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Patriot offers UMWA 35 percent equity stake

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In a revised proposal to exit bankruptcy, including rejection of prior collective bargaining proposals with the United Mine Workers of America, Patriot is offering an equity stake of more than one-third of the company.

Patriot Coal, formed from Peabody Energy in 2007, entered bankruptcy last year. Since the progress began, the UMWA has protested the potential to lose certain health care and retirement benefits won through collective bargaining agreements.

 "Unfortunately, Patriot simply does not have the financial resources to support its current benefit levels and will not survive without substantial changes across its cost structure," the proposal states. "While we very much regret that these changes are necessary, we hope and trust that the UMWA will work with us on a collaborative basis to achieve a successful reorganization. Failure to reorganize will almost surely lead to a devastating loss of jobs and healthcare coverage for more than 21,000 active workers, retirees and their dependents." 

The 35 percent equity stake Patriot offered the UMWA could be monetized in whole or part to generate a cash contribution to a proposed Voluntary Employee Beneficiary Association trust. The VEBA would replace the current retiree healthcare plan provided by Patriot.

 In its proposals detailed last month, Patriot pledged to establish the VEBA by July 2013 with a $15 million lump sum payment from Patriot, also granting the UMWA an unsecured claim against Patriot's estate.

In its revised proposal, Patriot extends that time six months to January 2014. This means the UMWA and retirees would continue to receive their current level of benefits until Jan. 1. By that time, Patriot beneficiaries and retirees would qualify for options associated with the Affordable Care Act.

Patriot also previously proposed a profit sharing mechanism in its proposal to the bankruptcy court; the revised plan also would extend a royalty on every ton of coal produced to be placed into the VEBA.

In its protests, UMWA said its members and the obligations that came with them were unfairly transferred into Patriot, an entity doomed to fail. The union says this is to the benefit of Peabody Energy, which has largely enjoyed relative success in modern coal markets. Now, in bankruptcy proceedings, Patriot is proposing to reject collective bargaining agreements made with union employees, terminate retiree benefits and implement others proposed terms related to its bankruptcy.

Patriot has expressed interest in investigating the claims against Peabody, but also has said it is time now to first pursue more conventional means of emerging from bankruptcy. Peabody has repeatedly insisted that Patriot was a viable company with potential for success at the time of the spin-off.

"Patriot doesn't have to go down this road," UMWA President Cecil Roberts said earlier this month. "We can help Patriot solve its problems, with a solution that keeps the promises made to retired miners, and provides decent pay, benefits and working conditions to active miners.  Patriot's problems are not rooted in competition with other coal companies. They're rooted in not having the assets to pay Peabody's and Arch's bills in a coal market that is on a downswing."

A detailed report on Patriot's fourth proposal to emerge from bankruptcy was reported in the State Journal April 2.