May 1, 2013 / 9:06 PM / 5 years ago

Patriot CEO says proposed cuts are workers' best chance

ST. LOUIS, May 1 (Reuters) - Patriot Coal Corp’s top boss on Wednesday told a court that the bankrupt company’s unionized workers would benefit if Patriot were allowed to implement $150 million a year in proposed cuts.

At a hearing in U.S. bankruptcy court in St. Louis, Chief Executive Ben Hatfield said the cuts are the only way to avoid a liquidation that would cost 1,700 miners their jobs.

Hatfield testified on Patriot’s proposed reductions, which the United Mine Workers of America union has lambasted as “nowhere near” fair. The plan would end pension contributions and create a separate entity to fund healthcare, affecting Patriot’s current workers and about 13,000 retirees and their families.

The company, which filed for bankruptcy in July 2012, has offered the union a 35 percent stake in the company, which could be sold to help fund healthcare.

“A reorganized Patriot is worth hundreds of millions of dollars,” Hatfield said. “In a liquidation, Patriot is worth pennies on the dollar.”

The hearing is expected to run through Friday, after which Judge Kathy Surratt-States has 30 days to rule on Patriot’s proposal.

Bankrupt companies are allowed to unilaterally change labor deals, but they must show that cuts are crucial to survival and that a good-faith effort has been made to reach a deal consensually.

Patriot has been at odds with its union since its bankruptcy filing. The UMWA has staged protests in New York, St. Louis and Appalachia, and is arguing in court in hopes of salvaging benefits.

The issue is especially pertinent in the coal industry, where workers are uniquely exposed to health hazards, and where an ever-shrinking workforce is being asked to shoulder the cost of benefits for generations of retirees.

In cross-examination, UMWA attorney Fred Perillo questioned whether the healthcare fund would be viable, and suggested the union was bearing the brunt of Patriot’s cost savings.

Hatfield joined Patriot in September 2011 and became its top officer last October. The Charleston, West Virginia, native testified that his father and grandfather were coal miners.

He said the current coal market was the worst he had seen in 30 years, citing low natural gas prices, a mild 2011-12 winter, environmental regulations and a worldwide drop in steel demand. Coal prices are about half of what they were in 2011, Hatfield said.

Last year “was a very, very difficult year,” he said.

Hatfield said the company had frozen nonunion wages, cut nonunion health benefits for employees and retirees, and reduced 401(k)contributions.


A recurring theme in the bankruptcy is the role of former Patriot parent Peabody Energy Co, which spun off Patriot in 2007. Both Patriot and the UMWA have said that the still-profitable Peabody should pay for worker benefits if Patriot cannot. The union in a separate lawsuit has accused Peabody of setting Patriot up to fail, loading it with burdensome legacy liabilities.

Peabody has said the transaction was above-board.

“Patriot was highly successful following its launch more than five years ago with significant assets, low debt and a market value that more than quadrupled in less than a year,” Peabody spokesman Vic Svec said in a statement.

In an interview with the State Journal of Charleston, West Virginia, Hatfield last month said the Peabody spinoff seemed “suspect” when it was first announced, at which time Hatfield was CEO of International Coal Group.

“Frankly, as a competitor, we looked at that and said ... it looks like a bad balance here - too many liabilities and not enough assets,” Hatfield told the newspaper.

On Wednesday, Hatfield testified that Patriot last year began looking through files, checking emails, and interviewing former employees to see if a lawsuit over the spinoff was warranted. He said he was not sure why the company ultimately chose not to file one.

Miners say they are entitled to lifetime health and pension benefits dating back to agreements forged with the Truman administration in the 1940s.

Monie Harris, who retired from Peabody in 2002 after 36 years with the company, attended Hatfield’s testimony on Wednesday. But the Central City, Kentucky, resident said his main beef was with Peabody.

“We want Peabody to live up to its agreement,” Harris said. “We signed a contract.”

Separately on Wednesday, Hatfield defended Patriot’s plan to seek court approval of $6 million in incentive payments to retain certain key employees. No top executive would benefit from the plan, Hatfield said.

“Patriot has lost 67 people since January, some gone to competitors at lower-paying jobs, because they were worried about their futures,” he said.

Judge Surratt-States has not ruled on the request.

The hearing has drawn hundreds of miners to St. Louis. About 30 attended the hearing on Wednesday, taking up about half the courtroom.

The bankruptcy is In Re Patriot Coal Corp, U.S. Bankruptcy Court, Eastern District of Missouri, No. 12-51502.

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