Peabody Energy will forgo $70 million payment to health fund
Updated 11:30 a.m., Jan. 5 with details of new agreement - A health fund for retired miners will stay solvent for at least 10 more months.
Peabody Energy and the United Mine Workers of America have reached an agreement. The company will pay $75 million into the health fund this year, but will not have to pay $70 million next year.
The fund covers about 12,000 retired Patriot Coal miners, many of whom worked for Peabody Energy. Peabody spun off Patriot in 2007.
The company agreed to pay about $310 million into the health fund in 2013, as part of Patriot Coal’s first bankruptcy. This year Patriot filed for bankruptcy a second time, and Peabody sought to be released from its remaining $145 million obligation.
In a statement, UMWA President Cecil Roberts said the agreement will provide some security for retirees, their dependents and widows.
"These retirees did everything asked of them, and now through no fault of their own find their health care benefits in jeopardy," Roberts said. "This agreement will help, but is by no means a permanent fix to this problem."
Peabody Energy’s stock prices have plummeted in the last year as demand for coal remains low and debt payments loom. In a statement, Peabody Energy officials said the agreement improves the company’s 2017 cash flow by $70 million.
"The market conditions occurring in the coal industry are unprecedented and have created hardship for stakeholders at all levels," said Peabody spokesman Vic Svec.
Our original report Dec. 29th
Instead of $75 million, a federal judge has agreed to allow Peabody Energy to pay $7.5 million into a retired miners’ health fund in January.
Peabody must keep making those payments for up to nine months or until a federal lawsuit it filed this fallis settled, the judge ordered.
The coal giant is asking to skip the payments altogether, claiming its spin-off, Patriot Coal, will not be able to pay back what it owes Peabody. Patriot filed for bankruptcy earlier this year and sold off its operations.
In its lawsuit Peabody said it was scheduled to pay $75 million into the health fund in January 2016 and $70 million in January 2017. It agreed to make those payments back in 2013, after Patriot’s first bankruptcy.
Peabody's stock prices have plummeted as demand for coal slowed. This summer the company announced it was laying off 250 employees, shutting down two regional offices and selling some mines.
As Peabody's lawsuit winds its way through federal court, officials with Peabody and the United Mine Workers of America came up with the short-term agreement for smaller monthly payments to the health fund, which is known as a voluntary employee beneficiary association or VEBA.
"Peabody is pleased to reach a temporary solution with the UMWA to fund $7.5 million into the VEBA Jan. 4 in advance of our request for ultimate clarification from the court regarding our obligations," said spokeswoman Beth Sutton.
United Mine Workers of America spokesman Phil Smith said if Peabody is allowed to stop payments, the health fund will soon be depleted.
"There are about 12,000 people who are receiving benefits now," Smith said. "That includes not just retired miners, but dependents and widows as well."
Many of the miners once worked for Peabody, but their pension and health benefits shifted to Patriot Coal in 2007 when Peabody spun that company off. The union staged numerous protests in 2012 and 2013 in front of Peabody’s headquarters as Patriot’s bankruptcy moved through the federal court in St. Louis.
Even if a federal judge rules Peabody must keep paying, Smith said the health fund will likely run out after 2017.
He said the UMWA is pushing Congress to amend the Coal Act so that retired miners whose companies go belly up will still receive pension and health care benefits.
The law was last amended in 2006.
"Now there’s a whole other group of people with Patriot, and frankly we’re going to see this very soon with some of the other bankruptcies we’re facing," Smith said.
Alpha Natural Resources and Walter Energy also filed for bankruptcy this year.
The Miners Protection Act is sponsored by Senator Joe Manchin, a D-W.Va., but so far it has not gotten out of committee.