March 15 (Reuters) - Patriot Coal Corp has asked a court to terminate about $1.6 billion in retiree health benefits for thousands of its unionized U.S. mine workers as part of its plan to survive Chapter 11 bankruptcy, a court filing showed.
Patriot said United Mine Workers of America’s (UMWA‘s) labor costs are not competitive with other coal producers that operate “under more flexible work rules and a significantly lower labor cost structure.”
“The actions we have taken today are necessary for the survival of Patriot and the preservation of more than 4,000 jobs,” Patriot Chief Executive Bennett Hatfield said in a statement.
As an alternative to terminating retiree health benefits, Patriot has proposed creating a trust, known as a Voluntary Employee Beneficiary Association (VEBA), that includes profit sharing of up to a maximum of $300 million and an initial cash contribution of $15 million.
For its part, the union is concerned that Patriot will take advantage of bankruptcy laws allowing companies to shed much of their retiree healthcare and pension costs.
“These demands by the company are totally unacceptable, and unnecessary for the company’s survival,” UMWA International President Cecil Roberts said in a statement.
Patriot Coal, which filed for bankruptcy last year, was spun-off from Peabody Energy Corp five years ago and later acquired an Arch Coal business.
On Thursday, Patriot filed a lawsuit against Peabody to ensure that Peabody “does not attempt to use Patriot’s bankruptcy to escape Peabody’s own healthcare obligations to certain retirees.”
In connection with Patriot’s 2007 spinoff, Peabody agreed to pay the healthcare costs for thousands of retirees who were employed by Peabody entities that were transferred to Patriot in the spinoff, according to Patriot.
Patriot said it believes that Peabody might argue that Patriot’s financial condition will allow Peabody to stop paying for or cut the healthcare of more than 3,000 individuals.
In a statement late on Thursday, Peabody said the company has been providing funds for Patriot’s retiree healthcare expenses under the contract since the spinoff.
“This contract also appropriately states that, should Patriot’s benefit obligations decrease, our funding would proportionately be reduced. 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.
The case is In Re Patriot Coal Corp et al, U.S. Bankruptcy Court, Eastern District of Missouri, No. 12-51502.