Current Patriot CEO was 'suspect' of Patriot at spin-off - WOWK 13 Charleston, Huntington WV News, Weather, Sports

Current Patriot CEO was 'suspect' of Patriot at spin-off

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  • Many WV coal counties losing revenue

    Many WV coal counties losing revenue

    Monday, August 8 2016 10:15 AM EDT2016-08-08 14:15:05 GMT

    As Appalachian coal production continues its drastic decline, West Virginia’s coal-producing counties are  not only losing people as lifelong residents are forced to flee their homes in order to find work, but in many cases, they’re also relinquishing millions of dollars from their budgets.

    As Appalachian coal production continues its drastic decline, West Virginia’s coal-producing counties are  not only losing people as lifelong residents are forced to flee their homes in order to find work, but in many cases, they’re also relinquishing millions of dollars from their budgets.

While it appears the union is at odds with Patriot Coal through its bankruptcy proceedings, the company's top executive says he has many of the same concerns as labor leaders.

Patriot CEO Ben Hatfield was not at Patriot Coal when the company filed Chapter 11 bankruptcy just five years after it was birthed from the assets and liabilities of Peabody Energy. Hatfield was the CEO of International Coal Group. He said at that time, coal executives were scratching their heads about the formation of Patriot Coal.

"Frankly, as a competitor, we looked at that and said ‘how could that work?' It looks like a bad balance here – too many liabilities and not enough assets," Hatfield said. "Now, they were some good assets. These are coal mines that have a lot of potential and good people and good management, but an inordinate amount of legacy liabilities disproportionate to the assets. As a competitor we were very suspect from the day the spin was announced as to whether this venture could survive."

When Hatfield did join Patriot Coal it was obviously struggling, but he said no one at that point, just nine months before the filing, was predicting bankruptcy.

In Patriot's first annual report, it claimed accrued post-retirement benefit liabilities combined with workers' compensation liabilities totaled about $720 million — equivalent to about 60 percent the size of its assets, which was valued at $1.2 billion. The value of Peabody's assets outweighed liabilities ten-to-one, about half the proportion prior to the spin-off.

"Even if you go back to the public announcements at the time of the spin, Peabody proudly declared they had divested a significant, indeed the majority of their long term labor liabilities," Hatfield said. "They saw it as an opportunity to segregate Peabody going forward from liabilities that were sure to grow in an industry that is very challenged, particularly in Appalachia. So, I think it was the plan."

So, did the stack of legacy liabilities – a majority of them tied to workers who never worked in a mine owned by Patriot before or after the spin-off – "doom" Patriot from the start? That's essentially what the United Mine Workers of America have been claiming since the bankruptcy was filed.

"I think it's a fair assessment to be honest," Hatfield said. "It's one of the areas where I frankly agree with many of things (UMWA President) Cecil Roberts has said. Something doesn't quite smell right here."

Part of Peabody is also made up of a smaller portion of mines formerly owned by Arch Coal, but Hatfield said "greater scrutiny applies to the Peabody relationship because they were essentially the manufacturer of this outcome."

Peabody has denied the allegations and says Patriot Coal was the victim of its own business decisions and market conditions.

"We believe that any claims brought against Peabody Energy in relation to the launch of Patriot Coal would be without merit and we will vigorously defend against them in court," Peabody said in a recent statement.

Hatfield said he has not seen any evidence that criminal activity was behind the formation of Patriot, but wonders if proper diligence was taken in forming the company.

"Whether (Peabody) provided enough benefits to go with those liabilities, I think is a fair question to ask because the law certainly mandates you can't just put liabilities on a boat and kick them off from shore," Hatfield said. "You have to have a balanced company, an enterprise that has a chance of success."

"…I think good questions can be asked and should be asked about solvency assessments, whether indeed the right measurements were applied to determine this business enterprise was solvent going forward and able to withstand the market downturn as indeed became its eventual undoing."

Hatfield said it's time to focus on bringing the company out of bankruptcy. While Patriot has been negotiating with the UMWA on a proposed solution for dealing with the obligations in a way allows the company to emerge from bankruptcy, Patriot filed a motion for the court to take action on approving its latest proposal.

The current deal on the table, Patriot says, would solve the company's financial issues, but would admittedly reduce the benefits provided to union employees and retirees. The company has already announced that non-union employees would be facing major changes to the status of their employment and benefits.

The UMWA said it is reviewing the proposals and is confident an agreement can be reached with the company.

"While we are working with our financial advisors to fully analyze the amended Section 1114 proposals made by Patriot Coal yesterday with respect to health care for retired miners, their dependents and widows, this appears to be a step forward by the company," Roberts said in response to the amended proposal Patriot filed. "There are still considerable problems with the company's intentions to change the existing contract for active workers under the Section 1113 process. We are nowhere near a fair and just agreement regarding that part of this equation."

Hatfield said he thinks the company stands a good chance at becoming a viable coal company post-bankruptcy.

"We aren't in bankruptcy because we're bad at mining coal or that we have bad coal reserves and quality our customers don't want or bad facilities," Hatfield said. "We're blessed with good coal miners, good talent, state-of-the-art facilities and coal quality that, frankly, our customers want and many of our competitors wish they had. This is a business that really should be reorganized and can be a vibrant part of the community and a vibrant part of West Virginia going forward."

Obligations to the union are a large portion of the company's financial struggle. Patriot recently stated in a legal filing that  its union operations cost the company hourly labor costs 90 percent higher than other operations, requires  health care coverage with no employee contributions to premiums, de minimis co-pays and free mail-order prescription drugs. Union miners, Patriot wrote, also enjoy perks of up to 47 days of paid time off per year.

Hatfield said everyone at Patriot Coal is making sacrifices and if the company is to emerge from bankruptcy, the organized labor force will have to do the same. That doesn't mean he's pleased with the idea of thousands of miners losing their benefits.

"It isn't fair and I don't like the outcome either," Hatfield said. "Keep in mind, I'm West Virginian, born and bred. I grew up among coal miners, went to school with coal miners, worshipped with coal miners and will one day be buried among coal miners. This is where I spent most of my life and my career. It is absolutely the wrong outcome when innocent people are now in their seventies and eighties, and many of them can certainly not do anything about it, wind up in this kind of predicament. It's the wrong outcome."

Hatfield said Patriot's management is focused on providing "meaningful coverage" to retirees through the bankruptcy process. He said the only two options at this point are to modify the agreements or go through liquidation.

Part of the proposal Patriot has already offered includes giving the UMWA a 35 percent equity stake in the company. If the proposal is accepted, UMWA would be the largest owner in the reorganized enterprise.

"We don't think it's possible, frankly, to have no change in coverage," Hatfield said. "… We do think we can provide meaningful coverage. Coverage that is far better than what most U.S. citizens enjoy in retirement."

Liquidation, Hatfield said, would be a poor option for every party involved.

"There are a lot of people that would like to see no changes," Hatfield said. "Cecil (Roberts) and I both know that's not really a possible outcome here. If we do nothing, what happens with this business is that it goes into liquidation. Liquidation is the absolute worst outcome. You lose 4,000 jobs, you lose all these mines that are shut in and sold at auction through that process.

"The union would most likely lose its job rights and many of these jobs wouldn't come back," Hatfield said. "The retirees would get the absolute lowest payout in the form of a liquidation. They get virtually nothing." 

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