In the Coal Fields, A Novel Way to Get Rid Of Pensions Is Born

Mike Elk

Peabody Energy is nearly 130 years old and the world's largest coal company; in 2007 it offloaded 40 percent of its retiree healthcare obligations to a spinoff, Patriot Coal. (Wikimedia Commons)

This is part two of a three-part series, Dying in the Coal Mines,” which looks at how envi­ron­men­tal and finan­cial imper­a­tives are dra­mat­i­cal­ly alter­ing the coal­fields while the sit­u­a­tion for work­ers deteriorates.

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 two New 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?”

Mike Elk wrote for In These Times and its labor blog, Work­ing In These Times, from 2010 to 2014. He is cur­rent­ly a labor reporter at Politico.
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