As Patriot Coal's bankruptcy case makes its way through federal court in Virginia, a deal proposed as part of the case could hurt healthcare benefits for a group of retired Warrick County miners.
Patriot was created in 2007 as a spinoff from Peabody Energy Corp. At the time of its creation, Patriot's operations included mines in both the Illinois Basin and Appalachia. Patriot closed its Western Kentucky mines last year and it currently has active mines in West Virginia only.
Patriot filed for Chapter 11 bankruptcy protection in 2012. After emerging from that bankruptcy, Patriot (along with subsidiary Heritage Coal Co.) filed a second Chapter 11 bankruptcy petition in May of this year.
That case is ongoing in U.S. Bankruptcy Court in Richmond, Virginia, and a hearing scheduled Wednesday has particular significance for the unionized miners who worked at the now-defunct Squaw Creek Mine in Warrick County.
The Squaw Creek Mine, which provided coal for Alcoa Warrick County operations, was part of a joint venture between Alcoa and Peabody. The agreement was formed in 1960. According to a 1996 amendment, Heritage was to provide employees for the Squaw Creek operation, while Alcoa assumed liability for retiree healthcare benefits.
Last month, Patriot's attorneys proposed a deal that would terminate that agreement. If approved, the deal would generate cash for Patriot — but it would also reduce the amount of money available to fund Squaw Creek retiree health benefits.
According to court documents, this is what the debtors propose for Squaw Creek:
Squaw Creek joint venture agreement would be dissolved, and as part of this Alcoa would pay Heritage $22 million cash. That would be distributed in two payments: $16.5 million right away, and the remaining $5.5 million by Jan. 15.
From that $22 million, Heritage would contribute $3 million to the United Mine Workers of America, to be used for Squaw Creek retiree healthcare liabilities.
The proposal came as a surprise to Squaw Creek retiree Bill Musgrave, who worked at the mine from 1977-2000.
Musgrave said he knew nothing of the proposal until a reporter from the journalism organization ProPublica contacted him about it for a story. Musgrave, a member of UMWA Local 1189, said $3 million isn't nearly enough to cover the long-term healthcare costs for Squaw Creek retirees.
"That money simply can't last," Musgrave said. "It's very disappointing to the members who had counted on having the lifetime healthcare."
Musgrave said UMWA estimates that Alcoa spends about $2 million per year on Squaw Creek retiree obligations. Over the remainder of the retirees' lifetimes, Musgrave said, Alcoa's estimated total obligation is $40 million.
In court documents, Patriot and Heritage say the $22 million "will be critical for funding the debtors' costs associated with emerging from Chapter 11."
In another court filing, the debtors said they "face the prospect of running on dangerously low levels of cash by the end of October," and that they are "simply unable to pay for healthcare benefit obligations" for the Squaw Creek retirees.
The debtors also say they have found potential purchasers for substantially all of Heritage/Patriot's assets, but those purchasers are not willing to assume the retiree healthcare benefit obligations.
Local Alcoa spokesman Jim Beck declined to comment on the Squaw Creek proposal.
"We cannot comment on this active court proceeding," Beck said.
Jeremy Williams, a Richmond attorney who is one of several lawyers representing Patriot, also declined to comment.
A spokesman for the UMWA could not be reached Tuesday.