Peabody Energy (BTU) announced today it had come to terms with Patriot Coal (NASDAQOTH: PCXCQ) and the United Mine Workers of America to reach a settlement with retirees following the bankruptcy of Patriot.
Patriot sought bankruptcy protection in July of 2012. Then-CEO Irl Engelhardt stated at the time: "The coal industry is undergoing a major transformation and Patriot's existing capital structure prevents it from making the necessary adjustments to achieve long-term success. Our objective is to use the reorganization process to address important issues in an orderly way and make the Company stronger and more competitive."
The settlement calls for Peabody to provide $310 million through 2017 to fund a new voluntary employee beneficiary association, or VEBA, for Patriot retirees. Peabody had previously been funding health care benefits to retirees during the Patriot bankruptcy proceedings. Future health care benefits for Patriot retirees will be determined by managers of the new VEBA. In total the VEBA will have more than $400 million for health care coverage benefits for retirees.
Peabody also will provide about $140 million in letters of credit to Patriot, bolstering Patriot's hopes of emerging from Chapter 11 bankruptcy protection by the end of this year. The settlement also requires the United Mine Workers of America to give up most of its recently granted stake in Patriot.
The agreement -- which requires the bankruptcy court's approval -- will settle all Patriot and UMWA claims related to the bankruptcy filing of Patriot, which was spun off from Peabody in 2007.
"We are pleased to resolve the uncertainty among Patriot retirees by providing substantial funding for the newly established Voluntary Employee Beneficiary Association," Peabody Energy Chief Legal Officer Alexander Schoch said in the press release.
In addition to the settlement with retirees, Patriot also disclosed this week that it had reached agreement with Knighthead Capital Management to sponsor its emergence from bankruptcy protection. Patriot will "receive an infusion of $250 million in new capital through a rights offering backstopped by Knighthead" and make a $75 million payment to the VEBA.
Patriot also said it has settled with Arch Coal (NYSE: ACI), and under the terms of that agreement it will get $5 million in cash and will be released from a letter of credit for $16 million that was posted in Arch's name. Additionally Patriot's lease will be extended for the coal complex in Logan County and it will also receive $16 million for the sale of "non-strategic" reserves.
Reuters reports that UMWA had claimed that Arch and Peabody tried to push their retiree obligations onto Patriot. The union says it has not yet settled with Arch.
Patriot Coal President and CEO Bennett Hatfield said in a company statement: "I am pleased that we have been able to reach agreements that provide the UMWA with hundreds of millions of dollars in retiree healthcare funding. The best result for the UMWA and its members is for Patriot to emerge from bankruptcy as a healthy company that will continue to provide jobs and benefits, and we are now on track to achieve that goal."
-- Material from The Associated Press was used in this report.
