Patriot Coal Corp. is offering the mine workers union a 35 percent stake in the reorganized company, in a bid to win support for cuts in benefits and wages that Patriot officials say are necessary for the company’s survival.
The offer was submitted Wednesday to the United Mine Workers of America, less than three weeks before Patriot and the union are set to clash in a bankruptcy hearing over a previous proposal to cut back wages and benefits.
Executives from Patriot and the union have spent months in back-and-forth negotiations regarding changes to wages and benefits for thousands of active miners, retirees and beneficiaries, according to court filings. The Creve Coeur-based coal producer says it has “cut expenses to the bone” but must still achieve $150 million of savings from the union to survive. Without the savings, executives say, the company will be forced to liquidate.
“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 said. “Failure to reorganize will almost surely lead to a devastating loss of jobs and health care coverage for more than 21,000 active workers, retirees and their dependents.”
The company said its latest proposal would give the UMWA stock in the reorganized company estimated to be worth hundreds of millions of dollars and allow the union to sell shares to generate “a substantial cash contribution” for a trust fund to help pay its members’ health care costs.
UMWA spokesman Phil Smith said union officials were reviewing the proposal on Thursday afternoon and didn’t have an immediate comment.
Patriot’s proposal attempts to align the interests of the company and the union that represents 1,650 employees and 8,100 retirees and dependents. It’s similar to a plan used by the Big Three automakers, which agreed to give the United Auto Workers a significant stake in the companies to set up a health care trust fund known as a voluntary employee beneficiary association, or VEBA.
The coal producer had previously proposed establishing a VEBA to reduce retiree health care obligations — an offer the union rejected as inadequate. But its latest proposal would establish additional ways to fund the trust, including a royalty on every ton of coal produced at current mines. The company said the royalty contributions would raise tens of millions of dollars based on current production estimates.
Patriot, which was spun off from St. Louis-based Peabody Energy Corp. in 2007, filed for Chapter 11 bankruptcy protection on July 9, citing anemic coal demand and prices, increasing environmental liabilities and $1.6 billion in retiree health care and pension obligations.
According to court filings, Patriot’s chief executive, Bennett Hatfield, and other executives negotiated extensively with UMWA President Cecil Roberts beginning last fall in an effort to find ways to reduce wages and benefits.
In March, after submitting a fourth proposal to the union, Patriot filed a motion with the court seeking authority to alter the union’s collective bargaining agreement to make changes to wages, benefits and pensions and to transition retiree health care to a VEBA.
A hearing on the motion is set for April 29 in St. Louis.
The fifth and latest offer delivered to the union proposes other changes, including:
• Extending for six months the date on which retiree health care funding is transitioned to the trust, allowing retirees and beneficiaries to keep their current benefits through the end of the year.
• Accepting most terms of the union’s proposal for a litigation trust that would be funded with $2 million from Patriot after its emergence from bankruptcy for the purpose of pursuing claims against Peabody Energy Corp., Arch Coal Inc. or other parties.
• The company also pledged to pursue “good faith” negotiations with the UMWA 1974 Pension Plan toward a mutually agreeable arrangement and avoid creation of a large unsecured claim that would hurt other creditors.
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