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Expert: Patriot Bankruptcy Outcome Could Leave Lasting Effects on Coal Industry
Written by Your 5News Team
Last updated on March 16, 2013 @ 1:36AM
Created on March 15, 2013 @ 8:28PM
Thursday night, word came out that Patriot Coal officially asked a bankruptcy judge for permission to terminate its contract with the United Mine Workers of America, as well as modify the healthcare plans for thousands of retired coal miners. A move the union said they saw coming from a mile away. Patriot officials say the so called "legacy costs" have increased so much, the company can't sustain them in the current industry struggles. 5 News talked to a financial expert who said what happens in this bankruptcy case could change coal industry forever.

It's a tale of two stories, where both sides surely aren't going to get what they both want. On one hand, you have coal industry giants Arch Coal and Peabody Energy who spun off several unionized mine operations, all of which eventually ended up in the hands of a new company called Patriot Coal. But a weakened coal economy, competition from the much cheaper natural gas, among many other things, contributed to its demise. Now Patriot is about seven months into Chapter 11 Bankruptcy.
 
On the other hand of this, you have the United Mine Workers of America who say Arch and Peabody created Patriot to fail so it could ditch millions of dollars in health benefits and pensions for retirees. "They found a way to create a company, and in my opinion by fraudulent scheme, to deny us the promise that was made to us," said Mike Caputo, UMWA International District 31 Vice President.

Peabody said the UMWA agreed to the plan when the Patriot spin-off happened in 2007. "Where was the UMWA if they had any concerns about the viability of Patriot when it was spun off, because they agreed to key elements, to a key component of the spin-off at the time," said Vic Svec, Senior Vice President for Investor Relations and Corporate Communications at Peabody Energy.
 
While the fingers point, families are still left wondering what their future will hold. We introduced you to retired coal miner Larry Knisell on Wednesday. The Vietnam War veteran takes more than 20 pills a day for various ailments. He says he's lucky to have the VA Hospital as a back up for his treatments. But his wife Grace suffers from Fibromyalgia, among many other things. Illnesses that could cost their family thousands of dollars a year if they weren't covered. Not yet eligible for Medicare and at risk for heart disease, she worries about the cost of medical care if something devastating would happen and the benefits are gone. "And it'll trickle down to other mines too. It won't be just where he worked," she said.

A bankruptcy court judge will make the final call in this story. The judge could allow Patriot to opt out of what's called the UMWA 1974 Pension Trust. It's a plan that the UMWA negotiated with multiple companies, and it benefits more than 77,000 eligible retirees. The UMWA says this case could affect every miner involved in that plan.
 
A financial expert from Temple University who is familiar with this case says Peabody should pay up if Patriot truly can't fund that plan. "Businesses in the United States have been using bankruptcy court and other methods to void union contracts and other contracts. If you're a true capitalist, you believe contracts should be sacrosanct. People should follow through because they make those obligations, and I think Peabody was trying to get around that so they could improve their own bottom line," said Dr. Bruce Rader, Chartered Financial Analyst and Temple University business professor.

Dr. Rader said this maneuver could also encourage other companies to attempt to rid themselves of retiree obligations to stay competitive. If Patriot doesn't have to pay into the multi-employer pension plans, other companies will have to pick up more of the cost. Then the burden of healthcare for these retirees will eventually shift to the America people.

There's no official time table for this case to be heard in it's entirety in bankruptcy court. We do know the next major hearing will be March 18th in St. Louis, when the management bonus plan will be argued.

The UMWA filed a class action lawsuit against Peabody Energy last fall. That's still in it's preliminary stages. Patriot Coal said in a release Thursday that Peabody shouldn't use the Patriot bankruptcy to ditch its obligations to retirees.
 
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Comments (2)
Mar 19, 2013 at 9:12 AM
Unions should be understanding the fact that constantly demanding more and more from businesses is the cause of their demise. Unions, not businesses, have become more and more 'greedy' and it has cost them dearly. What they continue 'wanting' is clearly not sustaninable for any businesses for long. Greed is doing them in. Unions need to go away. They are not helping employees...they're helping shut more companies down and costing them in jobs.
Mar 15, 2013 at 11:07 PM
A promise has been broken here,this is just another example of corporate greed.