


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