Patriot Coal drops plan to divert money from health insurance of retired Indiana coal miners

Patriot Coal is withdrawing its plan to divert "$18 million intended for the health insurance of retired Indiana miners to pay attorneys and other bankruptcy costs," Alec MacGillis reports for ProPublica. The deal worked out by the lawyers and financiers would have left "only $3 million to cover the guaranteed health-care benefits of 208 retired miners and their dependents, enough to last only about a year and a half. The deal was especially striking given that the unionized miners had themselves never worked for Patriot. Instead, they were having their benefits stripped of their value through an elaborate bit of financial engineering."

"The retirees had worked for Squaw Creek Coal Company, a joint venture in southern Indiana between Alcoa and Peabody Energy, the world’s largest private-sector coal company, which provided fuel for a nearby Alcoa plant," MacGillis writes. "The venture had mostly petered out by 2000, but as part of the agreement, Alcoa was covering the cost of the guaranteed retiree health benefits, about $2 million per year."

"Earlier this year, Patriot filed for Chapter 11 again," MacGillis writes. "This time, it is auctioning off its mines and going out of business. And to cover the costs of the proceedings, its lawyers, from the New York firm of Kirkland & Ellis, struck an unusual agreement with Alcoa. Alcoa agreed to pay Patriot $22 million in exchange for Patriot assuming the health care obligations for the Squaw Creek retirees. This saved Alcoa money, since the actuarial value of the obligation was about $40 million. But instead of putting the $22 million toward the actual health care obligations, Patriot stated in filings to the court that it was going to put only $4 million toward that purpose—$3 million for rank-and-file miners and $1 million for salaried Squaw Creek managers. The rest, $18 million, would go to the attorneys and others involved in the proceedings." (Read more)