ST. LOUIS – Coal producer Peabody Energy Corp. will pay hundreds of millions of dollars to settle a drawn-out legal dispute over health care benefits for thousands of retirees who worked for bankrupt Peabody spinoff Patriot Coal Corp., the companies announced Thursday.
Under the deal, the world’s biggest private-sector coal producer will spend $310 million over four years to fund retiree benefits and provide about $140 million in letters of credit to Patriot, bolstering Patriot’s hopes of emerging from Chapter 11 bankruptcy by the end of this year. It also requires the United Mine Workers of America to give up most of its recently granted stake in Patriot, which was spun off by Peabody in 2007.
The settlement – pending approval by a federal bankruptcy judge next month – resolves a festering dispute between the St. Louis-based companies that intensified after Patriot filed for bankruptcy last year.
U.S. Bankruptcy Judge Kathy Surratt-States ruled in May that Peabody was not obligated to continue health care benefits for some 3,100 retirees, only to be reversed in August by an 8th U.S. Court of Appeals bankruptcy panel.
Patriot earlier this year sued Peabody, seeking to ensure it didn’t try to use the bankruptcy to avoid the debated health care obligations. Under the settlement, Peabody’s payments will be funneled into a voluntary employee benefit association fund from which benefits to the retirees would be disbursed. Patriot also will contribute $75 million to the fund, plus future payments from royalty and profit-sharing commitments.
“We are pleased to resolve the uncertainty among Patriot retirees by providing substantial funding for the newly established (fund),” Alexander Schoch, a Peabody executive vice president and chief legal officer, said in a statement.
Patriot said separately it also will get a $250 million infusion through a rights offering backstopped by Knighthead Capital Management LLC, saying that will “financially sponsor Patriot’s emergence from bankruptcy.”
“Reaching these agreements represents a pivotal juncture in Patriot’s restructuring,” said Bennett Hatfield, Patriot’s president and CEO. “This sets a clear path forward for Patriot to emerge from Chapter 11 by year-end as a strong competitor in the coal industry.”
The settlement also calls for the miners union to give up nearly all of its 35-percent stake in Patriot that resulted from Surratt-States’ May ruling. The union, which has argued that Peabody spun off Patriot and set that company up to fail in a deliberate plan to end benefit obligations to the retirees, said it will halt its months of protests targeting Peabody.