(Updates with closing share prices in 13th paragraph.)
March 15 (Bloomberg) -- Patriot Coal Corp., the U.S. mining company operating in bankruptcy, said it needs to save $150 million in labor and health-care costs or face liquidation.
Patriot proposed pay cuts and benefit changes for unionized employees in court papers filed yesterday, the same time as it sued Peabody Energy Corp. to force its former parent to keep paying for the health-care costs of certain retirees who were employed by Peabody before Patriot’s 2007 spinoff. Both motions, filed in the Eastern District of Missouri, would require a bankruptcy judge’s approval.
“If cost relief is not granted, Patriot will run out of money and be forced to liquidate, and the results for all of these families will be tragic,” lawyers for St. Louis-based Patriot wrote in the filing. The company saw a 21 percent decline in coal sale revenues for the year ended Dec. 31, and said it’s at a disadvantage to competitors because 41 percent of its workforce is unionized.
The changes would save more than 4,000 jobs and health care for 23,000 employees, retirees and dependents, Chief Executive Officer Bennett K. Hatfield said yesterday in a statement.
“Our labor and retiree benefit costs have risen to levels that simply cannot be sustained given the challenges facing the company and our industry,” Hatfield said.
Patriot filed for bankruptcy in July, seeking to reorganize. Its filing came after U.S. coal demand tumbled amid increased competition from cheaper and natural gas and as it faced stricter environmental regulations. The company has said its obligation to pay lifetime health care for 8,100 retirees is $1.6 billion.
The proposed changes would cut benefits including as much as 47 days of paid time off per year and wages that are as much as 90 percent higher than what Patriot pays its non-union workers, the company said in court papers.
The attempt to change the collective bargaining agreements is “totally unacceptable,” Cecil E. Roberts, president of the United Mine Workers union, said in a statement yesterday. Patriot wants “to scrap the health-care benefits our retirees earned through decades of blood and toil,” he said.
Patriot also said in court papers supporting its proposed cutbacks that if it wins the lawsuit against Peabody, it will share in the recovery with unsecured creditors. The lawsuit isn’t a reason to delay the cost savings, however, because “Patriot’s need for relief is urgent and immediate, and most assuredly cannot await the uncertain outcome of a multi-year litigation against third parties.”
In its lawsuit against Peabody, Patriot said that the company “may reap a windfall and escape its own retiree healthcare obligations” as a result of Patriot’s actions in bankruptcy.
Under the terms of a contract, Peabody has been funding a portion of Patriot’s retiree health-care expenses for specified retirees since the spinoff, St. Louis-based Peabody said yesterday in a statement. The contract also states that should Patriot’s benefit obligations decrease, Peabody’s funding would proportionately be reduced, it said.
“Patriot is taking the untenable position that our payments should continue in full in the future even if Patriot’s expenses are reduced,” Peabody said. “Such a claim is not only unreasonable, but counter to the fundamental basis of the language in the contract.”
Patriot dropped 3.8 percent to 10 cents in New York. Peabody rose 0.8 percent to $21.84.
Patriot’s $200 million in 3.25 percent senior convertible notes due 2013 recently traded at 13.25 cents on the dollar, up from a low of 10.94 cents on the dollar earlier today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The case In re Patriot Coal Corp., 12-51502, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).
--Editors: Simon Casey, John Pickering