Morgantown, West Virginia - If you are an individual struggling with debt, your options are limited. But if you are a coal company, you may be able to take advantage of a creative new strategy to shed your obligations.
Over the past decade, Peabody Energy and Arch Coal, the nation's largest coal companies, offloaded large amounts of retiree healthcare obligations to new companies that now face bankruptcy. The United Mine Workers of America (UMWA) says that the spin-offs were designed to fail in order to clean the companies' books of their retiree debts.
In 2007, Peabody Energy spun off a new company, Patriot Coal, which inherited 10 unionized mines in Kentucky and West Virginia. Along with the mines, Patriot took on $557 million in healthcare obligations to UMWA retirees. In 2008, Patriot bought Magnum, which had been similarly spun off from Arch Coal three years earlier. From Magnum, Patriot inherited another $500 million in obligations to retired miners, according to the UMWA.
Oddly, for a 5-year-old company, Patriot wound up with nearly three times as many retirees as active employees, more than 90 percent of whom never worked for the company. Overburdened by its debts, in July of 2012 Patriot declared bankruptcy.
In bankruptcy court, Patriot is seeking to be released from its pension and retirement obligations to some 10,000 UMWA retirees, covering more than 20,000 beneficiaries which total more than $1.3 billion.
"Especially in an era of declining demand and price for coal, there is a mismatch between the cost of [Patriot's] legacy obligations and [its] ongoing ability to generate revenue," Patriot Coal wrote in its bankruptcy filings. "[Patriot's] return to long-term viability depends on [its] ability to achieve savings with respect to these liabilities."
In response to the bankruptcy, the UMWA is suing Peabody and Arch Coal, saying Patriot was designed to fail in order to release Peabody from retiree obligations. Citing the Coal Act of 1992--in which Congress ordered coal companies to provide lifetime healthcare benefits to UMWA retirees--the UMWA says that the mining giants are still responsible for the retiree healthcare obligations assumed by Patriot.
A well-conceived plan
Over breakfast in Morgantown, UMWA President Cecil Roberts describes the founding of Patriot. “It’s like we all are Peabody sitting here, and I am the CEO. This is what happened. 'Well we're going to create a new company boys. You’re gonna be the CEO; you're gonna be the vice president; you're gonna be the treasurer.' All the officers came from the corporate headquarters [of Peabody] in St. Louis. Peabody unilaterally decided what assets Patriot would have. They unilaterally decided what liabilities it would have. They gave Patriot all of its retirees.”
I ask Roberts if establishing a subsidiary to expunge pension debt is a novel approach--one that other companies may try if it proves successful. Roberts laughs and says, “'Novel' probably gives it some kind of moral high ground. You talk about a well-conceived plan to shed themselves of promises and commitments that they made over 60 years. This had to be done with a team of lawyers that studied this forever in order to make the value of Peabody go up, and the liabilities that they carry on their balance sheet when they are publicly traded be reduced dramatically."
Roberts continues, “I have never seen a situation like this, where every single liability that a company had ever committed to in any kind of negotiations with the union in the past 60 years now somehow gets handed to [a spin-off] company."
Patriot Coal declined to comment to In These Times, and Peabody Energy did not return requests for comment. Peabody Energy spokesman Vic Svec, however, did tell the Charleston Gazette in October,
Patriot was a completely viable company when it was spun off in 2007. Substantial events after that time, both inside and outside Patriot, significantly affected its future, from Patriot's transformational acquisition of Magnum Coal Company to Patriot's decisions to make significant changes in its capital structure. ... Other factors were decreased demand for U.S. coal due to sharp declines in natural gas prices; the softening of the global steel markets; and more burdensome regulations. Patriot notes many of these same factors in its filings with the bankruptcy court.
Arch Coal sent In These Times the following statement:
On Dec. 31, 2005, Arch Coal completed the sale of three of its Central Appalachian subsidiaries, along with the associated mining operations and reserves, to Magnum Coal Company. This sale included two mines with UMWA-representation and two that were not affiliated with a union. At the time of the transaction, Magnum was owned by ArcLight Capital Partners. Magnum operated as an independent producer until July 23, 2008, when Patriot Coal Company purchased Magnum for a reported $695 million. Arch Coal had no involvement whatsoever in either ArcLight Capital’s decision to sell Magnum to Patriot or in Patriot’s decision to purchase Magnum.
(Arch Coal's statement omits the fact that Arch cofounded Magnum with ArcLight.)
Up the creek without healthcare
Patriot may survive the bankruptcy to become profitable again, but if retirees lose their pensions and healthcare in the process, they could go under themselves.
“Without healthcare a lot of us wouldn't survive; we wouldn't even afford medication," says retired Patriot miner Clifton Tennant. “There is no doubt in my mind they did this to get out of their obligations. I fulfilled my obligations to Patriot and I feel like I was a good employee.”
A local doctor who treats many Patriot retirees say he is deeply worried that bankruptcy could take away their healthcare. “I have some Patriot retirees and I have some of Patriot active miners--one of whom has put off retiring 'cause he doesn't know what he is going to do,” says Dr. Michael Schreoring of Fairmont, W. Va. "They work in one of the more dangerous occupations in the country. Many of them have medical problems related to that; it’s not just not fair. It’s going to be a tragedy for them. I find it disgusting that corporations can actually pull these kind of shenanigans.”
Many of the miners note that they have already made sacrifices to keep their retirement benefits. “I started in the mines in 1971,” says retired Patriot miner Bill Lemley. "In 1971 we had two weeks of vacation and the coal company told us when to take it. Thirty-five years later I still had two weeks of vacation and the company told us when to take it. We didn't strive for more vacation and the right to take it when we wanted it. We gave that up to keep our healthcare and keep our retirements.”
The battle ahead
The UMWA has already begun to mobilize to put public pressure on the bankruptcy court. In August, 3,000 retirees and Patriot miners from across the Midwest attended a planning meeting in Evansville, Ind., and another 3,000 met in Charleston, W. Va. The Charleston meeting was followed by 2,500-person demonstration to persuade the judge to move the bankruptcy trial from the New York court, which is considered more friendly to corporations in bankruptcy cases, to more neutral venue, closer to where the miners live. (Tellingly, Patriot Coal set up twoNew York subsidiaries with no employees one month before filing for bankruptcy, which allowed the company to hold the trial in New York).
The miners union got its wish. After reading hundreds of letters from coal miners affected by the bankruptcy, U.S. Bankruptcy Judge Shelley C. Chapman agreed to move the trial to St. Louis. She wrote in her decision:
The corporate headquarters of Peabody are also in St. Louis; this fact is significant in light of the issues that have been raised by the UMWA with respect to its spin-off of Patriot and its responsibility to provide promises cradle-to-grave health care benefits to Patriot employees and retirees who worked for Peabody prior to the spin-off.
In the wake of this victory, Roberts says, the union plans on engaging in further mass protests during the bankruptcy trial outside of Peabody’s and Patriot's St. Louis headquarters, in order to create the moral argument needed to sway a judge. Civil disobedience is not off the table, he says. Meanwhile, in order to put additional pressure on the company, the 2,000 UMWA miners currently employed by Patriot are prepared to go on strike.
"I have always believed that any kind of people’s movement is always better in the street. When it’s in the courtroom you got our lawyers and their lawyers arguing over legality. When it’s in street, we argue over morality.” says Roberts. “If I am a lawyer, I might figure out how to beat a widow out of her house right and maybe I can figure out how to do that legally, but if I can make it about the question of is this right? The answer to that is no.”
This is a fight the UMWA feels it cannot afford to lose, and the union is willing to pull out all the stops.
“You ain’t seen nothing yet. We will do everything that we possibly can to turn the lights off,” says retired Patriot Coal miner Bill Lemley. “If Patriot gets away with this, what’s to say that coal companies and other companies won't get away with this? There will be a domino effect across industries.” Lemly pauses. “Why can't these people just put money away in the bank like the little people do?”