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Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
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Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone:
(804) 644-1700
Facsimile:
(804) 783-6192
James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
In re:
PATRIOT COAL CORPORATION, et al.,
Debtors.
)
) Chapter 11
)
) Case No. 15-32450 (KLP)
)
) (Jointly Administered)
)
DEBTORS’ MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING, BUT NOT
DIRECTING, THE DEBTORS TO (A) REJECT THEIR COLLECTIVE BARGAINING
AGREEMENTS, (B) MODIFY CERTAIN UNION-RELATED RETIREE BENEFITS,
AND (C) IMPLEMENT TERMS OF THEIR SECTION 1113 AND SECTION 1114
PROPOSAL, AND (II) GRANTING RELATED RELIEF
Patriot Coal Corporation and certain of its affiliates, as debtors and debtors in possession
(collectively, the “Debtors”), file this motion (this “Motion”) seeking entry of an order,
substantially in the form attached hereto as Exhibit A: (i) authorizing, but not directing, the
Debtors to (a) reject collective bargaining agreements (the “CBAs”)1 entered into between
1
Although this Motion refers to the CBAs out of convenience, nine of the ten agreements between the Debtors
and the UMWA are structured as coal wage agreements, or “CWAs.”
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certain of the Debtors2 and the United Mine Workers of America (the “UMWA”) for the
Debtors’ unionized workforce, (b) modify certain retiree benefits (as described herein, the
“Retiree Benefits”) for the Debtors’ retired UMWA employees,3 and (c) implement the terms of
their section 1113 and section 1114 proposal attached hereto as Exhibit B (collectively,
the “Proposal”);4 and (ii) granting related relief. In support of this Motion, the Debtors submit
the declaration of Ray Dombrowski, attached hereto as Exhibit C (the “Dombrowski
Declaration”), the declaration of Marc Puntus, attached hereto as Exhibit D (the “Puntus
Declaration”), and the declaration of Dale Lucha, attached hereto as Exhibit E (the “Lucha
Declaration”). In further support of this Motion, the Debtors respectfully state as follows:
Introduction
1.
The Debtors seek authority to reject their CBAs and modify certain of their retiree
healthcare benefits because, absent an agreement with the UMWA, they have no other choice.
The Debtors are not viable as a going concern and must promptly sell substantially all of their
operating assets. If the Debtors do not reject their CBAs and modify their retiree benefits,
satisfying their DIP covenants and the conditions to closure of the Blackhawk transaction, the
Debtors will run out of cash and will be forced to liquidate in a matter of weeks. This grim
2
In particular: (a) each of (i) Heritage Coal Company LLC, (ii) Colony Bay Coal Company LLC, (iii) Eastern
Associated Coal, LLC, (iv) Mountain View Coal Company, LLC, (v) Pine Ridge Coal Company, LLC,
(vi) Rivers Edge Mining LLC, (vii) Apogee Coal Company, LLC, and (viii) Hobet Mining, LLC are parties to a
coal wage agreement with the UMWA on identical terms (although each are separate CBAs, the Motion
collectively refers to each of these agreements herein as the “Master CBAs”); (b) Highland Mining Company,
LLC, who is party to a separate CBA with the UMWA (the “Highland CBA”); and (c) Gateway Eagle Coal
Company, LLC (“Gateway”), who is party to a separate CBA with the UMWA (the “Gateway CBA,” and
together with the Master CBAs and the Highland CBA, the “CBAs”).
3
As described in further detail below, the Debtors do not seek at this time to modify non-union related retiree
benefits. The Debtors reserve all rights to seek such relief at a later time.
4
The UMWA has agreed pursuant to 11 U.S.C. § 1114(c)(1) to serve as the authorized representative for the
Debtor’s UMWA-affiliated retirees.
2
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reality requires the filing of this Motion and the prosecution of this Motion on the timetable
provided by 11 U.S.C. § 1113.
2.
As the Court is well aware, the Debtors, who manage one of the largest
coal-producing enterprises in the United States, are operating in treacherous market conditions—
the price of coal having recently dropped to levels not seen in more than a decade—and are
simultaneously facing a barrage of ever-increasing regulatory and environmental burdens.
Faced with dramatically increasing costs and decreasing revenues, the Debtors’ losses have
mounted. In 2014 alone, the Debtors lost nearly $165 million, and would have had to cease
operations and liquidate earlier this year had they not received emergency DIP financing to
bridge them to a potential sale transaction.
Recognizing the increasingly difficult market
conditions, in October 2014, the Debtors engaged Centerview Partners, LLC (“Centerview”) to
assist with exploration of a merger or similar strategic transaction with a potential strategic
partner.
3.
The only viable bidder identified to date for substantially all of the Debtors’
operating assets (the “Assets”), Blackhawk Mining LLC (“Blackhawk”), has insisted—
understandably—upon the Debtors’ having either reaching an agreement with the UMWA with
regard to certain concessions or rejecting certain of the Debtors’ CBAs5 as a condition to closing
the sale (the “Transaction”).
4.
As the Court is well aware, the Debtors and their advisors concluded that the
proposed sale to Blackhawk provides the best option for maximizing value for the benefit of the
5
Specifically: (a) the Gateway CBA; and (b) the Master CBAs with Eastern Associated Coal, LLC and Apogee
Coal Company, LLC. These CBAs cover substantially all of the Debtors’ operating assets. Other than the
Hobet Mining, LLC CBA (the “Hobet CBA”), each of the Debtors’ other CBAs cover operations which have no
employees or have been shut down entirely. As will be discussed in further detail below, the Debtors seek to
reject the Hobet CBA because they cannot continue to maintain or sell operations covered by the Hobet CBA
without certain modifications which have been rejected by the UMWA without good cause.
3
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Debtors’ stakeholders and preserving as many of the Debtors’ operations as possible as going
concerns. The Debtors have since entered into an asset purchase agreement with Blackhawk,
dated June 22, 2015 (the “Blackhawk APA”) and obtained entry of an order approving bidding
procedures pursuant to which the Debtors are conducting an open auction and sale process in the
hopes of generating additional interest from other bidders. The Debtors are fully committed to
running a thorough sale process to maximize value for their estates.
But the Blackhawk
Transaction cannot be consummated unless either: (a) Blackhawk enters into new collective
bargaining agreements that have been ratified by the UMWA on terms and conditions acceptable
to Blackhawk in its sole discretion; or (b) the Debtors obtain the relief they are seeking today.
(See APA § 10.02(i).) The Debtors’ DIP funding is also tied to their ability to negotiate a
consensual resolution with the UMWA on terms of new CBAs that would satisfy the
Blackhawk APA closing conditions, or file a motion seeking rejection of their CBAs pursuant to
section 1113 of the Bankruptcy Code by August 1, 2015. (See Final DIP Order, Ex. C.)6 The
Blackhawk APA also does not provide for the assumption of the Debtors’ retiree health
obligations—and the Debtors do not have the means to continue paying such benefits—so this
Motion seeks rejection of such obligations pursuant to section 1114 of the Bankruptcy Code.
5.
The Debtors have engaged in extensive discussions with both the UMWA and
Blackhawk trying to facilitate an agreement on a new CBA, but no agreement has been reached
and negotiations appear to be at impasse.7 As will be discussed in further detail below, the
6
“Final DIP Order” means Final Order Authorizing (A) Authorizing The Debtors To Obtain Postpetition
Financing, (B) Authorizing Use Of Cash Collateral, (C) Granting Liens And Superpriority Claims,
(D) Granting Adequate Protection, (E) Modifying The Automatic Stay, (F) Scheduling a Final Hearing, And (G)
Granting Related Relief [Docket No. 230].
7
To be clear, Blackhawk has never negotiated directly with the UMWA. Rather, the Debtors have always made
proposals, after consultation with Blackhawk, based on terms that would satisfy closing conditions under the
Blackhawk APA.
4
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Debtors and their advisors attended four in-person meetings with the UMWA, engaged in several
telephonic conferences, presented six different possible settlement frameworks, and spent
countless hours with Blackhawk and the UMWA trying to negotiate a resolution acceptable to
both parties.
6.
Unfortunately, the UMWA and the Debtors were not able to reach agreement on
several key items, notably including the elimination of the obligation to participate in the
UMWA 1974 Pension Plan (the “UMWA 1974 Pension Plan”). Blackhawk has been clear from
the beginning, and understandably so, that under no circumstances would it agree to become an
employer under and make contributions to the UMWA 1974 Pension Plan, a multi-employer
plan that provides defined benefits to a majority of the hourly coal production workers
represented by the UMWA. The Debtors are required to make significant contributions to the
UMWA 1974 Pension Plan under their CBAs.
For the last three years, the Debtors’
contributions to the UMWA 1974 Pension Plan have been $20.8 million, $20.6 million, and
$16.8 million, respectively. The UMWA 1974 Pension Plan, which is massively underfunded
and in “critical” status (in ERISA parlance), has estimated the Debtors’ portion of its
underfunding to be over $600 million. If anything, this amount is likely to increase in the future
as other coal companies go through bankruptcy and shed their pension obligations, spreading the
plan’s shortfall among an ever-shrinking group of employers. Blackhawk’s unwillingness to
take the UMWA 1974 Pension Plan, its significant annual funding obligations, and its massive
underfunded liability, which could be triggered at any time, is not going to change. In fact, the
Debtors do not believe that any buyer or operator of the Debtors’ assets would be willing to
assume the UMWA 1974 Pension Plan.
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In the face of the UMWA’s insistence on terms and conditions that Blackhawk
was unwilling to agree to (and that no buyer is likely to agree to), following discussions with
Blackhawk, the Debtors presented a last proposal to the UMWA which expired on
Wednesday, July 8, 2015. Following the expiration of this proposal—in light of the fact that the
UMWA was not going to agree to modifications that would be acceptable to Blackhawk—the
Debtors made another proposal to the UMWA on July 10, 2015. The Debtors’ proposal with
respect to all facilities proposed to be acquired by Blackhawk was simple: the applicable CBAs
must be rejected and, following the closing of the Transaction, the rights of Blackhawk and the
UMWA would be subject to applicable labor law. The Debtors similarly proposed to terminate
the CBAs applicable to the facilities that are not proposed to be acquired by Blackhawk,8 and, in
addition, proposed terms and conditions under which the Debtors would offer employment
following rejection or modification of the applicable CBAs.
8.
The UMWA has repeatedly rejected the Debtors’ proposals without good cause
and has offered only one counterproposal.
The Debtors understand that the UMWA will
continue to insist on terms (such as assumption of the UMWA 1974 Pension Plan) that neither
Blackhawk nor the Debtors will agree to—nor would any potential buyer or operator of any of
the Debtors’ facilities likely agree to. It is settled law that a union lacks good reason for
rejecting a proposal when it insists on terms that it knows the Debtor cannot offer or that a
prospective buyer will not agree to. See, e.g., In re National Forge Co., 289 B.R. 803, 812
(Bankr. W.D. Pa. 2003) (“[T]he Union’s insistence that the Debtor provide something which was
8
As noted above, the only CBA covering active operations which does not need to be rejected for purposes of the
Transaction is the Hobet CBA. Rather, the Hobet CBA needs to be rejected because the Debtors cannot
otherwise operate and are unlikely to be able to sell their remaining assets without the requested modifications.
6
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not within its control indicates that the Union’s refusal to accept Debtor's proposal was without
good cause.”).
9.
If the Motion is not granted, the Debtors have every reason to expect that
Blackhawk will not close on the Transaction, and the Debtors will default under their DIP
facility, will run out of money, and will be forced to liquidate. The results for the Debtors’
employees and their families would be tragic. The fact that the Debtors are back in bankruptcy
less than 18 months after emerging from their last reorganization—and that the only DIP
financing available to the Debtors requires timely pursuit of a sale process—is proof positive that
the Debtors are no longer viable as a stand-alone business and must pursue the Transaction. The
Debtors must reject most of their CBAs to be able to effectuate the Transaction. And the
Debtors must reject their CBAs that apply to operations not being acquired by Blackhawk in the
Transaction or the pending sale process to reduce costs for their estates and to position those
assets for sale. The Debtors simply have no choice but to seek and obtain the order attached to
this Motion.
10.
The Debtors recognize the hardships associated with any modification to an
employee’s wages or retiree benefits.
Sections 1113 and 1114 of the Bankruptcy Code,
however, require consideration of the tragic alternative: liquidation, the loss of all jobs, and the
Debtors’ inability to provide any benefits to their employees or retirees. Thus, while the Debtors
come to this Court for relief, they do so knowing that despite extensive good faith negotiations
on the part of Blackhawk, and despite good faith proposals by the Debtors, the UMWA has
refused to reach an agreement without good cause. Further delay threatens the Debtors’ survival
and will eliminate the possibility of a result far preferable to liquidation.
7
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Jurisdiction
11.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and
1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).
12.
Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
13.
The statutory bases for the relief requested herein are sections 1113 and 1114 of
chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) and rule 6004 of the
Federal Rules of Bankruptcy Procedures (the “Federal Rules”).
Relief Requested
14.
By this Motion, the Debtors seek entry of an order, attached hereto as Exhibit A:
(i) authorizing, but not directing, the Debtors to (a) reject the CBAs, (b) modify certain retiree
benefits, and (c) implement the terms of their Proposal; and (ii) granting related relief.
Background9
A.
Procedural History
15.
On May 12, 2015 (the “Petition Date”), each of the Debtors filed a petition with
this Court under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their
business and manage their properties as debtors in possession. The Debtors’ chapter 11 cases
have been consolidated for procedural purposes only and are being jointly administered pursuant
to Bankruptcy Rule 1015(b). No party has requested the appointment of a trustee or examiner in
these chapter 11 cases. On May 21, 2015, the Office of the United States Trustee for the Eastern
District of Virginia (the “U.S. Trustee”) appointed the official committee of unsecured creditors
in these chapter 11 cases (the “Committee”).
9
A description of the Debtors’ business operations, history, corporate and capital structures, and reasons for
commencing these chapter 11 cases are set forth in the Declaration of Ray Dombrowski in Support of
Chapter 11 Petitions and First Day Pleadings [Docket No. 22] (the “First Day Declaration”).
8
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On June 4, 2015, the Court entered the DIP Order approving the Debtors’ entry
into a $100 million senior secured postpetition financing facility (the “DIP Facility”). As set
forth in Exhibit C to the DIP Order, the Debtors agreed to comply with certain case milestones as
a condition to receiving DIP funding including: (a) entering into a binding stalking horse
purchase agreement for the sale of certain assets through a chapter 11 plan by June 30, 2015; and
(b) reaching an agreement with the UMWA for modification of the CBAs necessary to
implement such sale or, alternatively, filing a motion for relief under sections 1113 and 1114 of
the Bankruptcy Code necessary to implement such sale by August 1, 2015.
17.
On June 23, 2015, the Court entered an order [Docket No. 406]
(the “Bidding Procedures Order”) approving bidding procedures and an open auction process for
the sale of substantially all of the Debtors’ operating assets to Blackhawk pursuant to the
Blackhawk APA.
18.
On June 25, 2015, the Court entered an order [Docket No. 399] directing the
appointment of a committee of retirees pursuant to section 1114(d) of the Bankruptcy Code
(the “1114(d) Committee”).
The United States Trustee appointed the members of the
1114(d) Committee
includes
(which
a
UMWA
representative)
on
July
7,
2015
[Docket No. 468].10
B.
The Debtors’ History
19.
As set forth more fully in the First Day Declaration, prior to October 31, 2007,
Patriot Coal Corporation (“Patriot”) and a number of its subsidiaries were wholly-owned
subsidiaries of Peabody Energy Corporation (“Peabody”), which at the time was the world’s
10
The Debtors have already begun to engage the advisors to the 1114(d) Committee and similarly expect to make
a proposal to modify, reduce, or eliminate non-union retiree benefits. For the avoidance of doubt, the Debtors
do not seek through this Motion the authority to modify, reduce, or eliminate non-union retiree benefits.
9
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largest privately-owned coal company. On October 31, 2007, Peabody spun off Patriot through a
dividend of all outstanding shares of Patriot, and Patriot became a separate, public company,
listed on the New York Stock Exchange.
20.
On July 23, 2008, Patriot acquired Magnum Coal Company (“Magnum”). At the
time of this acquisition, Magnum (which had on its balance sheet substantial assets and liabilities
previously acquired from Arch Coal, Inc. (“Arch Coal”)) was one of the largest coal producers in
Appalachia, controlling more than 600 million tons of proven and probable coal reserves.
C.
The Debtors’ Employee Obligations
i.
21.
Active Workforce
The Debtors employ approximately 2,760 miners, engineers, administrative
support staff, managers, directors, and executives. At present, approximately 31% of active
employees are unionized and represented by the UMWA under the Debtors’ CBAs.
22.
The CBAs address all aspects of the employer and employee relationship
including, among other things, wage rates, work rules, paid time off, and health and welfare
benefits. Importantly, the Debtors employ hundreds of non-union employees who do the exact
same work as UMWA employees, but at market wages. The CBAs include provisions that
govern hourly wages and lock in wage increases, typically at rates that are substantially higher
than competitive wages paid to non-union workers serving in the same capacity. Key differences
between the wages and benefits afforded active union employees and those provided to active
non-union employees generally include:
•
union employees make higher wages than non-union employees—up to
41% higher at surface mines and 30% higher at underground mines;
•
union employees are subject to lower out-of-pocket health insurance
maximums than non-union employees and union employees are not required
to pay healthcare premiums;
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•
non-union employees receive a dollar-for-dollar matching contribution up to
6%, but, for union employees, the Debtors contribute to the UMWA 1974
Pension Plan (other than with respect to the Gateway CBA), make a 3%
contribution to a company-sponsored “Union Savings Plan” in lieu of pension
contributions for new inexperienced miners, and also make a contribution of
3% of earnings to a Union Savings Plan (as defined in and described more
fully below) for all represented employees in lieu of providing retiree
healthcare;
•
the CBAs provide for scheduled wage increases and wage reopeners for union
employees but wage increases for non-union employees are entirely at the
Debtors’ discretion;
•
the Debtors’ union employees receive additional time off as compared to
non-union employees in the form of floating vacation days, greater personal
and sick leave, and graduated vacation days;
•
union employees benefit from more favorable work rules; and
•
union employees are entitled to several job security benefits not available to
non-union employees, including panel rights, preferential hiring rights to other
operations, and extensive grievance procedures.
ii.
23.
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Retirees and Retiree Healthcare Benefits
The Debtors also provide certain retiree healthcare benefits to retired union
employees pursuant to the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”),
and make certain contributions to a UMWA-administered VEBA that provides health benefits to
certain non-Coal Act retirees. As noted above, as a result of the spin-off from Peabody and the
acquisition of Magnum, the Debtors became responsible for liabilities relating to thousands of
former union employees and retirees of Peabody and Arch Coal who retired prior to the
formation of Patriot.
24.
Accordingly, the Debtors have nearly twice as many retirees as active employees.
At present, the Debtors pay for or administer retiree healthcare benefits to approximately 4,607
retirees and 1,836 dependents, for a total of 6,433 beneficiaries. Of that total, 5,464 beneficiaries
11
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are associated with the UMWA (the “UMWA Retiree Beneficiaries”).11 Certain of the Debtors’
obligations to the UMWA Retiree Beneficiaries—such as contributing to the UMWA VEBA (as
defined herein)—stem from the Debtors’ CBAs,12 whereas others—such as obligations under the
Coal Act—are statutory. The Debtors UMWA retiree healthcare benefits generally fall into three
categories:
•
UMWA VEBA (Debtors): Certain UMWA Retiree Beneficiaries13 receive
benefits under a Voluntary Employee Beneficiary Association trust formed by
the UMWA in the Debtors’ prior bankruptcy (the “UMWA VEBA”), which
assumed the Debtors’ obligations to provide retiree healthcare benefits to
certain union retirees, effective June 30, 2013.14 In general, these are former
UMWA employees who retired under the 1993 National Bituminous Coal
Wage Agreement (“NBCWA”) and subsequent NBCWAs, and who qualify
for retiree health benefits under these NBCWAs, not under the Coal Act. In
2014, the Debtors contributed approximately $8.2 million on account of the
UMWA VEBA. By this Motion, the Debtors seek to modify their obligations
to the UMWA VEBA as provided in their Proposal.
•
Coal Act (Debtors): The Coal Act requires employers to provide health
benefits to retirees who were age and service eligible as of February 1, 1993
11
The Debtors also have approximately 969 retirees not affiliated with the UMWA (the “Non-Union Retirees”).
As noted above, the U.S. Trustee appointed the members of the 1114(d) Committee on July 7, 2015. The
Debtors have already begun to engage the advisors to the 1114(d) Committee and similarly expect to make a
proposal to modify, reduce, or eliminate non-union retiree benefits. For the avoidance of doubt, the Debtors do
not seek through this Motion the authority to modify, reduce, or eliminate non-union retiree benefits.
12
The Debtors’ obligation to contribute to the UMWA VEBA is also set forth in: (a) that certain settlement
agreement between Patriot, Peabody, and the UMWA, dated as of October 24, 2013
(the “Patriot-Peabody-UMWA Settlement Agreement”); and (b) that certain funding agreement, dated as of
August 26, 2013 (as amended by that certain amendment dated November 4, 2013, and as may have been
further amended or modified from time to time, the “VEBA Funding Agreement”)). By this Motion, the
Debtors seek the termination or modification of their obligations to the UMWA VEBA as set forth in their
CBAs, the Patriot-Peabody-UMWA Settlement Agreement, the VEBA Funding Agreement, and any other
ancillary agreements where such obligations were set forth.
13
Although the Debtors are not privy to the specific number of UMWA Retiree Beneficiaries who receive benefits
from the UMWA VEBA, effective June 30, 2013, the UMWA VEBA assumed health care obligations for
6,142 of the Debtors’ retirees (including dependents, a total of 11,370 UMWA Retiree Beneficiaries).
14
Funding for the VEBA under the VEBA Funding Agreement included: (a) a 35% ownership stake in the
common stock issued upon emergence of the reorganized company; (b) profit sharing contributions up to a
maximum of $300 million, subject to certain financial conditions that have never been satisfied; (c) a royalty
contribution of $0.20 to $1.00 per ton for every ton produced at all existing mining complexes; (d) cash
contributions of up to $75 million to be paid over the four years following emergence, subject to certain
financial conditions that have never been satisfied; and (e) $10 million paid at emergence.
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and who retired by September 30, 1994. The Debtors administer a health
benefit plan that provides benefits to approximately 5,254 UMWA Retiree
Beneficiaries pursuant to the Coal Act. The Debtors are responsible for
paying benefits to approximately 1,108 of these UMWA Retiree
Beneficiaries, and Peabody is responsible for paying for the remaining
4,236 UMWA Retiree Beneficiaries. The Debtors’ liabilities under the Coal
Act also include payments to two multi-employer funds, the UMWA
Combined Benefit Fund and the UMWA 1992 Benefit Plan, which provide
certain healthcare benefits to certain eligible retirees. At present, the Debtors
estimate the present value of their Coal Act liabilities to be approximately
$43.7 million. These liabilities are subject to modification through section
1114 of the Bankruptcy Code. See generally Horizon Natural, 316 B.R. 268
(holding Coal Act benefits are “retiree benefits” within the meaning of
section 1114 of the Bankruptcy Code and may be modified pursuant to section
1114). By this Motion, the Debtors seek to eliminate all obligations under the
Coal Act.
•
Coal Act (Peabody): Peabody is contractually responsible for paying for
approximately 4,236 UMWA Retiree Beneficiaries (the “Peabody Assumed
Retirees”) pursuant to that certain Section 9711 Coal Act Liabilities
Assumption Agreement between the Debtors and Peabody. Although
Peabody pays these health benefits directly, the Debtors administer these
retiree health benefits through that certain Administrative Services Agreement
between the Debtors and Peabody. By this Motion, the Debtors seek to
eliminate their obligations under the Administrative Services Agreement and
for any obligations under the Coal Act with respect to the Peabody Assumed
Retirees.15
•
NBCWA (Alcoa): Approximately 210 UMWA Retiree Beneficiaries receive
retiree health benefits under the 1993 National Bituminous Coal Wage
Agreement of 2011, which the Debtors pay for but are reimbursed by Alcoa
Co. (“Alcoa”) under the Debtors’ joint venture agreement (the “Squaw Creek
JV Agreement”) with Alcoa for the Squaw Creek Coal Company (the “Alcoa
Assumed Retirees”).16 By this Motion, the Debtors seek to eliminate their
15
To be clear, the Debtors seek to eliminate all Coal Act obligations with respect to the Peabody Assumed
Retirees, including without limitation in the event the Section 9711 Coal Act Liabilities Assumption Agreement
is rejected or otherwise terminated.
16
The Debtors’ NBCWA retiree health care obligations were largely eliminated through their 2012–13
Restructuring in connection with establishment of the UMWA VEBA. Alcoa, however—unlike Peabody—did
not wish to contribute to the UMWA VEBA, and instead agreed to keep reimbursing the Debtors for these
obligations. By this Motion, the Debtors are only seeking to terminate any obligations they may have with
respect to the Alcoa Assumed Retirees, including the administration of such obligations, and are not seeking to
affect Alcoa’s continuing obligations with respect to the Alcoa Assumed Retirees.
13
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obligations to administer benefits for the Alcoa Assumed Retirees and any
obligations they have with respect to the Alcoa Assumed Retirees.17
25.
To be clear, the Debtors do not believe any of the UMWA Retiree Beneficiaries
will be negatively affected by termination of the Debtors’ Coal Act obligations. If the Debtors
terminate their Coal Act obligations, it is the Debtors’ understanding that the Peabody Assumed
Retirees would continue to receive their retiree benefits from Peabody. It is also the Debtors’
understanding that the only retiree benefits for which the Debtors are currently paying and not
being reimbursed—related to the 1,018 beneficiaries receiving benefits pursuant to the Coal
Act—would transition to Arch Coal (990 retirees) and Peabody (28 retirees) as “related persons”
under the Coal Act. See 26 U.S.C. 9701(c)(2).
iii.
26.
Pension Obligations
The Debtors also have additional payment obligations to the UMWA 1974
Pension Plan under their CBAs (other than the Gateway CBA).
The Debtors spent
approximately $16.8 million in 2014 on contributions under the UMWA 1974 Pension Plan.
Because the UMWA 1974 Pension Plan is a multiemployer plan, it is the Debtors’ understanding
that beneficiaries of the UMWA 1974 Pension Plan would continue to receive pension benefits
from the Plan if the Debtors’ obligations were terminated.
D.
The Debtors’ CBAs
27.
The Debtors are parties to three “groups” of CBAs: (a) eight Master CBAs; (b)
the Gateway CBA; and (c) the Highland CBA. These obligations are discussed in turn.
28.
Eight of the Debtors are signatories to Master CBAs with substantially identical
terms: (a) Heritage Coal Company LLC (“Heritage”); (b) Colony Bay Coal Company LLC
17
To be clear, the Debtors seek to eliminate all obligations with respect to the Alcoa Assumed Retirees, including
without limitation in the event the Squaw Creek JV Agreement is rejected or otherwise terminated.
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(“Colony”); (c) Eastern Associated Coal, LLC (“Eastern”); (d) Mountain View Coal Company,
LLC (“Mountain View”); (e) Pine Ridge Coal Company, LLC (“Pine Ridge”); (f) Rivers Edge
Mining LLC (“Rivers Edge”); (g) Apogee Coal Company, LLC (“Apogee”); and (h) Hobet
Mining, LLC (“Hobet”). Approximately 725 current employees receive benefits under the
Master CBAs.
29.
First, five of the eight Master CBAs (Heritage, Colony, Mountain View, Pine
Ridge, and Rivers Edge) cover operations that have been shut down (in some cases, for up to 30
years). In addition, although the transaction has not yet closed, the Debtors entered into an asset
purchase agreement prepetition to sell the Heritage assets.
30.
Two of the remaining three Master CBAs cover both assets that are to be acquired
by Blackhawk and other mining complexes or groups of assets that are not being acquired by
Blackhawk (i.e., the Federal assets, the Apogee assets, and the Heritage assets, and together with
any other assets Blackhawk is not proposing to acquire, the “Remaining Assets”). The Master
CBA with Eastern covers the Black Oak Underground Mine, the Rocklick Preparation Plant, the
Wells Preparation Plant, and certain related coal lands and operations, which are being acquired
by Blackhawk, and the Federal assets (i.e., the Federal #2 Underground Mine and the Federal #2
Preparation Plant), which are not being acquired by Blackhawk. The Apogee CBA covers the
Fanco Preparation Plant and Loadout, which is being acquired by Blackhawk, and the Guyan
Surface Mine, which is not being acquired by Blackhawk. The Debtors seek to reject the Eastern
and Apogee CBAs in their entirety because doing so is a requirement under the Blackhawk
Transaction, and the Debtors cannot “cherry-pick” which features of an executory contract they
wish to assume and which features they wish to reject. See, e.g., Sharon Steel Corp. v. Nat’l
Fuel Gas Distribution Corp., 872 F.2d 36, 41 (3d Cir. 1989).
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The remaining Master CBA is the Hobet CBA. The Hobet CBA only covers
assets which Blackhawk is not acquiring. As will be discussed in further detail below, the
Debtors seek to reject the Hobet CBA because they cannot continue to operate and are unlikely
to be able to sell the Hobet assets without the Debtors’ requested modifications, and the Debtors
cannot be in a position whereby failure to reject will leave their liquidating estates with
significant administrative expenses. See In re Adventure Resources, Inc., 137 F.3d 786, 793 (4th
Cir. 1998) (holding that any claims arising from a collective bargaining agreement that has not
been rejected are entitled to first priority as administrative expenses of the bankruptcy estate).
32.
Second, Debtor Gateway Eagle Coal Company, LLC is a signatory to the
Gateway CBA, which was negotiated in connection with the 2012–13 Restructuring.
The
Gateway CBA covers four mines: (a) Gateway Eagle; (b) Farley Eagle; (c) Campbells Creek
No. 10; and (d) Sugar Maple. The Debtors permanently closed operations at the Sugar Maple
and Farley Branch underground mines in November 2012 and neither operation has any
remaining employees. The remaining two Gateway operations, Campbells Creek No. 10 and
Gateway Eagle underground mines, are part of the Wells and Rocklick mining complexes subject
to the Blackhawk APA. The major difference between the Gateway CBA and the Master CBAs
is that there is no requirement to contribute to the UMWA 1974 Pension Plan. Approximately
166 current union employees receive benefits under the Gateway CBA.
33.
The Debtors seek to reject the Gateway CBA because, with respect to the
Debtors’ active operations, it is a requirement to consummate the Blackhawk Transaction, and
with respect to the Debtors’ remaining operations, the mines have been shut down, there are no
employees, and the Gateway CBA must be rejected in toto. Sharon Steel Corp. 872 F.2d at 41.
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Finally, Debtor Highland Mining Company, LLC is a signatory to the Highland
CBA. The Debtors permanently closed and sealed the Highland mine and laid off all of their
employees. In addition, although the transaction has not yet closed, the Debtors entered into an
asset purchase agreement prepetition to sell the Highland assets. Accordingly, the Debtors seek
to reject the Highland CBA both because there are no operations or employees associated with
the Highland CBA, and out of an abundance of caution so the Debtors are not deemed to have
assumed the Highland CBA through operation of law. See Adventure Resources, 137 F.3d at
798.
E.
The Debtors’ Prepetition Struggles
i.
35.
2012–2013 Restructuring
On July 9, 2012, the Debtors filed voluntary chapter 11 petitions in the
U.S. Bankruptcy Court for the Southern District of New York on account of, among other things,
the decrease in demand for coal, increasing costs associated with burdensome government
regulations, and increasing labor-related liabilities. Following a venue challenge by, among
other parties, the UMWA, the cases were transferred on November 27, 2012 to the
U.S. Bankruptcy Court for the Eastern District of Missouri (the “Missouri Bankruptcy Court”).
36.
On May 29, 2013, following the failure of extensive negotiations between the
Debtors and the UMWA and a motion filed by the Debtors to reject their collective bargaining
agreements under sections 1113 and 1114 of the Bankruptcy Code, the Missouri Bankruptcy
Court issued a 102-page ruling authorizing, but not directing, the Debtors to implement proposed
changes to their existing collective bargaining agreements and to their related retiree benefits.
While an appeal of that order was pending, in August 2013, the parties agreed upon new
collective bargaining agreements that included the following key changes with regard to the
Debtors’ union employees:
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•
various adjustments were made to wages, including future changes;
•
shift differential payments and premium overtime pay were eliminated, but union
employees continued to receive 1.5 times their regular pay for any hours worked
over 40 hours per week and holidays;
•
paid time off was reduced and adjustments were made to work rules;
•
union employees agreed to a healthcare plan more closely matching that of the
Debtors’ non-union employees, but with lower out-of-pocket maximums and
without healthcare premiums;
•
the Debtors agreed to contribute three percent of union employees’ gross wages
into a 401(k) or similar plan in lieu of the obligation to provide retiree healthcare
in the future; and
•
the Debtors agreed that the entities participating in and contributing to the
UMWA 1974 Pension Plan would continue to do so.
The following key changes were made with regard to the Debtors’ union retirees:
37.
•
the UMWA established the UMWA VEBA; and
•
Patriot, on behalf of itself and certain Patriot subsidiaries, entered into the VEBA
Funding Agreement.
Similarly, following negotiations between the Debtors and a committee comprised
of their non-union retirees, the Missouri Bankruptcy Court entered a negotiated order on
April 26, 2013 authorizing the Debtors to discontinue substantially all of their non-union retiree
healthcare programs, eliminate retiree life insurance benefits for current non-union employees,
and cap life insurance benefits for current non-union employees.
38.
The Debtors also entered into the Patriot-Peabody-UMWA Settlement Agreement
whereby, among other things, Peabody agreed to: (a) provide $310 million in cash contributions
ultimately to be funded to the UMWA VEBA; and (b) provide $141 million in credit support for
letters of credit and cash collateral previously posted by the Debtors for, among other things,
UMWA retiree healthcare obligations and obligations under the Coal Act.
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Post-Restructuring Struggles
The Debtors’ business depends on global demand for coal-fueled electricity and
steel production. Since the 2012–13 Restructuring, thermal and metallurgical coal markets and
pricing have become increasingly challenged with oversupply and coal prices have reached lows
not seen in more than a decade. The lethargic economic environment, lack of energy demand
generally, and a large number of coal-fired plant retirements have precipitated this decline.
Competition from other energy sources has also increased pricing pressures:
as of
December 31, 2014, natural gas pricing was 46% lower compared with the previous year and
stood at $2.95/MBtu, a price at which it is difficult for any coal basin to compete.
40.
The regulatory environment has also contributed to the Debtors’ current financial
situation. Federal and state regulatory authorities impose obligations on the coal mining industry
with respect to employee health and safety, permitting and licensing requirements,
environmental protection, the reclamation and restoration of mining properties, and the effect of
mining on surface and groundwater quality.
Several citizen lawsuits brought by
non-governmental organizations have also stressed the Debtors’ financial condition.
The
Debtors have incurred significant costs to comply with these laws and regulations.
41.
As discussed above, the Debtors’ obligations to contribute to the UMWA 1974
Pension Plan and to make payments pursuant to the Coal Act continue today, notwithstanding
the 2012–13 Restructuring.
When coupled with the external pricing pressure, increased
regulation, and other costs associated with the Debtors’ businesses, these legacy liabilities have
crippled the Debtors’ ability to operate profitably. Each of these challenges contributed to the
Debtors’ decision to pursue a sale process and file these chapter 11 cases.
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F.
The Debtors’ Sale Process
42.
As noted in the First Day Declaration, the Debtors’ feasibility upon emergence
from the 2012–13 Restructuring was predicated on assumptions about coal prices and operating
performance that ultimately did not materialize.
The Debtors’ management and advisers
thereafter pursued certain strategic mergers and similar strategic transactions, but these efforts
did not yield a meaningful or transformative transaction.
43.
In the months prior to filing petitions for relief under chapter 11, due to continued
weakened demand for coal, the Debtors’ management had to address increasingly severe
pressures on its financial condition that threatened to cause an event of default under their
secured debt instruments. Accordingly, the Debtors and their advisers negotiated and obtained
on March 31, 2015 requisite amendments from their lenders that provided further time to explore
options to secure additional liquidity and/or effectuate a sale and/or restructuring transaction.
44.
As detailed more fully in the Debtors’ motion for entry of the Bidding Procedures
Order, before and after the Petition Date, the Debtors and their advisors engaged in negotiations
or discussions with two entities regarding a transaction that would result in the going concern
sale of substantially all of the Debtors’ operating assets. One of the entities was not interested in
acquiring union-affiliated assets, and the other was Blackhawk. After analysis and review, the
Debtors and their advisors concluded that the proposed Blackhawk sale provided the best option
for maximizing value for the benefit of the Debtors’ stakeholders.
45.
Pursuant to the Blackhawk APA, Blackhawk has agreed to purchase certain assets
and assume certain liabilities and will be capitalized with a combination of debt, equity, and
cash. Importantly, Blackhawk is not assuming liabilities: (a) under any of the Debtors’ CBAs;
(b) for retiree medical or other welfare benefits for any of the Debtors’ employees, including
liabilities under or in relation to the Coal Act; or (c) for or associated with contributions to or
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successorship obligations in relation to the UMWA 1974 Pension Plan (See Blackhawk
APA § 2.04(d)). In addition, the Blackhawk APA has certain conditions to consummation of the
Transaction, including requirements that:
46.
•
the Court enter an order providing for the sale of the Assets free and clear of
any Encumbrances (as defined in the Blackhawk APA) and explicitly
providing there are no successorship obligations of Blackhawk under the
CBAs,
Coal
Act,
and
UMWA
1974
Pension
Plan
(See Blackhawk APA § 10.02(g)); and
•
either (i) Blackhawk shall have entered into new collective bargaining
agreements on terms and conditions acceptable to Blackhawk that have been
ratified by the UMWA or (ii) the Court shall have entered one or more orders
in form and substance acceptable to Blackhawk rejecting the CBAs and
associated retiree benefits pursuant to sections 1113 and 1114 of the
Bankruptcy Code (See Blackhawk APA § 10.02(i)).
Under the Bid Procedures Order, the Court set a bid deadline of
September 4, 2015 and, if necessary, an auction date of September 9, 2015. Since entry of the
Bid Procedures Order, the Debtors, with their advisors, launched an extensive marketing and sale
process for substantially all of the Debtors’ operating assets, canvassing the marketplace to
identify potential financial or strategic purchasers. In total, the Debtors’ investment banker,
Centerview, in consultation with the Committee and the UMWA, contacted approximately 65
potential purchasers and sent “teaser” materials to 29 such parties to solicit interest. The Debtors
ultimately entered into nondisclosure agreements with 17 potential purchasers and provided them
with additional information and offered them access to an electronic data room containing
diligence materials related to the Debtors’ assets. The Debtors have conducted management
calls and/or presentations for three potential purchasers of the Federal assets and one potential
purchaser of the assets Blackhawk seeks to acquire. The Debtors have received two non-binding
letters of intent—one for the Federal assets and one for the assets Blackhawk seeks to acquire.
The potential purchaser interested in the Federal assets has also conducted one site visit. No
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entity (other than Blackhawk) has conducted site visits to date for the assets Blackhawk seeks to
acquire.
47.
At present, despite the Debtors’ ongoing sale process, no potential purchaser has
indicating a willingness to acquire any of the Debtors’ assets without union concessions similar
to those required by Blackhawk.
The Debtors’ Need to Reject the CBAs
48.
As described above, five of the eight Master CBAs and the Highland CBA have
no active operations and no remaining employees. Indeed, certain of these CBAs only cover
operations which have been dormant for years (and in some cases, decades). The Debtors need
to reject these CBAs both because there are no operations or employees associated with such
CBAs, and out of an abundance of caution so the Debtors are not deemed to have assumed these
CBAs through operation of law. See, e.g., Adventure Resources, 137 F.3d at 798 (holding that a
collective bargaining agreement between mine workers union and debtor-coal mining operators
was assumed in bankruptcy as a result of latter’s failure to reject it). Nor can the Debtors expose
their liquidating estate to massive administrative claims in the event they are deemed to assume
such CBAs because they failed to reject them. See Adventure Resources, 137 F.3d at 793
(holding that any claims arising from a collective bargaining agreement that has not been
rejected are entitled to first priority as administrative expenses of the bankruptcy estate).
49.
Two of the remaining three Master CBAs are with Debtors who own assets that
are to be acquired by Blackhawk—specifically, the Master CBAs with Eastern and Apogee. The
Gateway CBA covers both operations to be acquired by Blackhawk and other groups of assets
that have been shut down and have no employees. The Debtors need to reject the Eastern,
Apogee, and Gateway CBAs because, in addition to the administrative liabilities noted above,
rejection of these CBAs is required to consummate the Blackhawk Transaction, and the Debtors
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cannot “cherry-pick” which features of an executory contract they wish to assume and which
features they wish to reject. See, e.g., Sharon Steel, 872 F.2d at 41. In addition, the Debtors
must reject the Gateway CBA because after the Transaction closes, all facilities operated by
Gateway employees will have been either sold or shut down, and Gateway will have no need for
employees, nor can the Debtors expose their liquidating estate to administrative claims by failing
to reject the Gateway CBA.
50.
The Federal and Apogee CBAs also cover certain assets that are not being
acquired by Blackhawk—and the Debtors have made good faith proposals with respect to
replacement terms and conditions for those assets and operations following rejection of the
CBAs, which the UMWA has rejected without good cause. Specifically, the Debtors have
proposed, among other things, removing the UMWA 1974 Pension Plan contribution
requirements—which, absent such modification, would likely prevent any future sale of these
assets—but the UMWA has refused to accept such changes. Accordingly, while the Debtors are
required to reject the Eastern and Apogee CBAs entirely as a condition to consummating the
Blackhawk Transaction, they have made a proposal to the UMWA on the terms and conditions
of a new CBA that could be applied to these Remaining Assets—which the UMWA rejected
without good cause.
51.
The last CBA—the Hobet CBA—covers only the Hobet assets, which Blackhawk
is not seeking to acquire. As with the Federal and Apogee assets, the Debtors made a proposal to
the UMWA on the terms and conditions of a new CBA that would govern the Hobet assets until
such time as the Debtors were able to sell the Hobet assets. The UMWA rejected this proposal.
Accordingly, the Debtors need to reject the Hobet CBA.
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First, the Debtors operate Hobet at significantly above-market costs. As noted
above, certain of the Debtors’ Hobet employees make significantly higher wages than the
Debtors’ non-union employees. In addition, non-union wage rates and benefits have declined in
recent years as coal companies have had to cut costs and as there has generally been a drop in
demand for coal mining employees. For example, the Debtors’ non-union wage rates at their
Samples mine have fallen an average of approximately 7.5% per hour since the conclusion of the
2012–13 Restructuring. Union wage rates at the Debtors’ Hobet mine, however, have continued
to increase in accordance with the terms of the Debtors’ CBAs. Presently, non-union employees
at Samples earn approximately $5.45 less per hour, on average, than their union counterparts at
Hobet. If not corrected, this imbalance will likely continue to increase in light of the weak job
market and the mandatory rate increases provided by the Hobet CBA.
53.
This imbalance in wage expenses has severely crippled Hobet’s cash flow, and
Hobet can no longer continue to operate profitably as a result. Rejection of the Hobet CBA is
thus necessary to Hobet’s ability to continue operating and help fund these chapter 11 cases and
the Debtors’ post-confirmation liquidating trust. See, e.g., In re Mesaba Aviation, Inc., 341 B.R.
693, 731 (Bankr. D. Minn. 2006) (holding that the “necessity” factor under section 1113 requires
the Court to determine what costs must be cut to “improve the [d]ebtor’s cash flow that it could
emerge from chapter 11, financially stable and viably competitive . . . .”). At the same time, the
Debtors are liquidating and their estates will need every dollar available to help fund the
Debtors’ liabilities post-confirmation. In a scenario where the Debtors’ creditors are going to
receive only a fraction of their claims (if that) and the Debtors’ non-union employees are
performing the exact same jobs as the Debtors’ Hobet employees for significantly less, it is only
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fair and equitable that the Debtors’ remaining union employees share each other constituent’s
sacrifice.
54.
Second, as with each of the Debtors’ other CBAs, the Debtors need to reject the
Hobet CBA so that: (a) they are not deemed to have assumed these CBAs through operation of
law; (b) they may avoid exposing the Debtors’ remaining liquidating estate to administrative
claims; and (c) they may effectuate a complete withdrawal under the UMWA 1974 Pension Plan.
The Debtors’ estates simply cannot afford to have any entity exposed to the risk of withdrawal
liability under the UMWA 1974 Pension Plan on a post-effective date basis.
UMWA Negotiations and the Debtors’ Proposals
55.
The Debtors have negotiated diligently and in good faith with the UMWA since
their first meeting two days after the Petition Date. Throughout this process, the Debtors have
demonstrated a commitment to negotiating a consensual resolution with the UMWA that will
satisfy the conditions of the Blackhawk APA, and the Debtors will continue to seek a consensual
resolution during the pendency of this Motion (and, if necessary, thereafter).
56.
The Debtors have engaged in regular communication with the UMWA since they
commenced these chapter 11 cases. On May 14, 2015, the Debtors met with the UMWA to
provide the UMWA with an overview of market conditions, the Debtors’ historical financial
performance, the reasons and goals for the Debtors’ restructuring, including the sale of their
assets, and their DIP milestones. Over the next two months, the Debtors formally met with the
UMWA another four times, and the Debtors and their advisors participated in multiple
conference calls and exchanged numerous e-mails with the UMWA and its advisors—contacts
that often took place multiple times per day.
57.
The Debtors provided a significant amount of data to enable the UMWA to
evaluate their proposals. To that end, the Debtors and the UMWA entered into a stipulated
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protective order (See Docket No. 232) to govern the sharing of confidential data, and the Debtors
set up a web-based data room to facilitate information sharing on a confidential basis. The
Debtors made the data room available to the UMWA on May 19, 2015.
58.
On May 29, 2015, the Debtors presented the First Proposal for a set of terms and
conditions on which they believed both Blackhawk and the UMWA could agree, but the UMWA
had rejected a significant number of proposed modifications, including with respect to the
UMWA 1974 Pension Plan. The Debtors next met with the UMWA on June 3, 2015 in
Morgantown, West Virginia. During the meeting, the Debtors explained that, while Blackhawk
had expressed some willingness to enter into CBAs with the UMWA (subject to certain terms
and conditions), Blackhawk had indicated that it would not consider any CBA with the following
obligations: (a) successorship obligations limiting future asset sales; and (b) UMWA 1974
Pension Plan contributions or other pension related liabilities.
Accordingly, the Debtors
provided the UMWA with a Second Proposal that the Debtors believed would be acceptable to
Blackhawk.
59.
The UMWA provided its first (and only) counterproposal on June 12, 2015
(the “UMWA Counterproposal”). The UMWA Counterproposal responded to a limited number
of the Debtors’ proposed modifications, but rejected the majority of the Debtors’ proposals, and
flatly insisted on maintaining the status quo with respect to paid time off, health and retirement
benefits, contributions to the UMWA 1974 Pension Plan, work rules, and job opportunity
programs. The UMWA Counterproposal was a nonstarter.
60.
After consultation with Blackhawk, the Debtors delivered the Third Proposal on
June 13, 2015 in response to the UMWA’s stated concerns. Among other things, the Third
Proposal provided for an increase in the Debtors’ proposed wage levels, additional job security
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protections, and offered employer contributions to a 401(k)-type savings plan. After delivering
the Third Proposal, the Debtors and the UMWA engaged in discussions about the substance of
the Third Proposal. Following these discussions, after consultation with Blackhawk, the Debtors
delivered a Fourth Proposal to the UMWA later in the day on June 13, 2015, which provided
additional job security protections and job opportunities for laid-off employees. Notwithstanding
the additional concessions proposed by the Debtors in the Fourth Proposal, the UMWA rejected
the proposed modifications, including with respect to the UMWA 1974 Pension Plan
contributions.
61.
On June 18th, 2015, after consultation with Blackhawk, the Debtors met with the
UMWA via telephone and provided a Fifth Proposal. Although there was consensus on several
issues, the UMWA nevertheless refused to accept certain necessary aspects of the Fifth
Proposal—chief among them the elimination of the UMWA 1974 Pension Plan contributions.
Notwithstanding the UMWA’s repeated insistence on terms and conditions that Blackhawk was
unwilling to agree to (and that no buyer is likely to agree to), in an effort to avoid litigation, on
June 22, 2015, after consultation with Blackhawk, the Debtors made a Sixth Proposal to the
UMWA that expired on Wednesday, July 8, 2015. The UMWA did not respond to the Sixth
Proposal.
62.
Below is a table comparing the first proposal and last proposal the Debtors made
that would have satisfied the conditions of the Blackhawk APA, demonstrating the significant
movement in the proposals’ terms made in response to the UMWA’s stated concerns:
Subject and CBA Article
First Proposal
Sixth Proposal
Enabling Clause
(See Art. I of Master CBA)
Eliminate successorship obligations
entirely in new contract.
Retain successorship obligations in new
contract.
Scope and Coverage
(See Art. IA of Master
CBA)
New contract will apply only to
geographic boundaries of the mine as
defined by the mining permit.
New contract will apply to all represented
operations and coal lands acquired by
Blackhawk.
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Subcontracting
(See Art. IA(g) of Master
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Non-bargaining unit employees may
produce coal at the mining face.
Job Opportunities and
Benefit Security Program
Eliminate entirely.
(See Art. II of Master
CBA)
Wage Increase (See Art. X
of Master CBA)
Hourly Wage Rates (See
Appendices to Master
CBA)
Sickness and Accident
Benefits (See Art. XI of
Master CBA)
•
Eliminate all wage increases.
•
Establish wage reopener to set
wages for years 2018–2021.
Desc Main
Non-bargaining unit employees may not
produce coal the mining face.
•
Maintain job opportunities and benefit
security program.
•
Provide 3 of 5 new job opening at
non-represented underground mines to
laid-off represented employees.
•
Provide a $0.65 per hour raise in year
2016 if the metallurgical coal
benchmark index reaches $150.
•
Provide a $0.65 per hour raise in year
2017 if the metallurgical coal
benchmark index reaches $120.
•
Provide annual $0.65 per hour raises
beginning in year 2018 regardless of
the metallurgical coal benchmark
index.
•
Reduce underground wage rates by
$2.00.
•
Reduce underground wage rates by
$1.25.
•
Reduce preparation plant wage rates
by $3.00
•
Reduce preparation plant wage rates
by $1.25.
Provide a maximum of 26 weeks of
S&A benefits.
Provide a maximum of 52 weeks of S&A
benefits.
•
Provide up to five graduated vacations
per year with pay.
Provide up to nine additional
graduated vacation days that are paid
but may not be used as time off.
Graduated Vacation (See
Art. XIV of Master CBA)
Provide up to five graduated vacations
per year with pay.
•
Seniority (See Art. XVII of
Master CBA)
Assure that only the signatory company
is obligated to make job offers to
laid-off employees.
Provide job opportunities for employees of
different signatory companies, including
Hobet and Apogee (which are not being
acquired by Blackhawk).
Eliminate requirement to fund the
VEBA.
Provide for a $0.20 per ton royalty on
clean tons produced at acquired operations
and coal lands through December 31,
2018, unless legislation provides funding
or health care benefits for VEBA
participants.
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
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Eliminate contribution of 3% of wages
into the Union Savings Plan that are
made in lieu of providing retiree health
care and in lieu of pension eligibility.
Provide up to a 6% contribution into the
Union Savings Plan (3% with no employee
contribution required and an additional
matching contribution up to 3%).
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
Provide the same health care plan as
non-union employees.
Make no changes to the current UMWAbargained for health care plan.
Miscellaneous (See Art.
XXII of Master CBA)
Make current attendance policy more
restrictive.
Maintain current attendance control
policy.
Ratification and
Termination of Agreement
(See Art. XXIX of Master
CBA)
Seven year term.
Five year term.
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
•
Alternative Schedules (See
Memorandum of
Understanding Regarding
Alternative Schedules
attached to Master CBA)
Memorandum of
Understanding Regarding
Job Opportunities
63.
•
Provide a 6 day on / 3 day off
schedule with 10 hour rotating
shifts.
Provide a 5 day on / 2 day off
schedule with 10 hour shifts.
Provide a 6 day on / 3 day off schedule
with 10 hour non-rotating shifts.
Eliminate, but provide 3 of 5 job offers at
underground mines to certified employees
of Hobet and Apogee (operations not
being acquired by Blackhawk), and
provide 3 of 5 job offers at new
underground mines (including Flying
Eagle and Eagle 3).
Eliminate.
Although the Debtors tirelessly worked to come to terms with the UMWA on a
resolution that would satisfy the conditions under the Blackhawk APA, a deal has not come
together and the Debtors cannot simply wait around in hopes of an agreement. Despite being
clear from the very beginning of negotiations that Blackhawk could not accept any agreement
that required contributions to the UMWA 1974 Pension Plan, the UMWA has stubbornly refused
to compromise on this point—even when faced with the very real risk that the Debtors could
liquidate, and all of their union employees could lose their jobs, if the sale to Blackhawk is not
consummated.
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While the UMWA may be willing to “play chicken” with Blackhawk, the Debtors
cannot afford to. The Debtors are fiduciaries and must look out for the best interests of all
parties in interest. The Debtors’ only viable path towards saving the going concern value of their
assets for the benefit of their estates and all parties in interest is through a consummation of
either a sale to Blackhawk or through a higher and better offer via the Debtors’ auction process.
Meanwhile, the Debtors’ DIP funding is expressly tied toward satisfying certain milestones, one
of which is either having reached a consensual resolution with the UMWA necessary to satisfy
the conditions under the Blackhawk APA by August 1, 2015, or having filed a motion seeking
relief under sections 1113 and 1114 of the Bankruptcy Code.
65.
Accordingly, in light of the fact that the UMWA was not willing to agree to any
consensual modifications of the CBAs necessary to consummate the Blackhawk Transaction, the
Debtors made another Proposal to the UMWA on July 10, 2015. With respect to all facilities
proposed to be acquired by Blackhawk, the Proposal stated that the applicable CBAs must be
rejected, and, following the closing of the Transaction, the rights of Blackhawk and the UMWA
would be subject to applicable labor law. The Debtors similarly proposed to terminate the CBAs
applicable to the facilities that are not proposed to be acquired by Blackhawk, and, in addition,
proposed market terms and conditions under which the Debtors were willing to offer
employment following rejection of the applicable CBAs. The UMWA, in turn, rejected the
Debtors’ proposals without good cause, again insisting on terms (such as assumption of the
UMWA 1974 Pension Plan) that the UMWA knows neither the Debtors nor Blackhawk will ever
agree to.
66.
As set forth more fully on Exhibit B attached hereto, the Debtors’ Proposal
would, among other things:
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•
authorize, but not direct, the Debtors to reject each of their CBAs;
•
solely with respect to the bargaining unit employees of Eastern employed at
the Federal #2 Underground Mine and the Federal #2 Preparation Plant, offer
a new Eastern CBA with certain modifications, including the elimination of
the successorship clause and contributions to the UMWA 1974 Pension Plan,
and an automatic termination of the CBA upon a cessation or sale of the
Debtors’ operations at the Federal assets;
•
solely with respect to bargaining unit employees of Apogee employed at the
Guyan Surface Mine, offer a new Apogee CBA with certain modifications,
including wage reductions, the elimination of the successorship clause and
contributions to the UMWA 1974 Pension Plan, and an automatic termination
of the CBA upon a cessation or sale of the Debtors’ operations in connection
with the Apogee assets;
•
solely with respect to the bargaining unit employees of Hobet employed at the
Beth Station Preparation Plant and the Job #21 Surface Mine, reinstate the
Hobet CBA with certain modifications, including wage reductions, the
elimination of the successorship clause and contributions to the UMWA 1974
Pension Plan, and an automatic termination of the CBA upon a cessation or
sale of the Debtors’ operations in connection with the Hobet assets; and
•
eliminate any and all future contributions or obligations under the Coal Act
and any and all obligations to pay for or administer any retiree healthcare
benefits for the Alcoa Assumed Retirees and the Peabody Assumed Retirees.
As set forth in more detail below, the Debtors respectfully submit that the
Proposal is necessary to permit confirmation of the Debtors’ chapter 11 plan, is based on the
most complete and reliable information at the time the Proposal was made, does not treat the
Debtors or their creditors unfairly or inequitably, and has been rejected by the UMWA without
good cause.
Basis For Relief
68.
A debtor is permitted to reject its collective bargaining agreements and modify its
retiree benefits if the proposed modifications comply with section 1113 and section 1114 of the
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Bankruptcy Code. 11 U.S.C. §§ 1113(c), 1114(g).18 As a threshold matter, a proposal must be
“necessary to permit the reorganization of the debtor.”
11 U.S.C. §§ 1113(b)(1)(A),
1114(f)(1)(A); Family Snacks, 257 B.R. at 892–93. A proposal must be “based on the most
complete and reliable information available,” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A); the
debtor must have supplied the union with “such relevant information as is necessary to evaluate
the proposal,” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(B); and the debtor must meet with the
union “at reasonable times” and “confer in good faith” in an attempt to agree on modifications to
the collective bargaining agreements. 11 U.S.C. §§ 1113(b)(2), 1114(f)(2). Finally, the proposal
must satisfy certain equitable requirements: it must treat all parties “fairly and equitably,” 11
U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A); the union must have rejected the proposal without
“good cause,” 11 U.S.C. §§ 1113(c)(2), 1114(g)(2); and the “balance of the equities” must favor
rejection. 11 U.S.C. §§ 1113(c)(2), 1114(g)(2); see also Family Snacks, 257 B.R. at 892 (citing
In re Am. Provision Co., 44 B.R. 907, 909 (Bankr. D. Minn. 1984)).
69.
Because the Debtors have satisfied each of the applicable requirements—both as
to their proposed rejection of the CBAs and as to their proposed termination and modification of
retiree benefits—the Motion should be granted.
18
It is well-settled that the requirements of Section 1113 apply with equal force to a debtor’s effort to modify
retiree benefits under Section 1114. See, e.g., Horizon Natural, 316 B.R. at 281 (noting that the “requirements
for modification of retiree benefits are . . . substantially the same as the requirements for rejection of collective
bargaining agreements” and applying the same standard); see also United Food & Commercial Workers Union,
Local 211 v. Family Snacks, Inc. (In re Family Snacks, Inc.), 257 B.R. 884, 896–97 (8th Cir. B.A.P. 2001)
(relying on § 1114 cases to interpret § 1113); In re Ionosphere Clubs, Inc., 134 B.R. 515, 520 (Bankr. S.D.N.Y.
1991) (“When Congress enacted § 1114, it used the same procedures and standards as existed for modification
or rejection of collective bargaining agreements under § 1113.”); S. Rep. No. 119, 100th Cong., 1st Sess. 1987,
1988 U.S.C.C.A.N. 683, 687 (standards for modifying benefits under § 1114 “are intended to be identical to
those contained in Section 1113 [because] . . . it is important to use a standard with which the courts are already
familiar”). As a result, courts consistently analyze motions for relief under Section 1113 and 1114 in tandem.
See, e.g., Horizon Natural, 316 B.R. at 279-83; In re Horsehead Indus., Inc., 300 B.R. 573, 583
(Bankr. S.D.N.Y. 2003).
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A.
The Debtors’ Proposal Is Necessary To Their Reorganization
70.
Sections 1113 and 1114 provide that proposed modifications must be “necessary
to permit the reorganization of the debtor.” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A). This
element is “[t]he most fundamental requirement for rejection of a collective bargaining
agreement,” In re Northwest Airlines Corp., 346 B.R. 307, 321 (Bankr. S.D.N.Y. 2006), and it is
clearly satisfied here.
71.
In construing the necessity requirement, courts have determined that a proposal
must contain “necessary, but not absolutely minimal, changes that will enable the debtor to
complete the reorganization process successfully.” Truck Drivers Local 807 v. Carey Transp.,
Inc., 816 F.2d 82, 90 (2d Cir. 1987). Otherwise stated, the debtor’s proposal “need not be
limited to the bare bones relief that will keep it going.” N.Y. Typographical Union No. 6 v.
Royal Composing Room, Inc. (In re Royal Composing Room, Inc.), 848 F.2d 345, 350
(2d Cir. 1988), cert. denied, 489 U.S. 1078 (1989).
72.
In determining whether modifications are “necessary,” the Debtors “need only
make a showing as to the overall necessity of the proposal, rather than prove that each element of
the proposal is necessary to reorganization.” Northwest Airlines, 346 B.R. at 321 (citing Royal
Composing Room, 848 F.2d at 348). The court must focus on “the total impact of the changes
[o]n the debtor’s ability to reorganize, not on whether any single proposed change will achieve
that result.” In re Appletree Mkts., 155 B.R. 431, 441 (S.D. Tex. 1993). In fact, if a debtor were
required to justify each element of its proposal, “no proposal could ever be truly ‘necessary,’
since any single vital element of a proposal can hardly be ‘necessary’ if it can be replaced by
some alternative not included in the package which would achieve the same dollar savings for
the debtor.” Royal Composing, 848 F.2d at 348; see generally In re Falcon Prods., Inc., 354
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B.R. 889, 894 (E.D. Mo. 2006) (holding that a debtor’s request for distress termination of
multiple pension plans must be evaluated in the aggregate and not on a plan-by-plan basis).
73.
Modifications of the non-economic provisions of an agreement—such as
provisions concerning work rules, vacation days, and overtime—may satisfy the necessity
requirement. See, e.g., Carey Transp., 816 F.2d at 86 (proposal that included changes to
overtime, sick days, workers’ compensation, and scheduling rules was “necessary”); In re Valley
Steel Prods. Co., Inc., 142 B.R. 337, 340 (Bankr. E.D. Mo. 1992) (changes to a collective
bargaining agreement that increased “flexibility in layoffs, improve[ed] the [d]ebtors’ dispatch
procedures and relax[ed] work rules” were necessary). Indeed, there is “no legal or logical
impediment to including” non-economic changes “intended to have a direct economic effect.”
Appletree, 155 B.R. at 441.
74.
In construing the necessity requirement in cases involving debtors seeking to sell
its assets, the requirement that a proposal reflect modifications to collective bargaining
agreements or retiree benefits that are ‘“necessary to permit the reorganization’” must be
interpreted to mean ‘“necessary to accommodate confirmation of a Chapter 11 plan.’” See, e.g.,
Horizon Natural, 316 B.R. at 281 (“in this liquidating case, ‘necessary to permit the
reorganization’ must be interpreted to mean ‘necessary to accommodate confirmation of a
Chapter 11 plan.’”); see also In re Ionosphere Clubs, Inc., 134 B.R. 515, 525 (Bankr. S.D.N.Y.
1991) (“[T]he only meaningful interpretation of ‘necessary to permit the reorganization’ that is
consistent with the fair and equitable treatment of retirees and all other creditors is one that does
not encourage the Trustee to seek to convert the case from Chapter 11 to Chapter 7 solely to
preserve the possibility of some recovery for general unsecured creditors.”). Applying sections
1113 and 1114 to liquidating chapter 11 cases serves the underlying goals of sections 1113 and
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1114, i.e. preserving the protections Congress intended for employees and retirees, protections
not available under chapter 7 liquidation. See Ionosphere, 134 B.R. at 525; see also Family
Snacks, 257 B.R. at 893 (“each court that has addressed the meaning of the phrase
‘reorganization of the debtor,’ as found in § 1113(b)(1)(A), has held or assumed that § 1113
applies in a case where the debtor will not be engaged in business because it is selling its
assets.”).
75.
As the court in National Forge noted—and as is the case here—if “[t]he only way
for the Debtor to accomplish a reorganization is through the sale of assets [and] [t]he Debtor’s
lender set forth strict deadlines for negotiations and consummation of a sale in order to allow the
Debtor continued use of cash collateral [and where] [n]o buyer was willing to assume the CBA
[and] [p]otential ongoing disputes over the CBA threatened to chill the bidding in the absence of
rejection,” a final proposed modification in the form of a voluntary termination (i.e., rejection) of
the collective bargaining agreement is necessary to permit reorganization of the debtor.
National Forge, 289 B.R. at 810–11 (authorizing rejection when buyer of debtor’s assets refused
to assume CBAs, sale was only way to maximize value for the estate).
76.
The modifications requested here are necessary to sustain the Debtors’ assets as a
going concern. First, the Blackhawk Transaction is currently the only viable path forward for a
sale of substantially all of the Debtors’ operating assets as a going concern, and is thus a
necessary step towards an ultimate exit from chapter 11. Second, the Blackhawk Transaction is
expressly conditioned on consensual modifications to the CBAs (which has not occurred) or
rejection of the CBAs via a section 1113/1114 process. If the Debtors are denied the relief
requested herein, the Blackhawk Transaction would likely fail, the Debtors could be in violation
of their DIP milestones, and the Debtors would face a very real risk of wholesale and immediate
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liquidation. Third, although the Debtors are running an open, thorough, and fair auction process,
there is no evidence that any potential bidder is willing to purchase the Debtors’ assets without
substantially similar concessions as set forth in the Proposal.
Fourth, with respect to the
Remaining Assets, the Debtors’ CBAs must be eliminated: (a) in certain cases, because they are
covered under CBAs that must be eliminated in connection with the Blackhawk Transaction;
(b) so that the Debtors may confirm a feasible chapter 11 liquidating plan by not being burdened
with significant administrative liabilities related to dormant operations; and (c) so that the
Debtors can continue to operate, market, and potentially sell their Federal, Apogee, and Hobet
assets, which will be difficult if not impossible without implementation of the Debtors’ Proposal.
A rejection of the CBAs and implementation of the Proposal is thus necessary to the Debtors’
reorganization.
i.
77.
The Blackhawk Transaction Is Currently the Only Viable Option for a
Sale of Substantially All of the Debtors’ Operating Assets
As this Court is well aware, the Debtors had effectively run out of cash by the
time they filed for protection under the Bankruptcy Code. Despite several significant steps taken
to increase liquidity following their 2012–13 restructuring, including through idling and reducing
activity at certain mining complexes and selling rights to certain coal supply agreements, the
Debtors entered these chapter 11 cases with insufficient funds to continue operating as a going
concern. As noted above, the Debtors were at risk of being unable to obtain an unqualified audit
opinion in March 2015 and of satisfying certain financial covenants in their prepetition debt
documents. Indeed, even as recently as the Debtors’ second day hearing on June 3, 2015, this
Court recognized the substantial risk to the Debtors had they not been able to access the
incremental $20 million of liquidity provided through entry of a final DIP order. (See Hr’g Tr. at
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131:22–3 (Phillips, K.) (June 3, 2015) (“The alternative to not approving the proposed DIP
financing appears to be dire consequences for the debtor.”).)
78.
In short, given the Debtors’ capital structure and existing legacy liabilities, the
Debtors are effectively unable to operate as a going concern and must sell their assets to
maximize the value of their estates. As noted above, both thermal and metallurgical coal prices
have continued to plummet since the Debtors’ emergence from the prior chapter 11 process in
2013, due to, among other things, weakened global demand in the face of low natural gas prices
and slowing global economic growth. Benchmark prices for metallurgical coal, for example,
have fallen more than 70% from just four years ago, representing the lowest prices in a decade,
and “aren’t likely to recover[] substantially through at least 2016.”19 Likewise, international
thermal coal prices have decreased 55% over the same four year period, and are now at their
lowest level since early 2009. The Debtors also emerged from the 2012–13 restructuring with a
highly leveraged capital structure of approximately $800 million in secured debt, the structure of
which was premised on assumptions about coal prices and operating performance that ultimately
did not materialize. The Debtors are simply not able to exist indefinitely in the worst coal
market in a decade.
79.
The Debtors retained Centerview in October 2014 to assist with the exploration of
a merger or similar strategic transaction with a potential strategic partner. By early 2015, it
became clear that such a transaction would not materialize. Since that time, the Debtors engaged
in discussions or negotiations with two additional entities regarding a transaction that would
result in a going-concern sale of significantly all of the Debtors’ assets. One of the entities was
not interested in acquiring union-affiliated assets, and the other was Blackhawk. After analysis
19
Timothy Puko, “Met Coal Hits Lowest Price in a Decade,” The Wall Street Journal, June 17, 2015.
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and review, the Debtors and their advisors concluded that the proposed Transaction provided the
best option for maximizing value for the benefit of the Debtors’ stakeholders.
80.
The only avenue for avoiding a wholesale value-destructive liquidation of the
Debtors’ estates is through a sale of substantially all of the Debtors’ operating assets as a going
concern. And while the Debtors are running a thorough and open auction process in the hopes of
soliciting additional interest, Blackhawk is the only entity to date who has provided a viable bid
to acquire substantially all of the Debtors’ operating assets and save hundreds, if not thousands,
of jobs in the process.20
ii.
81.
The Blackhawk Transaction Cannot be Consummated Absent
Implementation of the Debtors’ Proposal
Having been unable to negotiate a consensual agreement, the Debtors’ Proposal is
necessary to satisfy a key condition of the Blackhawk Transaction. Section 10.02(i) of the
Blackhawk APA sets forth the following closing condition:
either (i) Blackhawk shall have entered into new collective
bargaining agreements on terms and conditions acceptable to
Blackhawk that have been ratified by the UMWA or (ii) the Court
shall have entered one or more orders in form and substance
acceptable to Blackhawk rejecting the applicable CBAs and the
Debtors’ retiree benefit plans pursuant to sections 1113 and 1114
of the Bankruptcy Code.
82.
These conditions were not agreed to lightly. The Debtors readily acknowledge
their fiduciary duties to all of their creditors, and the Debtors have continued to faithfully
discharge these duties. Accordingly, the Debtors have been involved in extensive good faith
negotiations with Blackhawk and the UMWA. Through numerous meetings, conference calls,
and exchanges of proposals, the Debtors have pushed Blackhawk on the terms it would accept
20
Indeed, the only indication of interest the Debtors have received with respect to these assets since commencing
these chapter 11 cases, other than from Blackhawk, proposed to acquire the Debtors’ assets with the same
union- and retiree-related concessions required by Blackhawk and on a stricter timeline.
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and the UMWA on what concessions it would be willing to make to ensure the survival of its
members’ jobs. Despite these efforts, the Debtors have been unable to reach agreement with the
UMWA on terms that would satisfy conditions under the Blackhawk APA.
83.
The Debtors wish these negotiations had turned out differently. But the Debtors
cannot force Blackhawk to assume union and retiree obligations it does not want to assume, and
Blackhawk is presently the only viable party who is willing to purchase substantially all of the
Debtors’ operating assets and continue the employment of the Debtors’ unionized workforce.
84.
The Debtors, meanwhile, are not surprised Blackhawk does not want to pursue a
sale of the Debtors’ assets without prior rejection of the CBAs, and the Debtors agree with
Blackhawk in this regard. See National Forge, 289 B.R. at 808 (“Because of the successor
language, Debtor and its advisors were compelled to seek rejection of the CBA prior to
confirmation of the sale to eliminate a potential claim by the Union under the successor[ship]
clause.
Leaving open the possibility of such a claim would be detrimental and unfair to
non-Union employees, retirees, and unsecured creditors”). At the same time, the Debtors are
obligated under the terms of their DIP Facility to reach a consensual resolution with the UMWA
or file a motion seeking rejection of the CBAs. (See DIP Order, Ex. C.) Absent implementation
of the Proposal, the Debtors have no viable buyer for their assets; absent a buyer, the Debtors
will be unable to fully draw down their DIP—and in fact will default under their DIP Facility by
failing to reach critical milestones—and will face the very real prospect of an immediate and
wholesale liquidation in the short term. The Proposal is therefore absolutely “necessary to
permit the reorganization of the Debtors.” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A).
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No Potential Purchaser Is Likely to Purchase the Debtors’ Assets Without
Similar Concessions
As described above, the retiree and union obligations the Debtors seek to
eliminate through the Proposal are off-market and are a deterrent for any potential purchaser of
the Debtors’ assets. For example, and most importantly, the Debtors’ obligations with respect to
the UMWA 1974 Pension Plan have been a critical sticking point in the negotiations between the
UMWA and the Debtors. The Debtors are required to make significant contributions to the
UMWA 1974 Pension Plan under their CBAs. Worse still, the UMWA 1974 Pension Plan is
heavily underfunded and is likely to face further decreases in assets as other participating
employers continue to go into bankruptcy. Indeed, on September 28, 2014, the actuary for the
UMWA 1974 Pension Plan certified to the U.S. Department of the Treasury that the
UMWA 1974 Pension Plan is in “critical status” for the plan year beginning July 1, 2014 on
account of funding and/or liquidity concerns.21 Furthermore, of the 37 current contributing
employers, the majority of contributions come from six controlled groups of companies. Among
these contributing entities are companies who are publicly struggling to reorganize and/or
survive, such as Walter Energy, Inc. and Alpha Natural Resources, Inc.22
86.
In other words, the retiree and union obligations that are the focus of the Proposal
are only going to get worse. It is unlikely that any party interested in the Debtors’ assets is going
to submit a bid that assumes such obligations. In light of both the current coal environment and
the extent and nature of these liabilities, the Debtors submit that the CBAs would “chill the
21
See Notice of Zone Status, United Mine Workers of America UMWA 1974 Pension Plan,
http://www.dol.gov/ebsa/pdf/c-notice121014069.pdf (last accessed July 16, 2015).
22
On July 15, 2015, Walter Energy, Inc. filed for bankruptcy.
restructuring advisors.
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bidding” for the Debtors’ assets, and implementation of the Proposal is necessary to a sale—and
thus reorganization—of the Debtors’ estates. National Forge, 289 B.R. at 811.
iv.
87.
The CBAs Governing the Remaining Assets Must Be Rejected
With respect to the Remaining Assets (i.e., the assets not being acquired by
Blackhawk), rejection of the Debtors’ CBAs is necessary for a successful chapter 11 process.
First, the Debtors need to reject CBAs which cover both assets to be acquired by Blackhawk as
well as Remaining Assets (i.e., Federal assets and Apogee assets) because, in addition to the
administrative liabilities noted above, it is a requirement under the Blackhawk Transaction, and
the Debtors cannot “cherry-pick” which features of an executory contract they wish to assume
and which features they wish to reject. See, e.g., Sharon Steel Corp., 872 F.2d at 41.
88.
Second, the Debtors must effectuate a complete withdrawal from their
UMWA 1974 Pension Plan prior to exiting chapter 11 or else each of the Debtors could be
burdened by significant post-bankruptcy expenses on a joint-and-several basis—expenses that
could potentially wipe out any ability for the Debtors to pay obligations of their liquidating estate
(e.g., administrative and priority claims, reclamation obligations, and plan distributions) and
render them administratively insolvent.
See Horizon Natural, 316 B.R. at 281 (“in this
liquidating case, ‘necessary to permit the reorganization’ must be interpreted to mean ‘necessary
to accommodate confirmation of a Chapter 11 plan.’”). The Debtors believe they can effectuate
a complete withdrawal from their UMWA 1974 Pension Plan prior to exiting chapter 11 in only
two ways: (a) rejecting their CBAs or otherwise modifying them to strip out contributions to the
UMWA 1974 Pension Plan, which the Debtors are seeking hereunder; or (b) terminating all of
their employees and ceasing all of their operations, which the Debtors and their estates don’t
want to do, and which presumably the UMWA does not want them to do.
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Third, as described above, the Debtors do not believe they will be able to sell
their Federal, Apogee, and Hobet assets absent implementation of the Proposal.
The
successorship clause and the UMWA 1974 Pension Plan are particular problems. In addition, the
Debtors are simply unable to operate their Hobet operations in a competitive manner if the
Debtors cannot achieve the savings set forth in their Proposal. As courts have noted, the goal of
modification is a “successful reorganization . . . from which the debtor emerges as an
economically viable operation,” In re Mile Hi Sys., Inc., 899 F.2d 887, 893 (10th Cir. 1990), and
the necessity inquiry requires a court to determine what “must be extracted by way of wage and
benefit reductions and other employee concessions to so improve the [d]ebtor’s cash flow that it
could emerge from chapter 11, financially stable and viably competitive . . . .” Mesaba Aviation,
341 B.R. at 731. Similarly, as the Court is well aware, the Debtors may have significant
liabilities associated with their liquidating estate at the conclusion of these chapter 11 cases. By
bringing Hobet’s expenses closer to market now, the Debtors will have additional funds to make
required distributions under the Bankruptcy Code and ensure a successful chapter 11 process.
Accordingly, to facilitate the sale of their Remaining Assets and the prosecution of a successful
plan, it is necessary for the Debtors to be authorized to reject the applicable CBAs and
implement the Debtors’ Proposal.
B.
The Debtors Have Utilized Complete and Reliable Information, Have
Supplied Necessary Information to the UMWA, and Have Bargained In
Good Faith
90.
Pursuant to Sections 1113 and 1114, a debtor’s proposal must be “based on the
most complete and reliable information available,” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A), a
debtor must provide the union with “such relevant information as is necessary to evaluate
proposal,” 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(B), and a debtor must meet with the union “at
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reasonable times” and must “confer in good faith.” 11 U.S.C. §§ 1113(b)(2), 1114(f)(2). The
Debtors have satisfied each of these elements.
i.
91.
The Debtors’ Proposal Is Based on the Most Complete and Reliable
Information Available
It is well-settled that proposals to reject collective bargaining agreements and to
modify retiree benefits must be “based on the most complete and reliable information available
at the time of the proposal.” In re Am. Provision Co., 44 B.R. 907, 909 (Bankr. D. Minn. 1984)
(citing 11 U.S.C. § 1113); see also 11 U.S.C. § 1114(f)(1)(A).
92.
As described in detail above, the Debtors are unable to exist as a going concern
and must sell their assets. Without the $30 million of interim DIP relief the Debtors obtained at
their first day hearing, for example, they would have been forced to liquidate within a week. The
Debtors’ day-to-day survival is entirely predicated on having the most complete and reliable
information at all times.
93.
The Debtors determined their state of affairs by relying on extensive financial,
business, and industry data routinely utilized and maintained in the ordinary course of their
businesses. This information includes, among other things, the Debtors’ income statements,
balance sheets, statements of cash flows, capital expenditure summaries, independent economic
forecasts, and sales forecasts. The Debtors also relied upon certain coal industry projections
relating to the demand for the Debtors’ various products and the projected prices for those
products in the future.
The Debtors’ reliance on such data and consultants satisfies their
obligations to base their proposals upon the most complete and reliable information available.
See, e.g., In re Amherst Sparkle Market, Inc., 75 B.R. 847, 851 (Bankr. N.D. Ohio 1987)
(granting motion to reject collective bargaining agreement based upon the debtor’s use of
expense projections and monthly operating reports which revealed successive financial losses).
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That the Debtors do not currently know what their liquidating estate might look
like or how it may be funded, or how long the Debtors anticipate being able to continue their
remaining operations before such operations are sold or liquidated, is beside the point. Although
the Debtors anticipate finalizing such plans in the near future (to the extent they can), sections
1113 and 1114 do not require (or even permit) this sort of guesswork. Rather, they require only
that a debtor’s proposal be “based on the most complete and reliable information available at the
time of the proposal.”
Am.
Provision, 44 B.R. at 909; 11 U.S.C. §§ 1113(b)(1)(A),
1114(f)(1)(A). Because motions to modify wages and benefits “will almost always be filed
before an overall reorganization plan can be prepared,” a debtor cannot be expected to know the
details of its post-emergence finances before it makes its proposals. Carey Transp., 816 F.2d at
91 (citing In re Ky. Truck Sales, 52 B.R. 797, 802 (Bankr. W.D. Ky. 1985)); see also Northwest
Airlines, 346 B.R. at 326 (uncertainty about burden to be borne by unsecured creditors not a bar
to deciding fairness of section 1113 proposal).
95.
Accordingly, the Debtors have based their Proposal on the most complete and
reliable information available.
ii.
96.
The Debtors Have Provided the UMWA with the Information Necessary
to Evaluate Their Proposals
The Debtors have also supplied the UMWA with “such relevant information as is
necessary to evaluate” the Proposal, as required under sections 1113 and 1114.
See 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(B). As described above, the Debtors entered into a
stipulated protective agreement with the UMWA, set up a data room, proactively included more
than 630 documents, made that information available to the UMWA and its advisors over a
month ago, and have continuously updated their data room since the delivery of their proposals.
The Debtors have also responded to each and every request for information from the UMWA.
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The Debtors have thus satisfied their information-sharing burden in this regard.
See, e.g., In re AMR Corp., 477 B.R. 384, 439–43 (Bankr. S.D.N.Y. 2012) (airline debtor
supplied necessary information by giving high priority to union requests, facilitating sharing of
additional information through a web-based data room, and sharing its valuations of proposed
work rule changes, even though it did not perform new analyses at union’s request or provide a
live business plan model); In re Pinnacle Airlines Corp., No. 12-11343 (REG), 2012 WL
5828779 (Bankr. S.D.N.Y. Nov. 16, 2012), as corrected (Nov. 29, 2012) (airline debtor supplied
necessary information by providing business plan model, financial reports, and costing
information, notwithstanding the fact that it was unable to respond to certain of the union’s
requests); Appletree Mkts., 155 B.R. at 438 (debtor, then Houston’s third largest supermarket
chain, supplied necessary information when it “opened its books” to the unions and furnished
“reports and other information”); Valley Steel, 142 B.R. at 338 (debtors, a steel manufacturer and
freight service with 240 employees, supplied necessary information when they disclosed four
years of operating statements, three years of consolidated balance sheets, and one monthly
bankruptcy operating report).
98.
Perhaps most importantly, however, the “relevant information” that is necessary
to evaluate the Proposal is public for all to see: the Debtors cannot survive absent a sale, and the
only viable bidder to have emerged for the assets which Blackhawk seeks to acquire has required
that a deal is reached with the UMWA or that the Debtors reject their applicable CBAs. Nor do
the Debtors believe they can conduct a sale for their Remaining Assets without the concessions
set forth in the Proposal. Under these facts and circumstances, the UMWA has received all the
relevant information available that the Debtors can provide, and the Debtors have thus satisfied
this element of sections 1113 and 1114 of the Bankruptcy Code.
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The Debtors Have Made Themselves Available for Meetings and Have
Acted In Good Faith
“Between the time of the making of the proposal and the time of the hearing . . .
the debtor must meet at reasonable times with the [u]nion . . . [and] [a]t the meetings the debtor
must confer in good faith in attempt to meet mutually satisfactory modifications. . . .” Am.
Provision, 44 B.R. at 909; see also 11 U.S.C. §§ 1113(b)(2), 1114(f)(2). “[O]nce the debtor has
shown that it has met with the [u]nion representatives, it is incumbent upon the [u]nion to
produce evidence that the debtor did not confer in good faith.” Am. Provision, 44 B.R. at 909.
As described in greater detail above, since their first meeting with the UMWA on May 14, 2015,
the Debtors and their advisors have done everything reasonably within their power to reach an
agreement with the UMWA on terms of new CBAs that would satisfy conditions under the
Blackhawk APA.
100.
The negotiation process started with a multi-hour meeting and a detailed
presentation to the UMWA. Following the initial meeting, the Debtors have actively engaged in
negotiations with both Blackhawk and the UMWA, including through four additional formal
meetings, dozens of conference calls and e-mail exchanges, and continual responses to UMWA,
Blackhawk, and their advisors. These contacts—between and among the Debtors, Blackhawk,
the UMWA, and their respective advisors—have taken place regularly (sometimes multiple
times per day) over a period of months. The Debtors have consistently agreed to meeting
requests and have repeatedly communicated that they stood willing to meet at any time and in
any location.
101.
The Debtors have not been able to reach an agreement with the UMWA, but not
for lack of trying. The Debtors listened to the UMWA’s concerns and pushed Blackhawk to
develop creative solutions to address those concerns, including by introducing provisions
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intended to provide job security for union employees, reducing proposed wage cuts, preserving
current health plans, and providing contributions for retiree benefits.
These represented
significant concessions, but were rejected by the UMWA. The Debtors would of course be
happy if Blackhawk had agreed to assume the Debtors’ CBAs in their entirety—but the Debtors
cannot force Blackhawk to accept obligations it does not want, and cannot blame Blackhawk for
refusing certain of the UMWA’s demands.
102.
With respect to the Debtors’ proposals for their Remaining Assets, the Debtors
have also sought to effectively reinstate the terms and conditions of their Master CBAs, with
certain modifications to increase the chances that the Debtors may be able to sell their
Remaining Assets (or in some cases, possibly continue to operate for the benefit of the Debtors’
liquidating estate). In other words, the Debtors have proposed necessary changes but have
otherwise agreed to keep a significant part of the UMWA’s employment as “status quo” for as
long as the Debtors continue operating their Remaining Assets.
Faced with the very real
prospect of liquidation, this is the best the Debtors can do. Accordingly, the Debtors have
fulfilled their obligations to bargain in good faith.
C.
The Debtors’ Proposal Satisfies the Equitable Factors of Sections 1113 and
1114
103.
The remaining inquiry under sections 1113 and 1114 focuses on the equities.
Here, the Debtors’ Proposal treats all parties “fairly and equitably,” 11 U.S.C. §§ 1113(b)(1)(A),
1114(f)(1)(A), the UMWA rejected the proposal without “good cause,” 11 U.S.C. §§ 1113(c)(2),
1114(g)(2), and the “balance of the equities” clearly favor rejection, 11 U.S.C. §§ 1113(c)(2),
1114(g)(2). For these reasons, the Motion should be granted.
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i.
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The Debtors’ Proposal Treats All Parties Fairly and Equitably
The Debtors’ Proposal “assure[s] that all creditors, the debtor, and all other
affected parties are treated fairly and equitably.” Family Snacks, 257 B.R. at 892 (citing In re
Am. Provision Co., 44 B.R. at 909). “[E]quity means fairness under the circumstances,” and
does not require the proposal to give every constituency the very same treatment. Mesaba
Aviation, 341 B.R. at 749 (quoting In re Ind. Grocery Co., Inc., 138 B.R. 40, 48 (Bankr. S.D.
Ind. 1990); In re Walway Co., 69 B.R. 967, 974 (Bankr. E.D. Mich. 1987) (“a comparative
dollar-for-dollar concession” is not mandated by the fairness-and-equity requirement)); Amherst
Sparkle Market, 75 B.R. at 851.
105.
All constituents are bearing a heavy burden to support the Debtors’ efforts to
maximize value for their estates. The Debtors’ employees may not all be able to find jobs with
future purchasers of the Debtors’ assets and the Debtors will be unable to employ their
workforce indefinitely. Benefits, such as healthcare and workers’ compensation programs, will
cease. The Debtors’ creditors, meanwhile, will be heavily impacted by the Debtors’ chapter 11
cases. The Debtors’ Plan is designed to treat all parties fairly and equitably and maximize the
potential return to all of their constituencies, but the Debtors’ assets are simply not valuable
enough to pay off all of their creditors in full. Furthermore, the relief requested herein represents
the only viable means of maximizing distributions for the Debtors’ stakeholders. Every dollar
earned or saved today— whether via a sale of the assets Blackhawk seeks to acquire, the
Debtors’ Remaining Assets, the reduction of above-market expenses at Hobet, or the elimination
of certain contributions under the CBAs—is a dollar that will fund creditor recoveries in these
chapter 11 cases. The Debtors are seeking to sell their assets for the benefit of their chapter 11
estates—they do not stand to profit from these changes. In contrast, absent rejection of the
CBAs, the Debtors’ alternative is a value-destructive chapter 7 liquidation process.
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Furthermore, certain of the relief requested herein will result in no harm to the
Debtors’ current and retired employees who are beneficiaries of the UMWA 1974 Pension Plan
and the Coal Act because these retirees will continue receiving benefits under such programs
regardless of the Debtors’ participation or contributions. For example, because it is a
multiemployer plan, the UMWA 1974 Pension Plan will continue to receive contributions from
other participating employers and beneficiaries will likely continue to receive the same level of
pension benefits. Similarly, retirees will continue to receive health benefits because, as provided
in Section 9701(c)(2) of the Coal Act, the Debtors’ obligations will automatically transfer to a
company that, as of July 20,1992, was a “related person ” to Debtor entities with Coal Act
obligations—in this case Peabody or Arch Coal. See 26 U.S.C. 9701(c)(2). Indeed, in light of
these statutory requirements, Peabody is already paying certain of these obligations directly or is
reimbursing the Debtors for these payments pursuant to certain contracts that survived the
Debtors’ first chapter 11 process. Accordingly, the Debtors’ retirees will incur limited, if any
near-term harm if such relief is granted.
ii.
107.
The UMWA Has Rejected the Proposal Without Good Cause
“[O]nce the debtor has shown that the [u]nion has refused to accept its proposal
the [u]nion must produce evidence that it was not without good cause.” Am. Provision, 44 B.R.
at 910; see also Mesaba Aviation, 341 B.R. at 755 (finding that the debtor has a “minimal”
burden under this requirement of showing that the unions rejected its proposal); Valley Steel, 142
B.R. at 342 (holding that union refused to accept the proposals without good cause because, in
part, it failed to offer any evidence or examples to substantiate its assertion of good cause). A
lack of good cause also may be demonstrated by the union’s adherence to demands that are
impossible for the debtor to meet and failure to offer alternatives that take into account the
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debtor’s reorganization plan. See In re Maxwell Newspapers, Inc., 981 F.2d 85, 90 (2d Cir.
1992).
108.
The UMWA refused to accept the Debtors’ proposals and such refusal was
without “good cause.” During the negotiations between the Debtors and the UMWA, the
Debtors shared data and delivered six different proposals to the UMWA proposing consensual
modifications necessary to satisfy conditions under the Blackhawk APA (plus the additional
Proposal), most of which were specifically tailored to address the UMWA’s stated concerns, and
each of which were rejected by the UMWA. Most importantly, Blackhawk has been clear from
the beginning of these chapter 11 cases it was not willing to accept participation in the UMWA
1974 Pension Plan, and the Debtors have, in turn, repeatedly expressed this eminently logical,
reasonable position in every meeting, e-mail, and conference call with the UMWA. The UMWA
has simply refused to concede with respect to several key conditions of the Blackhawk
Transaction—concessions that are not only fair and equitable given the alternative of a wholesale
liquidation and no jobs, but that are ultimately required by Blackhawk as a condition to
consummation of the Blackhawk APA. Insisting that Blackhawk agree to assume a CBA that
includes participation in the UMWA 1974 Pension Plan places a demand on the Debtors beyond
their control and is impossible for them to satisfy.
109.
Similarly, the UMWA has rejected the Proposal regarding the Remaining Assets,
at first insisting that the UMWA won’t bargain over the terms and conditions of any CBAs that
don’t cover the assets Blackhawk seeks to acquire. After the negotiations with the UMWA
stalled following the delivery of the six proposals, and after the Debtors delivered the Proposal,
the UMWA simply told the Debtors that there was nothing to discuss—again, despite the fact
that certain of these CBAs cover operations long dormant or sold, and that concessions for the
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Debtors’ other CBA was necessary to both run the Hobet Assets profitably and maximize the
chances for the Debtors to sell the Hobet assets.
110.
The UMWA has failed to articulate any reasons for rejecting each and every
proposal offered. This by itself is proof the UMWA has rejected the proposals without good
cause. See Royal Composing Room, 848 F.2d at 345 (“When the union fails to articulate its
reasons for rejection of a debtor’s proposal during prehearing negotiations, rejection is without
good cause”); Horsehead, 300 B.R. at 371 (“Where the union rejects a proposal that is necessary,
fair, and equitable, it must explain the reasons for its opposition”). Given that no entity is likely
to buy the Debtors’ assets with the terms of the existing CBAs in effect, the six proposals were
(and the Proposal is) essential to realizing any value for such assets. They contained terms
necessary to allow a sale of the Debtors’ assets to go forward. In this regard, “a union will not
have good cause to reject an employer’s proposal that contains only those modifications essential
for the debtor’s reorganization.” Maxwell, 981 F.2d at 90.
111.
The UMWA has not disputed the dire consequences for the Debtors if they cannot
sell their assets in a timely fashion. Nor has the UMWA offered an alternative to maintain the
status quo with respect to the Debtors’ CBAs. In light of these circumstances, for the UMWA to
play “chicken” with Blackhawk is simply inappropriate—a game the Debtors, their creditors, and
their chapter 11 estates cannot afford to play. In short, “the Union's insistence that the Debtor
provide something which was not within its control indicates that the Union’s refusal to accept
Debtor's proposal was without good cause.” National Forge, 289 B.R. at 812.
iii.
112.
The Balances of the Equities Favors Implementing the Proposal
“The balance of the equities favors rejection when the debtor is in need of
substantial relief from a collective bargaining agreement and the bargaining process has failed to
produce any results and is unlikely to produce any in the foreseeable future.” In re Bowen
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Enterprises, Inc., 196 B.R. 734, 747 (Bankr. W.D. Pa. 1996) (citing Royal Composing Room, 62
B.R. at 408). Here, for the very reasons discussed above, the equities weigh in the Debtors’
favor. The alternative to the requested modifications will be far worse for all: the Debtors will
be unable to satisfy the closing conditions under the Blackhawk APA and will be unable to sell
their assets to Blackhawk; the Debtors will trip the milestones set forth in their DIP Facility and
will run out of cash; the Debtors will be forced to shut down their operations and terminate their
employees; the value of these chapter 11 estates will plummet, all of the Debtors’ creditors will
suffer, all of the Debtors’ employees will lose their jobs, all of the Debtors’ retirees will lose
their healthcare, and there is the potential of a multiplier effect across the regions in which the
Debtors operate.23
Furthermore, the modifications in the Debtors’ Proposal related to the
Remaining Assets are necessary to bring the CBAs in line with what the Debtors pay non-union
employees for doing the same work in the same market—which is an inequitable result.
113.
As the Court in National Forge noted:
The balance of the equities in the instant matter demands rejection of the CBA.
The Debtor is under the mandate of its major secured lender to complete an
expedited sale process, in default of which the Debtor faces liquidation. The
sacrifices that the Union will make upon rejection of the CBA are not
disproportionate to the sacrifices the non-Union employees, retirees, and creditors
will make. A sale at the highest possible price is clearly best for all concerned.
Achievement of the highest possible price requires that the CBA be rejected.
National Forge, 289 B.R. at 813.
23
The effect of a liquidation would not be limited to jobs lost at the Debtors’ operations. Pricewaterhouse
Coopers (“PwC”), the UMWA’s own advisor, concluded that in 2010 the coal industry generated approximately
555,000 jobs, including “indirect” and “induced” jobs, such as contractors and suppliers that provide goods and
services to mining companies. In short, PwC estimated a national employment multiplier of 3.61 for the coal
mining industry. See PricewaterhouseCoopers, The Economic Contributions of U.S. Mining in 2008 3-5
(2010), available at http://www nwma.org/pdf/economic_contributions.pdf (the “PwC Report”); see also
ENVIRON Int’l Corp., Economic Analysis of Proposed Stream Protection Rule Stage 1 Report 3-11 (Mar. 5,
2012), available at http://www nma.org/pdf/tmp/030612_ENVIRON_study.pdf (citing the PwC Report). Based
on these and similar studies, one could conclude that if thousands of the Debtors’ employees’ jobs were lost,
there would be a ripple effect throughout Appalachia.
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Notice
114.
The Debtors will provide notice of this Motion to: (a) the U.S. Trustee; (b) the
administrative agents for the Debtors’ prepetition credit facilities; (c) the indenture trustee for the
Debtors’ prepetition notes; (d) counsel for each of the foregoing referenced in clauses (b)
and (c); (e) counsel to lenders for the debtor in possession facility; (f) those creditors holding the
30 largest unsecured claims against the Debtors’ estates on a consolidated basis; (g) the Internal
Revenue Service; (h) the United States Environmental Protection Agency, (i) the state attorneys
general for states in which the Debtors conduct business; (j) the Office of the United States
Attorney for the Eastern District of Virginia; (k) the UMWA; (l) Peabody; (m) Arch; (n) Alcoa;
and (o) any party that has requested notice pursuant to Bankruptcy Rule 2002. The Debtors
submit that, in light of the nature of the relief requested, no other of further notice need be given.
Waiver of Bankruptcy Rule 6004(h)
115.
To implement the foregoing successfully, the Debtors seek a waiver of the 14-day
stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 6004(h).
No Prior Request
116.
No prior request for the relief sought in this Motion has been made to this or any
other court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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WHEREFORE, the Debtors respectfully request that the Court enter an order granting the
relief requested herein and such other and further relief as is just and proper.
Dated: July 16, 2015
Richmond, Virginia
/s/ Michael A. Condyles
Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone: (804) 644-1700
Facsimile:
(804) 783-6192
- and Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
- and James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the
Debtors and Debtors in Possession
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EXHIBIT A
Proposed Order
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Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
- and -
Desc Main
Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone:
(804) 644-1700
Facsimile:
(804) 783-6192
James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
In re:
PATRIOT COAL CORPORATION, et al.,
Debtors.
)
) Chapter 11
)
) Case No. 15-32450 (KLP)
)
) (Jointly Administered)
)
ORDER (I) AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (A) REJECT
COLLECTIVE BARGAINING AGREEMENTS, (B) MODIFY CERTAIN
UNION-RELATED RETIREE BENEFITS, (C) IMPLEMENT THE TERMS OF THEIR
SECTION 1113 AND SECTION 1114 PROPOSAL, AND (II) GRANTING RELATED
RELIEF
Upon the motion (the “Motion”)1 of Patriot Coal Corporation and certain of its affiliates,
as debtors and debtors in possession (collectively, the “Debtors”), for the entry of an order (this
“Order”), under sections 1113 and 1114 of the Bankruptcy Code, (i) authorizing, but not
directing, the Debtors to (a) reject the UMWA CBAs, (b) terminate and modify certain
1
Capitalized terms used but otherwise not defined herein shall have the meanings set forth in the Motion.
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union-related retiree benefits, and (c) implement the terms of their Proposal, and (ii) granting
related relief; all as more fully set forth in the Motion; and the Court having considered the
Dombrowski Declaration, the Puntus Declaration, and the Lucha Declaration, and the Court
having jurisdiction to consider this Motion and the relief requested therein in accordance with
28 U.S.C. §§ 157 and 1334; and consideration of the Motion and the relief requested therein
being a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and venue being proper in this
district pursuant to 28 U.S.C. §§ 1408 and 1409; and due and proper notice of the Motion being
adequate and appropriate under the particular circumstances; and a hearing having been held to
consider the relief requested in the Motion (the “Hearing”); and upon consideration of the record
of the Hearing, and all proceedings had before the Court; and the Court having found and
determined that the relief sought in the Motion is in the best interests of the Debtors’ estates,
their creditors, and other parties in interest, and that the legal and factual bases set forth in the
Motion, the Dombrowski Declaration, the Puntus Declaration, and the Lucha Declaration, and at
the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had
before the Court; and any objections to the relief requested herein having been withdrawn or
overruled on the merits; and after due deliberation and sufficient cause appearing therefor, it is
HEREBY ORDERED THAT:
1.
The Motion is granted.
2.
The Debtors are authorized, but not directed, to reject the CBAs and terminate the
related memoranda of understanding set forth in the Proposal. Upon the Debtors’ filing of a
notice with this Court indicating that the CBAs have been rejected and the memoranda have been
terminated, such CBAs shall be deemed immediately rejected and such memoranda shall be
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deemed immediately terminated as of the date of such notice without any further action by or
order of the Court.
3.
The terms of the Proposal are approved in its entirety.
The Debtors are
authorized, but not directed, to take all actions necessary to implement the Proposal attached to
the Motion as Exhibit B.
4.
As of the date hereof, the Debtors shall have no obligations with respect to, and
shall not be held responsible for, any payments arising under or related to: (a) the UMWA
VEBA, regardless of whether such obligations are set forth in any document or agreement other
than the CBAs, including without limitation in the Patriot-Peabody-UMWA Settlement or the
VEBA Funding Agreement; (b) the Coal Act, regardless of whether a claim under the Coal Act
has arisen prior to the date hereof and regardless of whether such obligations are set forth in any
document or agreement other than the CBAs; and (c) paying for or administering benefits to the
Peabody Assumed Retirees and/or the Alcoa Assumed Retirees, regardless of which agreement
or document contains such obligations.
5.
Nothing herein shall eliminate or affect in any way any obligations of third parties
with respect to any retiree benefits paid or administered by the Debtors, including without
limitation: (a) those retiree benefits paid directly or indirectly, via reimbursement to the Debtors,
by Alcoa or Peabody for the Alcoa Assumed Retirees and the Peabody Assumed Retirees,
respectively; and (b) any third party obligations, including that of Peabody, arising under the
Patriot-Peabody-UMWA Settlement and the VEBA Funding Agreement.
6.
Notice of the Motion as provided therein shall be deemed good and sufficient
notice of such motion, and the requirements of Bankruptcy Rule 6004(a) and the Local
Bankruptcy Rules for the Eastern District of Virginia are satisfied by such notice.
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Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Order
shall be immediately effective and enforceable upon its entry.
8.
The Court retains exclusive jurisdiction with respect to all matters arising from or
related to the implementation of this Order.
Dated:
Richmond, Virginia
UNITED STATES BANKRUPTCY JUDGE
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WE ASK FOR THIS:
/s/ Michael A. Condyles
Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone:
(804) 644-1700
Facsimile:
(804) 783-6192
- and Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
- and James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
CERTIFICATION OF ENDORSEMENT
UNDER LOCAL BANKRUPTCY RULE 9022-1(C)
Pursuant to Local Bankruptcy Rule 9022-1(C), I hereby certify that the foregoing
proposed order has been endorsed by or served upon all necessary parties.
/s/Michael A. Condyles
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Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
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Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone:
(804) 644-1700
Facsimile:
(804) 783-6192
James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
In re:
PATRIOT COAL CORPORATION, et al.,
Debtors.
)
)
)
)
)
)
)
Chapter 11
Case No. 15-32450 (KLP)
(Jointly Administered)
DECLARATION OF RAYMOND EDWARD DOMBROWSKI, JR. IN SUPPORT
OF THE DEBTORS’ MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING, BUT
NOT DIRECTING, THE DEBTORS TO (A) REJECT THEIR COLLECTIVE
BARGAINING AGREEMENTS, (B) MODIFY CERTAIN UNION-RELATED RETIREE
BENEFITS, AND (C) IMPLEMENT TERMS OF THEIR SECTION 1113 AND
SECTION 1114 PROPOSAL, AND (II) GRANTING RELATED RELIEF
Raymond Edward Dombrowski, Jr., hereby declares, under penalty of perjury, as
follows:
1.
I am the Chief Restructuring Officer of the above-captioned debtors and
debtors in possession (collectively, the “Debtors”). I have served in this position since
April 1, 2015.
In such capacity, I am generally familiar with the Debtors’ day-to-day
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operations, business and financial affairs, and books and records. I am above 18 years of age
and am competent to testify.
2.
I submit this supplemental declaration in support of the Debtors’ Motion for
Entry of an Order (I) Authorizing, But Not Directing, the Debtors to (A) Reject Their
Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and
(C) Implement Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting
Related Relief (the “Motion”).1 I am authorized to submit this Declaration on behalf of the
Debtors. Except as otherwise noted, all facts set forth herein are based on my personal
knowledge of the Debtors’ operations and finances, information learned from my review of
relevant documents, and information I have received from other members of the Debtors’
management or advisers. I have reviewed the Motion, and it is my belief that the relief
sought in the Motion is essential to the reorganization of the Debtors and the maximizing of
value of these chapter 11 cases.
If called upon to do so, I could and would testify
competently to the facts set forth herein on that basis.
The Debtors’ Prepetition Struggles
3.
Prior to October 31, 2007, Patriot and a number of its subsidiaries were
wholly-owned subsidiaries of Peabody, which spun off Patriot through a dividend of all
outstanding shares of Patriot. On July 23, 2008, Patriot acquired Magnum. Through these
transactions, the Debtors became responsible for liabilities relating to thousands of former
union employees and retirees of Peabody and Arch who retired prior to the formation of
Patriot.
Although the 2012–13 Restructuring eliminated the direct payment of retiree
medical benefits under the Debtors’ CBAs to UMWA retirees, the Debtors are still
1
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the
Motion.
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responsible for approximately 6,433 UMWA Retiree Beneficiaries through: (a) payments to
the UMWA VEBA; (b) payments on behalf of UMWA retirees in connection with the Coal
Act; (c) administration of retiree medical benefits to the Peabody Assumed Retirees and the
Alcoa Assumed Retirees; and (d) contributions to the UMWA 1974 Pension Plan.
4.
The Debtors’ business and results of operations are linked closely to global
demand for coal-fueled electricity and steel production. Since the 2012–13 Restructuring,
thermal and metallurgical coal markets and pricing have become increasingly challenged
with oversupply conditions and coal prices have recently reached lows not seen in more than
a decade. The lethargic economic environment, lack of energy demand generally, and a large
number of coal-fired plant retirements have precipitated this decline. Moreover, competition
from other energy sources (particularly natural gas) has increased pricing pressures to the
point where it is difficult for any coal company to compete.
5.
In response to these increasingly difficult market conditions, it is my
understanding that non-union wage rates and benefits have declined in recent years generally
(and they certainly have for the Debtors specifically) as coal companies have had to cut costs
and as there has generally been a drop in demand for coal mining employees. For example,
the Debtors’ non-union wage rates at their Samples surface mine have fallen an average of
approximately 7.5% per hour since the conclusion of the 2012–13 Restructuring. Union
wage rates at the Debtors’ Hobet mine, however, have continued to increase in accordance
with the terms of the Debtors’ CBAs. Presently, non-union employees at the Samples
surface mine earn approximately $5.45 less per hour, on average, than their union
counterparts at Hobet. If not corrected, this imbalance will likely continue to increase in
light of the weak job market and the mandatory rate increases provided by the Hobet CBA.
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The regulatory environment has also contributed to the Debtors’ current
financial situation. Federal and state regulatory authorities impose obligations on the coal
mining industry with respect to employee health and safety, permitting and licensing
requirements, environmental protection, the reclamation and restoration of mining properties
after mining has been completed, and the effect of mining on surface and groundwater
quality. Moreover, several citizen lawsuits brought by non-governmental organizations have
also stressed the Debtors’ financial condition. The Debtors have incurred significant costs to
comply with these laws and regulations.
7.
As noted in the Motion, the Debtors’ obligations to contribute to the UMWA
1974 Pension Plan and to make payments pursuant to the Coal Act continue today,
notwithstanding the 2012–13 Restructuring.
When coupled with the external pricing
pressure, increased regulation, and other costs associated with the Debtors’ businesses, these
legacy liabilities have crippled the Debtors’ ability to operate competitively in the current
market environment. Each of these challenges contributed to the Debtors’ decision to pursue
a sale process and file these chapter 11 cases.
8.
Indeed, given the Debtors’ capital structure and existing legacy liabilities, the
Debtors are effectively unable to operate as a going concern and must sell their assets to
maximize the value of their estates. As noted above, both thermal and metallurgical coal
prices have continued to plummet since the Debtors’ emergence from the prior chapter 11
process in 2013, due to, among other things, weakened domestic and global demand in the
face of low natural gas prices and slowing global economic growth. Benchmark prices for
metallurgical coal, for example, have fallen more than 70% from just four years ago,
representing the lowest prices in a decade. Likewise, international thermal coal prices have
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decreased 55% over the same four year period, and are now at their lowest level since early
2009. The Debtors also emerged from the 2012–13 restructuring with a highly leveraged
capital structure of approximately $800 million in secured debt, the structure of which was
premised on assumptions about coal prices and operating performance that ultimately did not
materialize.
Necessity of the Proposed Modifications
9.
Over the past many months, the Debtors and their advisors have worked to
revise their business plan and identify potential savings or liquidity transactions. Prepetition,
the Debtors pursued certain strategic M&A and sale transactions, but these efforts did not
yield a meaningful or transformative transaction. The Debtors reduced their cost structure by
idling and reducing activity at certain mining complexes. The Debtors also entered into asset
purchase agreements to sell several of their mining complexes, undeveloped coal reserves,
and associated property rights. However, these efforts have not been enough, and as the
Court is well aware, the Debtors have not been able to generate enough liquidity to operate as
a going concern.
Thus, the only avenue for avoiding a piecemeal, value-destructive
liquidation of the Debtors’ estates is through a sale of substantially all of the Debtors’
operating assets as a going concern and the eventual wind-down of the remainder of their
estates.
10.
The Blackhawk Transaction is currently the only viable path forward for a
sale of substantially all of the Debtors’ operating assets as a going concern, and is thus a
necessary step towards an ultimate exit from chapter 11. The Debtors retained advisors to
explore a strategic merger and/or sale of their business in 2014 and Blackhawk emerged as
the most value-maximizing alternative for a sale of substantially all of the Debtors’ assets.
The Blackhawk Transaction, in turn, is expressly conditioned on consensual modifications to
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the CBAs (which has not occurred) or rejection of the CBAs via a section 1113/1114 process.
If the Debtors are denied the relief requested in the Motion, the Blackhawk Transaction
would likely fail, the Debtors would be in violation of their DIP milestones, and the Debtors
would face a very real risk of wholesale and immediate liquidation.
11.
In addition, as set forth in the Motion, with respect to the Remaining Assets,
the Debtors’ CBAs must be eliminated: (a) in certain cases, because they are covered under
CBAs that must be eliminated in connection with the Blackhawk Transaction; (b) so that the
Debtors may confirm a feasible chapter 11 liquidating plan by not being burdened with
significant liabilities related to dormant operations through, among other things, preventing
the Debtors from effectuating a complete withdrawal from the UMWA 1974 Pension Plan;
and (c) so that the Debtors can continue to operate, market, and potentially sell their Federal,
Apogee, and Hobet assets, which I understand will be difficult if not impossible to do
without implementation of the Debtors’ Proposal.
12.
In particular, the Debtors must conserve resources to fund their liquidating
estate’s obligations and ensure their ability to confirm a chapter 11 plan to the benefit of all
of their creditor constituents.
In light of the Debtors’ situation and the facts and
circumstances of these chapter 11 cases, it is not equitable to continue paying above-market
wages with respect to the Debtors’ Remaining Assets, and the Debtors simply cannot afford
to do so. The Debtors are seeking to sell all of their assets for the benefit of their chapter 11
estates—they do not stand to profit from these changes. In contrast, absent rejection of the
CBAs, the Debtors’ alternative is a value-destructive chapter 7 liquidation process.
13.
If the Debtors are unable to implement their Proposal, the Debtors will be
forced to liquidate and jobs, wages, and benefits for their retirees and employees will be lost.
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Accordingly, it is my belief that a rejection of the CBAs and implementation of the Proposal
is necessary to the Debtors’ reorganization.
14.
I declare under penalty of perjury that the foregoing is true and correct to the
best of my belief.
Dated: July 16, 2015
By: /s/_Raymond Edward Dombrowski, Jr.
Raymond Edward Dombrowski, Jr.
Chief Restructuring Officer
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Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
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Michael A. Condyles (VA 27807)
Peter J. Barrett (VA 46179)
Jeremy S. Williams (VA 77469)
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, Suite 800
Richmond, Virginia 23219-3500
Telephone:
(804) 644-1700
Facsimile:
(804) 783-6192
- and James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
)
) Chapter 11
)
) Case No. 15-32450 (KLP)
)
) (Jointly Administered)
)
In re:
PATRIOT COAL CORPORATION, et al.,
Debtors.
DECLARATION OF MARC D. PUNTUS IN SUPPORT
OF THE DEBTORS’ MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING, BUT
NOT DIRECTING, THE DEBTORS TO (A) REJECT THEIR COLLECTIVE
BARGAINING AGREEMENTS, (B) MODIFY CERTAIN UNION-RELATED RETIREE
BENEFITS, AND (C) IMPLEMENT TERMS OF THEIR SECTION 1113 AND
SECTION 1114 PROPOSAL, AND (II) GRANTING RELATED RELIEF
Pursuant to 28 U.S.C. § 1746, I, Marc D. Puntus, hereby declare as follows:
1.
I submit this declaration (the “Declaration”) in support of the Debtors’ Motion for
Entry of an Order (I) Authorizing, But Not Directing, the Debtors to (A) Reject Their Collective
Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement
Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief
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(the “Motion”).1 Except as otherwise indicated, all facts set forth in this Declaration are based
upon my personal knowledge of the Debtors’ operations and finances, information learned from
my review of relevant documents, and information I have received from other members of the
Debtors’ management team and the Debtors’ advisors. If called upon to testify, I could and
would testify competently to the facts set forth herein.
Professional Qualifications
2.
I am a Partner and co-head of the Debt Advisory and Restructuring Group of
Centerview Partners LLC (“Centerview”). Centerview is a full-service independent investment
banking firm providing financial advisory services, including mergers and acquisitions, debt
financing, and restructuring advice across a broad range of industries. Centerview and its senior
professionals have extensive experience in the reorganization and restructuring of distressed
companies, both out-of-court and in chapter 11 proceedings. As noted in the Motion, the
Debtors retained Centerview in October 2014 to assist with the exploration of certain strategic
M&A and sale transactions, and Centerview has worked with the Debtors since then.
3.
Prior to and since joining Centerview in 2011, I have advised companies,
creditors, shareholders, and other stakeholders in numerous in-court and out-of-court
restructurings, recapitalizations, and reorganizations. I am experienced in procuring, structuring,
and negotiating merger and acquisition and asset sale transactions. Prior to joining Centerview, I
was a Managing Director of Miller Buckfire & Co., an investment bank and advisory firm that
provided financial advisory services to constituents in a broad range of restructuring and
corporate finance transactions. Prior to that, I was a member of the financial restructuring group
of Dresdner Kleinwort Wasserstein (“DrKW”), and prior to joining DrKW, I was a Partner in the
1
Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Motion.
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Business, Finance, and Restructuring department of Weil, Gotshal & Manges LLP. I received
my B.S.B.A. magna cum laude from Georgetown University and my J.D. cum laude from
Boston University School of Law.
The Debtors’ Sale Process
4.
For a number of reasons, including the extremely challenging coal market
environment and the Debtors’ significant secured indebtedness (approximately $900 million
including the Debtors’ debtor-in-possession financing), the Debtors, in consultation with their
advisors, determined that a transaction or series of transactions whereby the Debtors would sell
substantially all of their assets is the Debtors’ only realistic option. To that end, prior to and
subsequent to the Petition Date, the Debtors and their advisors engaged in extensive negotiations
with Blackhawk regarding a structured transaction that would result in the going concern sale of
substantially all of the Debtors’ operating assets (the “Blackhawk Assets”). The transaction
excludes certain assets of the Debtors, such as the Federal Complex (the “Federal Assets”) and
other mine complexes and idled properties.
5.
The Blackhawk APA is the result of substantial efforts on behalf of the Debtors
and their advisors to negotiate and consummate a strategic transaction that will maximize the
value of the Debtors’ estates. In late 2014, the Debtors and their advisors began exploring an
out-of-court sale or merger transaction with a potential strategic partner. By early 2015, it
became clear that such a transaction would not materialize. Since that time, the Debtors and
their advisors have engaged in discussions or negotiations with two additional entities, one of
which is Blackhawk. Both entities insisted that they would only consummate a transaction
through a chapter 11 process and delivered preliminary bids. After analysis and review, the
Debtors and their advisors concluded that the proposed Blackhawk Transaction provided the
most value-maximizing alternative for a sale of substantially all of the Debtors’ assets.
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Upon entry of the Bid Procedures Order, the Debtors, with their advisors,
launched an extensive marketing and sale process for the the Debtors’ assets, canvassing the
marketplace to identify potential financial or strategic purchasers. In total, Centerview, in
consultation with the Committee and the UMWA, contacted approximately 65 potential
purchasers and sent “teaser” materials to 29 such parties to solicit interest.
The Debtors
ultimately entered into nondisclosure agreements with 17 potential purchasers and provided them
with additional information and offered them access to an electronic data room containing
diligence materials related to the Debtors’ assets. The Debtors have conducted management
calls and/or presentations for three potential purchasers of the Federal Assets and one potential
purchaser of the Blackhawk Assets. The Debtors have received two non-binding letters of
intent—one for the Federal Assets and one for the Blackhawk Assets. The potential purchaser
who submitted a non-binding letter of intent for the Federal Assets has also conducted one site
visit. No entity (other than Blackhawk) has conducted a site visit to date for the Blackhawk
Assets.
7.
At present, despite the Debtors’ ongoing sale process, no potential purchaser has
indicated any willingness to acquire any of the Debtors’ assets subject to the terms of the
Debtors’ current CBAs.
The Necessity of the Blackhawk Transaction
8.
The Blackhawk Transaction is currently the only viable transaction for the sale of
substantially all of the Debtors’ assets. As this Court is well aware, the Debtors had effectively
run out of cash by the time they filed for protection under the Bankruptcy Code and do not have
sufficient funds to continue operating as a going concern.
9.
The only avenue for avoiding a piecemeal value-destructive liquidation of the
Debtors’ estates is through a sale of substantially all the Debtors’ operating assets as a going
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concern. Although the Debtors have been running an open auction process in the hopes of
soliciting additional interest in this regard, Blackhawk is the only entity to date who has provided
a viable bid to acquire substantially all of the Debtors’ assets.2
10.
Consummation of the Blackhawk APA is expressly conditioned on either
consensual and implemented modifications to the applicable CBAs (which has not occurred) or
rejection of the applicable CBAs following a successful section 1113/1114 motion. The Debtors
are also obligated under the terms of their DIP Facility to broker a consensual resolution or file a
motion seeking rejection of the CBAs with respect to the Blackhawk Assets by August 1, 2015.
Thus, the Debtors have no choice but to file, and ultimately receive the relief requested by, the
Motion. Absent consensual modification or rejection of the CBAs governing the Blackhawk
Assets (or the emergence of another viable bidder through the sale process), the Debtors have no
buyer for their assets, and absent a buyer, the Debtors will be unable to fully draw down their
DIP—and in fact will default under their DIP facility by failing to reach a crucial milestone. If
this occurs, the Debtors will face the very real prospect of an immediate and wholesale
liquidation in the short term.
11.
Nor do I believe that the Debtors’ auction process, or any future sale process for
the Remaining Assets, will elicit bids that would assume the CBAs on their current terms. The
retiree and union obligations under the CBAs in particular are a deterrent for any potential
purchaser of the Debtors’ assets. Importantly, the Debtors’ obligations with respect to the
UMWA 1974 Pension Plan represent substantial liabilities that are likely going to get worse as
2
The only indication of interest the Debtors have received with respect to these assets since commencing these
chapter 11 cases, other than from Blackhawk, proposed to acquire the Debtors’ assets with the same union- and
retiree-related concessions required by Blackhawk and on a stricter timeline.
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more contributing employers are unable to survive in today’s coal market.3 I do not believe any
party interested in the Debtors’ assets would conceivably submit a bid that assumes obligations
to contribute to the UMWA 1974 Pension Plan, because such bidder would be exposing itself to
significant annual funding costs as well as massive withdrawal or termination liabilities that
appear inevitable.
12.
There is no question that the terms of the current CBAs would chill bidding for
the Debtors’ assets if not rejected. From the beginning, Blackhawk has required either: (a) a
consensual resolution with the UMWA on modifications to the applicable CBAs necessary to
satisfy the conditions under the Blackhawk APA; or (b) the Debtors reject the applicable CBAs.
The Debtors fully expect that any other buyer would issue the same demands. If the Debtors are
unable to implement their Proposal, the Debtors will be forced to liquidate and jobs, wages, and
benefits for their retirees will be lost.
Rejection of the CBAs is thus necessary for both
consummation of the Blackhawk Transaction and for the ability of the Debtors to conduct any
future sales of their Remaining Assets.
13.
I declare under penalty of perjury that the foregoing is true and correct to the best
of my knowledge and belief.
Respectfully submitted,
Dated: July 16, 2015
3
/s/ Marc D. Puntus
Marc D. Puntus
Partner of Centerview Partners LLC,
financial advisor and investment banker to
the Debtors
For example, Walter Energy, Inc. (“Walter Energy”) and Alpha Natural Resources, Inc. (“Alpha Resources”)
are contributing employers to the 1974 Pension Plan. On July 15, 2015, Walter Energy filed for chapter 11
protection. Alpha Resources has hired restructuring advisors.
6
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Exhibit E
Lucha Declaration
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Stephen E. Hessler (admitted pro hac vice)
Patrick Evans (admitted pro hac vice)
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022
Telephone:
(212) 446-4800
Facsimile:
(212) 446-4900
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Michael A. Condyles
KUTAK ROCK LLP
Bank of America Center
1111 East Main Street, 8th Floor
Richmond, Virginia 23219
Telephone:
(804) 343-5227
Facsimile:
(804) 783-6192
- and James H.M. Sprayregen, P.C.
Ross M. Kwasteniet (admitted pro hac vice)
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone:
(312) 862-2000
Facsimile:
(312) 862-2200
Counsel for the Debtors and
Debtors in Possession
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
In re:
PATRIOT COAL CORPORATION, et al.,
Debtors.
)
) Chapter 11
)
) Case No. 15-32450 (KLP)
)
) (Jointly Administered)
)
DECLARATION OF DALE F. LUCHA,
IN SUPPORT OF THE DEBTORS’ MOTION FOR ENTRY OF AN ORDER
(I) AUTHORIZING BUT NOT DIRECTING THE DEBTORS TO (A) REJECT THEIR
COLLECTIVE BARGAINING AGREEMENTS, (B) MODIFY CERTAIN
UNION-RELATED RETIREE BENEFITS, AND (C) IMPLEMENT TERMS OF THEIR
SECTION 1113 AND SECTION 1114 PROPOSAL, AND
(II) GRANTING RELATED RELIEF
Pursuant to 28 U.S.C. § 1746, I, Dale F. Lucha declare as follows:
1.
I submit this declaration the in support of the Debtors’ Motion for Entry of an
Order (I) Authorizing but not Directing the Debtors to (A) Reject Their Collective Bargaining
Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement Terms of
Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief (the
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I have been actively involved in the development of the proposals and the
negotiations with the UMWA concerning the Debtors’ proposals in the months following the
Petition Date.
I have also been actively involved in the Debtors’ provision of relevant
information to the UMWA.
The purpose of this declaration is to describe the details of
negotiations with the UMWA and the Debtors’ need to reject the CBAs.
Professional Qualifications
2.
I am Vice President of Human Resources of Patriot Coal Services, LLC. I have
held this position since July 2008. Prior to this role, I had extensive experience in the coal
industry, including serving as Vice President of Human Resources of Magnum Coal Company,
Manager of Human Resources of Arch Coal of West Virginia, Manager of Safety and Labor
Relations of Ashland Coal, Inc., and Safety and Labor Relations Specialist of Hobet Mining Inc.
I have a B.A. from Marshall University. My responsibilities include the areas of recruiting,
employment compliance, benefits, compensation administration, and employee and labor
relations at Patriot Coal Corporation and its affiliated debtors (collectively, the “Debtors”).
3.
Except as otherwise indicated, all facts set forth in this declaration are based upon
my personal knowledge, my review of relevant documents, my opinion based upon experience,
knowledge, and information concerning the operations of the Debtors, and information provided
to me by employees working under my supervision. If called upon to testify, I would testify
competently to the facts set forth in this declaration.
Background
4.
As described more fully in the Motion, in discussions regarding a potential sale,
Blackhawk has repeatedly expressed unwillingness to enter into a transaction that would
1
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the
Motion.
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involve assumption of certain liabilities. Among other things, Blackhawk has indicated it will
not assume liabilities associated with: (a) Patriot’s employees not hired by Blackhawk;
(b) Patriot’s CBAs; (c) Patriot’s employee benefit plans; (d) Patriot’s retiree medical or other
retiree welfare benefits; and (e) the UMWA 1974 Pension Plan (including withdrawal
liabilities).
5.
In the face of the condition in the Blackhawk APA that Blackhawk will not
assume these liabilities, the Debtors engaged in active, direct, and comprehensive negotiations
with the UMWA to seek a consensual outcome for all affected parties. However, an agreement
has not been reached and the Debtors cannot avoid commencing proceedings under section
1113 and section 1114 of the Bankruptcy Code. Accordingly, the Debtors must reject the CBAs
related to the Blackhawk Assets in order to close the Blackhawk Transaction. In addition, the
Debtors must re-set to market the terms of their CBAs related to the Debtors’ Remaining Assets
in order to continue operating those Remaining Assets, make them attractive to potential
purchasers, and avoid exposing the Debtors’ estates to massive amounts of potential pension
withdrawal liability on a post-effective date basis.
6.
As described in the Motion, the Debtors have been working hard for the past nine
weeks to broker a deal with the UMWA that would satisfy the conditions of the Blackhawk
APA.2 As will be discussed in further detail below, the Debtors and their advisors have had
four in-person meetings with the UMWA, several telephone conference calls, presented six
different possible settlement frameworks, and have spent numerous hours trying to negotiate a
resolution acceptable to both parties.
2
To be clear, Blackhawk has never negotiated directly with the UMWA. Rather, the Debtors have always made
proposals based upon what they believed Blackhawk would agree to.
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Unfortunately, negotiations to date have not resulted in final agreement with the
UMWA on terms that would satisfy the conditions of the Blackhawk APA. The Debtors, on
behalf of Blackhawk, have exchanged various counter-proposals with the UMWA and have
found common ground on several issues; but the UMWA Counterproposal falls materially short
of the necessary modifications required to consummate the sale of assets to Blackhawk and to
continue operating the Debtors’ Remaining Assets. Despite the Debtors’ best efforts, the
UMWA has rejected the offered proposals without good cause and the relief the Debtors seek
should therefore be approved.
A.
8.
The Debtors’ Active Employees and CBAs with the UMWA
The Debtors employ approximately 2,760 individuals on a full-time basis. These
individuals include miners, engineers, administrative support staff, managers, directors, and
executives. The Debtors employ both unionized and non-unionized workers. At present,
approximately 31% of active employees are unionized and represented by the UMWA under the
Debtors’ CBAs.
9.
The Debtors are subject to three “groups” of CBAs: (a) eight Master CBAs;
(b) the Gateway CBA; and (c) the Highland CBA. These obligations are discussed in turn.
10.
Eight of the Debtors are signatories to Master CBAs with identical terms:
(a) Heritage Coal Company, LLC (“Heritage”); (b) Colony Bay Coal Company, LLC
(“Colony”); (c) Eastern Associated Coal, LLC (“Eastern”); (d) Mountain View Coal Company,
LLC (“Mountain View”); (e) Pine Ridge Coal Company, LLC (“Pine Ridge”); (f) Rivers Edge
Mining, LLC (“Rivers Edge”); (g) Apogee Coal Company, LLC (“Apogee”); and (h) Hobet
Mining, LLC (“Hobet”). Approximately 725 current union employees receive benefits under
the Master CBAs.
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First, five of the eight Master CBAs cover operations that have no remaining
employees and have been shut down (in some cases, for up to 30 years)—specifically, the
Master CBAs with Heritage, Colony, Mountain View, Pine Ridge, and Rivers Edge.
In
addition, although the transaction has not yet closed, the Debtors entered into an asset purchase
agreement prepetition to sell the Heritage assets.
12.
Two of the remaining three Master CBAs cover both assets that are to be acquired
by Blackhawk and other mining complexes or groups of assets that are not being acquired by
Blackhawk (i.e., the Federal assets, the Apogee assets, and the Heritage assets, and together
with any other assets Blackhawk is not proposing to acquire, the “Remaining Assets”). The
Master CBA with Eastern covers the Black Oak Underground Mine, the Rocklick Preparation
Plant, the Wells Preparation Plant, and certain related coal lands and operations, which are
being acquired by Blackhawk, and the Federal assets (i.e., the Federal #2 Underground Mine
and the Federal #2 Preparation Plant), which are not being acquired by Blackhawk. The
Apogee CBA covers the Fanco Preparation Plant and Loadout, which is being acquired by
Blackhawk, and the Guyan Surface Mine, which is not being acquired by Blackhawk.
13.
The remaining Master CBA is the Hobet CBA. The Hobet CBA only covers the
Hobet assets, which Blackhawk is not acquiring.
14.
Second, Debtor Gateway Eagle Coal Company, LLC is a signatory to the
Gateway CBA, which was negotiated in connection with the 2012–13 Restructuring.
The
Gateway CBA covers four mines: (a) Gateway Eagle; (b) Farley Eagle; (c) Campbells Creek
No. 10; and (d) Sugar Maple. The Debtors permanently closed operations at the Sugar Maple
and Farley Branch underground mines in November 2012 and neither operation has any
remaining employees. The remaining two Gateway operations, Campbells Creek No. 10 and
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Gateway Eagle underground mines, are part of the Wells and Rocklick mining complexes subject
to the Blackhawk APA. The major difference between the Gateway CBA and the Master CBAs
is that there is no requirement to contribute to the UMWA 1974 Pension Plan. Approximately
166 current union employees receive benefits under the Gateway CBA.
15.
Finally, Debtor Highland Mining Company, LLC is a signatory to the Highland
CBA. The Debtor permanently closed and sealed the Highland mine and laid off all of its
employees. In addition, although the transaction has not yet closed, the Debtor entered into an
asset purchase agreement prepetition to sell the Highland assets.
16.
The CBAs address all aspects of the employer and employee relationship
including, among other things, wage rates, work rules, paid time off, and health and welfare
benefits. Importantly, the Debtors employ hundreds of non-union employees who do the exact
same work as UMWA employees, but at substantially lower wages and benefits that are
consistent with the market. The CBAs include provisions that govern hourly wages and lock in
wage increases, typically at rates that are substantially higher than competitive wages paid to
non-union workers serving in the same capacity. Key differences between the wages and
benefits afforded active union employees and those provided to active non-union employees
generally include:
•
union employees make higher wages than non-union employees–up to 41%
higher at surface mines and up to 30% higher at underground mines;
•
union employees are subject to lower out-of-pocket health insurance
maximums than non-union employees and union employees are not required
to pay healthcare premiums;
•
non-union employees receive a dollar-for-dollar matching contribution up to
6%, but, for union employees, the Debtors contribute to the UMWA
1974 Pension Plan (other than with respect to the Gateway CBA), make a 3%
contribution to a company-sponsored “Union Savings Plan” in lieu of pension
contributions for new inexperienced miners, and also make a contribution of
3% of earnings to a Union Savings Plan (as defined in and described more
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fully below) for all represented employees in lieu of providing retiree
healthcare;
B.
17.
•
the CBAs provide for scheduled wage increases and wage reopeners for union
employees but wage increases for non-union employees are entirely at the
Debtors’ discretion;
•
the Debtors’ union employees receive additional paid time off as compared to
non-union employees in the form of floating vacation days, greater personal
and sick leave, and graduated vacation days;
•
union employees benefit from more favorable work rules; and
•
union employees are entitled to several job security benefits not available to
non-union employees including panel rights, preferential hiring rights to other
operations and extensive grievance procedures.
Patriots’ Retirees and Retiree Healthcare Obligations
The Debtors also provide certain retiree healthcare benefits to retired union
employees pursuant to the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”),
and make certain contributions to a UMWA-administered VEBA that provides health benefits
to certain non-Coal Act retirees. As noted above, as a result of the spin-off from Peabody and
the acquisition of Magnum, the Debtors became responsible for liabilities relating to thousands
of former union employees and retirees of Peabody and Arch Coal who retired prior to the
formation of Patriot.
18.
Accordingly, the Debtors have close to twice as many retirees as they have active
employees.
At present, the Debtors pay for or administer retiree healthcare benefits to
approximately 4,607 retirees and 1,836 dependents, for a total of 6,433 beneficiaries.3 Of that
total, 5,464 beneficiaries are associated with the UMWA (the “UMWA Retiree Beneficiaries”).
Certain of the Debtors’ obligations to the UMWA Retiree Beneficiaries—such as contributing
to the UMWA VEBA—stem from the Debtors’ CBAs, whereas others—such as obligations
3
The Debtors also have approximately 969 retirees not affiliated with the UMWA.
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under the Coal Act—are statutory. The Debtors UMWA retiree healthcare benefits generally
fall into three categories:
•
UMWA VEBA (Debtors): Certain UMWA Retiree Beneficiaries4 receive
benefits under a Voluntary Employee Beneficiary Association trust formed by
the UMWA in the Debtors’ prior bankruptcy (the “UMWA VEBA”), which
assumed the Debtors’ obligations to provide retiree healthcare benefits to
certain union retirees, effective June 30, 2013.5 In general, these are former
UMWA employees who retired under the 1993 National Bituminous Coal
Wage Agreement (“NBCWA”) and subsequent NBCWAs, and who qualify
for retiree health benefits under these NBCWAs, not under the Coal Act. In
2014, the Debtors contributed approximately $8.2 million on account of the
UMWA VEBA.
•
Coal Act (Debtors): The Coal Act requires employers to provide health
benefits to retirees who were age and service eligible as of February 1, 1993
and who retired by September 30, 1994. The Debtors administer a health
benefit plan that provides benefits to approximately 5,254 UMWA Retiree
Beneficiaries pursuant to the Coal Act. The Debtors are responsible for
paying benefits to approximately 1,108 of these UMWA Retiree
Beneficiaries, and Peabody is responsible for paying for the remaining
4,236 UMWA Retiree Beneficiaries. The Debtors’ liabilities under the Coal
Act also include payments to two multi-employer funds, the UMWA
Combined Benefit Fund and the UMWA 1992 Benefit Plan, which provide
certain healthcare benefits to certain eligible retirees. At present, the Debtors
estimate the present value of their Coal Act liabilities to be approximately
$43.7 million.
•
Coal Act (Peabody): Peabody is contractually responsible for paying for
approximately 4,236 UMWA Retiree Beneficiaries (the “Peabody Assumed
Retirees”) pursuant to that certain Section 9711 Coal Act Liabilities
Assumption Agreement between the Debtors and Peabody. Although
Peabody pays these health benefits directly, the Debtors administer these
retiree health benefits through that certain Administrative Services Agreement
between the Debtors and Peabody.
4
Although the Debtors are not privy to the specific number of UMWA Retiree Beneficiaries who receive benefits
from the UMWA VEBA, effective June 30, 2013, the UMWA VEBA assumed health care obligations for
6,142 of the Debtors’ retirees (including dependents, a total of 11,370 UMWA Retiree Beneficiaries).
5
Funding for the VEBA under the VEBA Funding Agreement included: (a) a 35% ownership stake in the
common stock issued upon emergence of the reorganized company; (b) profit sharing contributions up to a
maximum of $300 million, subject to certain financial conditions that have never been satisfied; (c) a royalty
contribution of $0.20 to $1.00 per ton for every ton produced at all existing mining complexes; (d) cash
contributions of up to $75 million to be paid over the four years following emergence, subject to certain
financial conditions that have never been satisfied; and (e) $10 million paid at emergence.
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•
19.
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NBCWA (Alcoa): Approximately 210 UMWA Retiree Beneficiaries receive
health benefits under the 1993 National Bituminous Coal Wage Agreement of
2011, which the Debtors pay for but are reimbursed by Alcoa Co. (“Alcoa”)
under the Debtors’ joint venture agreement with Alcoa for Squaw Creek Coal
Company (the “Alcoa Assumed Retirees”).6
It is my belief that none of the UMWA Retiree Beneficiaries will be negatively
affected by termination of the Debtors’ Coal Act obligations. If the Debtors terminate their
Coal Act obligations, I understand that the Peabody Assumed Retirees would continue to
receive their retiree benefits from Peabody. I also understand that the only retiree benefits for
which the Debtors are currently paying and not being reimbursed—related to the 1,018
beneficiaries receiving benefits pursuant to the Coal Act—would transition to Arch Coal
(990 retirees) and Peabody (28 retirees).
C.
20.
Patriot’s Pension Obligations
The Debtors also have additional payment obligations to the UMWA
1974 Pension Plan under their CBAs (other than the Gateway CBA).
The Debtors spent
approximately $16.8 million in 2014 on contributions under the UMWA 1974 Pension Plan.
Moreover, the UMWA 1974 Pension Plan is massively underfunded and is in “critical” status.
The Debtors cannot possibly pay the withdrawal liability that could conceivably be foist upon
them if the Debtors’ obligations to the UMWA 1974 Pension Plan were not eliminated (and the
withdrawal liability not treated as an unsecured claim), and no buyer would realistically agree to
take on this exposure.
21.
Because the UMWA 1974 Pension Plan is a multiemployer plan, it is my
understanding that beneficiaries of the UMWA 1974 Pension Plan would, at least for the near
6
The Debtors’ NBCWA retiree health care obligations were largely eliminated through their 2012–13
Restructuring in connection with establishment of the UMWA VEBA. Alcoa, however—unlike Peabody—did
not wish to contribute to the UMWA VEBA, and instead agreed to keep reimbursing the Debtors for these
obligations.
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term, continue to receive pension benefits from the Plan if the Debtors’ obligations were
terminated.
The Debtors’ Good Faith Negotiations with the UMWA
22.
The Debtors have worked diligently and in good faith over the last two months to
broker a deal with the UMWA that would satisfy the conditions of the Blackhawk APA, and to
negotiate consensual go-forward terms for the Debtors’ Remaining Assets. These proposals
were frequently presented in face-to-face negotiation sessions, and have been the subject of
numerous conference calls and e-mail exchanges. The UMWA has rejected each of these
proposals without good cause.
A.
23.
The First Meeting
The Debtors’ communication with the UMWA began two days after the Petition
Date and has continued in the subsequent weeks in an effort to keep the UMWA informed about
the Debtors’ restructuring. On May 14, 2015, the Debtors’ management team, outside labor
counsel, and Centerview Partners, LLC, the Debtors’ investment banker, met with the UMWA
at the UMWA’s headquarters in Triangle, Virginia. At that meeting, the Debtors discussed the
bankruptcy filing, and presented on the Debtors’ financial condition.
The Debtors also
discussed potential strategic alternatives, including the sale of substantially all of the Debtors’
assets (excluding Federal) to a strategic partner. During the first meeting, the Debtors provided
an overview of: (1) coal market conditions, (2) Patriot’s recent financial performance, (3) the
Debtors’ restructuring, and (4) the proposed DIP financing and related milestones (including a
timeline for addressing Section 1113/1114 issues). To facilitate this discussion, the Debtors and
their advisors prepared a PowerPoint presentation, copies of which were distributed at the
meeting.
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B.
24.
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The First Proposal
Following the first meeting, the Debtors provided copies of the first proposal
(the “First Proposal”), a copy of which is attached hereto as Exhibit 1, to the UMWA at a
meeting on May 29, 2015. In the First Proposal, the Debtors proposed modifications they
thought Blackhawk would approve of and, most importantly, were consistent with benefits
available to Patriot’s non-union workforce. The First Proposal put forth several changes to
provisions of each of the Debtors’ CBAs including changes relating to job opportunity
programs, paid time off, wage increases and rates, scheduling, and contributions to the UMWA
1974 Pension Plan.
25.
The UMWA indicated on May 29, 2015 that it would act as the bargaining
representative for Coal Act retirees. The UMWA was otherwise silent with respect to the First
Proposal.
C.
26.
The Second Proposal
A third meeting took place on June 3, 2015 in Morgantown, West Virginia. Cecil
Roberts, President of the UMWA and Brian Sanson, Director of Research for the UMWA
attended the meeting on behalf of the UMWA. Bob Bennett, Patriot’s President and Chief
Executive Officer, and I attended the meeting on behalf of the Debtors. John Woodrum, the
Debtors’ outside labor counsel and Grant Crandall, the UMWA’s General Counsel participated
by telephone.
27.
During the meeting, the Debtors explained that, while Blackhawk had expressed
some willingness to enter into CBAs with the UMWA (subject to certain terms and conditions),
Blackhawk had indicated that it would not consider any CBA with the following obligations:
(a) successor liability for Blackhawk under the Debtors’ CBAs; and (b) pension contributions or
other pension related liabilities. Despite these conditions, the Debtors provided the UMWA
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with a second proposal (the “Second Proposal”), a copy of which is attached hereto as Exhibit
2, that they believed would be acceptable to Blackhawk. The Debtors’ representatives clarified
that the Second Proposal had not been reviewed and/or approved by Blackhawk but that the
Debtors believed they could persuade Blackhawk to accept the terms of the Second Proposal.
28.
The Debtors’ representatives walked the UMWA through the Second Proposal
and also provided a spreadsheet that contrasted key contract terms under the Master CBA and
the Gateway CBA, non-union wage and benefits, wage and benefit terms modifications
approved by the Missouri Bankruptcy Court, and the terms of the Second Proposal.
29.
The Second Proposal modified several aspects of the First Proposal including
with respect to the term of a new agreement including, among other things, offering concessions
regarding wages in the form of wage reopeners, making various modifications to work rules
regarding absences, and making changes to employer contributions for retirement benefits.
30.
During the Second Meeting, Mr. Roberts asked several specific questions
regarding wages and changes to retirement benefits. He also asked about Blackhawk’s stated
intention with respect to the union assets—in particular, whether Blackhawk intended to operate
the assets. The Debtors’ representatives indicated that Blackhawk’s stated intention was to
operate the assets and noted that Blackhawk’s aggressive closing deadline was driven by the
need to have time to market the coal for delivery in 2016. Following a short break allowing the
UMWA to convene in private, the Second Meeting recommenced. At that time, Mr. Roberts
thanked the Debtors for the Second Proposal and stated that the UMWA would promptly
provide a counterproposal.
31.
Shortly following the Second Meeting, Mr. Sanson called me to confirm a
meeting scheduled for June 9, 2015. During that call, Mr. Sanson commented on progress thus
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far and indicated a belief that negotiations could result in a consensual resolution. He also
stated that the UMWA would provide a counterproposal shortly, but did not provide specific
details.
D.
32.
The UMWA Counterproposal
A fourth meeting took place on June 9, 2015 at UMWA headquarters in Triangle,
Virginia. The UMWA was represented by Mr. Roberts, Mr. Crandall, and Mr. Sanson. The
Debtors’ representatives included myself, Mr. Bennett, and Caryn Merton, Senior Manager of
Compensation and Benefits at Patriot.
33.
The meeting began with a written counterproposal by the UMWA (the “UMWA
Counterproposal”). Before reviewing the details, Mr. Roberts discussed particular concerns
with respect to successorship and pension obligations. He also clearly expressed the UMWA’s
intention to negotiate solely with respect to assets to be acquired by Blackhawk at that time and
that he would not negotiate with respect to the Debtors’ Remaining Assets.
34.
The UMWA Counterproposal made requests with respect to the some aspects of
the CBAs–in particular, the UMWA Counterproposal asked for an expanded scope and
coverage of a new agreement than that offered by the Debtors, that wage increases be delayed
but not eliminated, and that the Debtors continue contributions to the UMWA VEBA.
35.
Notably, the UMWA Counterproposal sought to maintain current terms and
conditions with respect to paid time off, job security, health benefits, retirement benefits, work
rules, job opportunities, and the UMWA 1974 Pension Plan.
36.
In response to the UMWA Counterproposal, the Debtors’ representatives
indicated that Blackhawk would likely be unwilling to enter into a CBA on the same terms and
conditions set forth in the current CBA. We explained that the Debtors had experienced
significant losses and severe financial strain under the wage and benefit levels provided in the
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current CBAs, and thus that Blackhawk was unlikely to agree to those terms. The meeting
ended with the Debtors’ promise to prepare another proposal and a plan that I speak with Mr.
Crandall by phone to close the gap between the competing proposals.
37.
Following this meeting, the Debtors and their advisors, and the UMWA and its
advisors participated in conference calls and e-mail exchanges concerning termination of
pension contributions.
The parties also discussed consensual resolution of certain other
outstanding issues.
E.
38.
The Third Proposal
After consultation with Blackhawk, the Debtors delivered a third proposal
(the “Third Proposal”), a copy of which is attached hereto as Exhibit 3, on June 13, 2015 in
response to the UMWA’s stated concerns. Among other things, the Third Proposal provided for
an increase in the Debtors’ formerly proposed wage levels, additional job rights and job security
protections, and offered employer contributions to a 401(k)-type savings plan.
F.
39.
The Fourth Proposal
After delivering the Third Proposal, the Debtors and the UMWA engaged in
discussions about the substance of the Third Proposal. Following these discussions, the Debtors
made further revisions to the Third Proposal that they thought Blackhawk might accept, such as
proposing additional job security protections and job opportunities for laid-off employees, and
delivered a fourth proposal (the “Fourth Proposal”), a copy of which is attached hereto as
Exhibit 4, later in the day on June 13, 2015. Notwithstanding the additional concessions
proposed by the Debtors in the Fourth Proposal, the UMWA rejected the proposed
modifications, including with respect to the UMWA 1974 Pension Plan contributions.
40.
During the June 13th call, Patriot and the UMWA also discussed the necessity of
reducing hourly wage rates, wage increases, and paid time off. I specifically requested that the
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UMWA consider the economics of assets that Blackhawk seeks to acquire, which are in
bankruptcy for the second time since 2012, have production costs that exceed selling prices, and
are operating at a loss.
G.
41.
The Fifth Proposal
On June 18th, 2015, the Debtors met with the UMWA by phone for
approximately 90 minutes and provided a fifth proposal (the “Fifth Proposal”), a copy of which
is attached hereto as Exhibit 5. I represented the Debtors and the UMWA was represented by
Messrs. Roberts, Crandall, and Sanson. Although there was consensus on several issues, such
as the scope of an agreement and job opportunities, the UMWA nevertheless refused to accept
certain necessary aspects of the Fifth Proposal—chief among them the elimination of the
UMWA 1974 Pension Plan contributions.
H.
42.
The Sixth Proposal
Notwithstanding the UMWA’s repeated insistence on terms and conditions that
Blackhawk was unwilling to agree to, in an effort to avoid litigation, on June 22, 2015, after
consultation with Blackhawk, the Debtors made a sixth proposal (the “Sixth Proposal”) , a copy
of which is attached hereto as Exhibit 6, to the UMWA that expired on Wednesday, July 8,
2015. The UMWA did not respond to the Sixth Proposal.
43.
Below is a table comparing the first and last proposal the Debtors made that
would have satisfied the conditions of the Blackhawk APA, demonstrating the significant
movement in the proposals’ terms made in response to the UMWA’s stated concerns:
Subject and CBA Article
First Proposal
Sixth Proposal
Enabling Clause
(See Art. I of Master CBA)
Eliminate successorship obligations
entirely in new contract.
Retain successorship obligations in new
contract.
Scope and Coverage
(See Art. IA of Master
CBA)
New contract will apply only to
geographic boundaries of the mine as
defined by the mining permit.
New contract will apply to all represented
operations and coal lands acquired by
Blackhawk.
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Contracting and
Subcontracting
(See Art. IA(g) of Master
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Non-bargaining unit employees may
produce coal at the mining face.
Job Opportunities and
Benefit Security Program
Eliminate entirely.
(See Art. II of Master
CBA)
Wage Increase (See Art. X
of Master CBA)
Hourly Wage Rates (See
Appendices to Master
CBA)
Sickness and Accident
Benefits (See Art. XI of
Master CBA)
•
Eliminate all wage increases.
•
Establish wage reopener to set
wages for years 2018–2021.
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Non-bargaining unit employees may not
produce coal the mining face.
•
Maintain job opportunities and benefit
security program.
•
Provide 3 of 5 new job opening at
non-represented underground mines to
laid-off represented employees.
•
Provide a $0.65 per hour raise in year
2016 if the metallurgical coal
benchmark index reaches $150.
•
Provide a $0.65 per hour raise in year
2017 if the metallurgical coal
benchmark index reaches $120.
•
Provide annual $0.65 per hour raises
beginning in year 2018 regardless of
the metallurgical coal benchmark
index.
•
Reduce underground wage rates by
$2.00.
•
Reduce underground wage rates by
$1.25.
•
Reduce preparation plant wage rates
by $3.00
•
Reduce preparation plant wage rates
by $1.25.
Provide a maximum of 26 weeks of
S&A benefits.
Provide a maximum of 52 weeks of S&A
benefits.
•
Provide up to five graduated vacations
per year with pay.
Provide up to nine additional
graduated vacation days that are paid
but may not be used as time off.
Graduated Vacation (See
Art. XIV of Master CBA)
Provide up to five graduated vacations
per year with pay.
•
Seniority (See Art. XVII of
Master CBA)
Assure that only the signatory company
is obligated to make job offers to
laid-off employees.
Provide job opportunities for employees of
different signatory companies, including
Hobet and Apogee (which are not being
acquired by Blackhawk).
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
Eliminate requirement to fund the
VEBA.
Provide for a $0.20 per ton royalty on
clean tons produced at acquired operations
and coal lands through December 31,
2018, unless legislation provides funding
or health care benefits for VEBA
participants.
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
Eliminate contribution of 3% of wages
into the Union Savings Plan that are
made in lieu of providing retiree health
Provide up to a 6% contribution into the
Union Savings Plan (3% with no employee
contribution required and an additional
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care and in lieu of pension eligibility.
matching contribution up to 3%).
Health, Retirement and
Other Benefits (See Art.
XX of Master CBA)
Provide the same health care plan as
non-union employees.
Make no changes to the current UMWAbargained for health care plan.
Miscellaneous (See Art.
XXII of Master CBA)
Make current attendance policy more
restrictive.
Maintain current attendance control
policy.
Miscellaneous (See Art.
XXII of Master CBA)
Eliminate union-controlled Memorial
Days.
Provide for ten Memorial Days.
Settlement of Disputes
(See Art. XXIII of Master
CBA)
Eliminate all grievances filed but not
resolved prior to the effective date of a
new contract.
Process all grievances.
Ratification and
Termination of Agreement
(See Art. XXIX of Master
CBA)
Seven year term.
Five year term.
•
Alternative Schedules (See
Memorandum of
Understanding Regarding
Alternative Schedules
attached to Master CBA)
Memorandum of
Understanding Regarding
Job Opportunities
I.
44.
•
Provide a 6 day on / 3 day off
schedule with 10 hour rotating
shifts.
Provide a 5 day on / 2 day off
schedule with 10 hour shifts.
Provide a 6 day on / 3 day off schedule
with 10 hour non-rotating shifts.
Eliminate, but provide 3 of 5 job offers at
underground mines to certified employees
of Hobet and Apogee (operations not
being acquired by Blackhawk), and
provide 3 of 5 job offers at new
underground mines (including Flying
Eagle and Eagle 3).
Eliminate.
The Proposal
In light of the of the fact that the UMWA was not willing to agree to any
consensual modifications of the CBAs necessary to consummate the Blackhawk Transaction,
the Debtors made another proposal (the “Proposal”) to the UMWA on July 10, 2015. With
respect to all facilities proposed to be acquired by Blackhawk, the Proposal stated that the
applicable CBAs must be rejected, and, following the closing of the Transaction, the rights of
Blackhawk and the UMWA would be subject to applicable labor law. The Debtors similarly
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proposed to terminate the CBAs applicable to the facilities that are not proposed to be acquired
by Blackhawk, and, in addition, proposed market terms and conditions under which the Debtors
were willing to offer employment following rejection of the applicable CBAs.
45.
As set forth more fully on Exhibit B attached to the Motion, the Debtors’
Proposal would, among other things:
•
authorize, but not direct, the Debtors to reject each of their CBAs;
•
solely with respect to the bargaining unit employees of Eastern employed at
the Federal #2 Underground Mine and the Federal #2 Preparation Plant, offer
a new Eastern CBA with certain modifications, including the elimination of
the successorship clause and contributions to the UMWA 1974 Pension Plan,
and an automatic termination of the CBA upon a cessation or sale of the
Debtors’ operations at the Federal assets;
•
solely with respect to bargaining unit employees of Apogee employed at the
Guyan Surface Mine, offer a new Apogee CBA with certain modifications,
including wage reductions, elimination of the successorship clause, and
contributions to the UMWA 1974 Pension Plan, and an automatic termination
of the CBA upon a cessation or sale of the Debtors’ operations in connection
with the Apogee assets;
•
solely with respect to the bargaining unit employees of Hobet employed at the
Beth Station Preparation Plant and the Job #21 Surface Mine, reinstate the
Hobet CBA with certain modifications, including wage reductions,
elimination of the successorship clause, and contributions to the UMWA 1974
Pension Plan, and an automatic termination of the CBA upon a cessation or
sale of the Debtors’ operations in connection with the Hobet assets; and
•
eliminate all future contributions or obligations under the Coal Act and any
obligations to pay for or administer any retiree healthcare benefits for the
Alcoa Assumed Retirees and/or the Peabody Assumed Retirees.
46.
The UMWA has rejected the Proposal without offering any counterproposal.
47.
Although I, along with certain of the Debtors’ other representatives, have worked
tirelessly to broker a deal with the UMWA on terms that would satisfy the conditions of the
Blackhawk APA, a deal has not come together and the Debtors cannot simply wait any longer
in hopes of an agreement. Although the Debtors have been clear from the very beginning of
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negotiations with the UMWA that Blackhawk would not accept any agreement that required
contributions to the UMWA 1974 Pension Plan, the UMWA has refused to compromise on this
point—even when faced with the very real risk that the Debtors could liquidate, and all of their
union employees could lose their jobs, if the sale to Blackhawk is not consummated.
The Debtors Supplied Relevant Information to the UMWA in a Timely Fashion
48.
Throughout this process, the Debtors understood the need to share information
with the UMWA, to develop tailored and reasonable proposals for modifications to the CBAs
and retiree health benefits, and to engage with frequent dialogue with the UMWA.
49.
During these chapter 11 cases, the Debtors have provided a significant amount of
data to enable the UMWA to evaluate their proposals. To that end, the Debtors and the UMWA
entered into a stipulated protective order (See Docket No. 232) to govern the sharing of
confidential data, and the Debtors set up a web-based data room to facilitate information sharing
on a confidential basis.
The Debtors made the data room available to the UMWA on
May 19, 2015. The information the Debtors made available to the UMWA includes information
concerning, among other things, the Debtors’ liquidity, capital expenditures, general business
information, such as coal supply agreements and coal transportation agreements, environmental
obligations, pre- and post-petition debt, and healthcare benefit plans and other employee
obligations.
The UMWA Has Rejected the Debtors’ Proposals Without Good Cause
50.
The UMWA refused to accept the Debtors’ proposals and such refusal was
without “good cause.” During the negotiations between the Debtors and the UMWA, the
Debtors shared data and delivered six different proposals to the UMWA proposing consensual
modifications necessary to satisfy conditions under the Blackhawk APA (plus the additional
Proposal), most of which were specifically tailored to address the UMWA’s stated concerns,
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and each of which were rejected by the UMWA. Most importantly, Blackhawk has been clear
from the beginning of these chapter 11 cases it was not willing to accept successorship liability
or participation in the UMWA 1974 Pension Plan (and reasonably so), and the Debtors have, in
turn, repeatedly expressed this position in each of its meetings, e-mails, and conference calls
with the UMWA. The UMWA Counterproposal simply refused to concede with respect to
several key conditions of the Blackhawk Transaction and the Debtors—concessions that are not
only fair and equitable given the alternative of a wholesale liquidation and no jobs, but that are
ultimately required by Blackhawk as a condition to consummation of the Blackhawk APA.
Insisting that Blackhawk agree to assume a CBA that includes participation in the UMWA 1974
Pension Plan places a demand on the Debtors that is beyond their control and that is impossible
for them to satisfy.
51.
Similarly, the UMWA has rejected the Proposal regarding the Remaining Assets,
at first insisting that the UMWA won’t bargain over the terms and conditions of any CBAs that
don’t cover the assets Blackhawk seeks to acquire. After the negotiations with the UMWA
stalled following the delivery of the six proposals, and after the Debtors delivered the Proposal,
the UMWA simply told the Debtors that there was nothing to discuss—again, despite the fact
that certain of these CBAs cover operations long dormant or sold, and that concessions for the
Debtors’ other CBA was necessary to both run the Hobet assets profitably and maximize the
chances for the Debtors to sell the Hobet assets.
The Debtors’ Need to Reject the CBAs
52.
The Debtors need to reject their CBAs because: (a) certain of their CBAs cover
operations that have shut down and do not utilize any employees; (b) certain of their CBAs
cover operations to be sold to Blackhawk; and (c) one of their CBAs covers operations that
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cannot be conducted profitably absent rejection of the CBA and implementation of the Debtors’
Proposal.
53.
First, as noted in the Motion, for five of the eight Master CBAs and the Highland
CBA, the Debtors have no active operations and no remaining employees and cannot be in a
position where the Debtors are deemed to have assumed these CBAs through operation of law.
The Debtors must effectuate a complete withdrawal from their UMWA 1974 Pension Plan prior
to exiting chapter 11 or else each of the Debtors could be burdened by significant
post-bankruptcy expenses on a joint-and-several basis—expenses that could potentially wipe
out any ability for the Debtors to pay the obligations of their liquidating estate (e.g.,
administrative and priority claims, reclamation obligations, and plan distributions) and render
them administratively insolvent. To the best of my knowledge, the Debtors can effectuate a
complete withdrawal from their UMWA 1974 Pension Plan prior to exiting chapter 11 in only
two ways: (a) rejecting their CBAs or otherwise modifying them to completely eliminate the
Debtors’ obligations to contribute to the UMWA 1974 Pension Plan, which the Debtors are
seeking through the Motion; or (b) terminating all of their employees and ceasing all of their
operations, which the Debtors and their estates would prefer not to have to do.
54.
In addition, I do not believe the Debtors will be able to sell their Federal, Apogee,
and Hobet assets absent implementation of the Proposal on account of, in particular, the
obligations associated with the UMWA 1974 Pension Plan. I also believe that including
successorship provisions in the new CBAs for the Federal, Apogee, and Hobet assets will make
those assets unattractive to potential purchasers and therefore make it more difficult if not
impossible to sell those assets.
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Second, two of the remaining three Master CBAs are with Debtors who own
assets that are to be acquired by Blackhawk—specifically, the Master CBAs with Eastern and
Apogee. The Gateway CBA covers both operations to be acquired by Blackhawk and other
groups of assets that have been shut down and have no employees. The Debtors need to reject
the Eastern, Apogee, and Gateway CBAs because, in addition to the administrative liabilities
noted above, rejection is required under the Blackhawk Transaction. In addition, the Debtors
must reject the Gateway CBA because after the Transaction closes, all facilities operated by
Gateway employees will have been either sold or shut down, and Gateway will have no need for
employees, nor can the Debtors expose their liquidating estate to administrative claims or
pension withdrawal liability claims by failing to reject the Gateway CBA.
56.
Third, the Eastern and Apogee CBAs also cover certain assets that are not being
acquired by Blackhawk—and the Debtors have made good faith proposals with respect to
replacement terms and conditions for those assets and operations following rejection of the
CBAs, which the UMWA has rejected without good cause. Specifically, the Debtors have
proposed, among other things, terminating the UMWA 1974 Pension Plan contributions
requirements, but the UMWA has refused to accept such change. The Debtors do not believe
they will be able to sell their Federal and Apogee assets absent implementation of the Proposal.
57.
Finally, the Debtors need to reject the Hobet CBA because the Debtors operate
Hobet at significantly above-market costs and the Debtors are simply unable to operate their
Hobet operations in a competitive manner if the Debtors cannot achieve the savings set forth in
their Proposal. With such modifications, the Debtors could operate Hobet at a cost more in line
with the market, helping to fund administrative obligations of the Debtors’ liquidating estate as
well as providing jobs and benefits to over 160 families in the Debtors’ communities. As
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previously noted, the Debtors’ pay their union-represented employees at higher rates (up to 41%
at surface mines and up to 30% at underground mines) than non-union employees as compared
to their non-union employees.
58.
In addition, non-union wage rates have declined in recent years as coal companies
have had to cut costs and as there has generally been a drop in demand for coal mining
employees. For example, the Debtors’ non-union wage rates at their Samples mine have fallen
an average of approximately 7.5% per hour since the conclusion of the 2012–13 Restructuring.
Union wage rates at the Debtors’ Hobet mine, however, have continued to increase in
accordance with the terms of the Debtors’ CBAs. Presently, non-union employees at the
Samples mine earn approximately $5.45 less per hour, on average, than their union counterparts
at Hobet. If not corrected, this imbalance will likely continue to increase in light of the weak
job market and the mandatory rate increases provided by the Hobet CBA.
59.
This imbalance in wage expenses has severely crippled Hobet’s cash flow, and
Hobet can no longer continue to operate profitably as a result. At the same time, the Debtors
are liquidating and their estates will need every dollar available to help fund the Debtors’
liabilities post-confirmation. I understand that the Debtors may have significant liabilities
associated with their liquidating estate at the conclusion of these chapter 11 cases. By bringing
Hobet’s expenses closer to market now, the Debtors will have additional funds to make required
distributions under the Bankruptcy Code and ensure a successful chapter 11 process.
60.
Similarly, as with each of the Debtors’ other CBAs, the Debtors need to reject the
Hobet CBA so that: (a) the Debtors may maximize their chances of selling the Hobet assets for
the benefit of their estates; (b) the Debtors are not deemed to have assumed these CBAs through
operation of law; (c) they may avoid exposing the Debtors’ remaining liquidating estate to
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administrative claims; and (d) they may effectuate a complete withdrawal under the UMWA
1974 Pension Plan.
61.
For all of the above reasons, I respectfully submit that: (a) the relief requested in
the Motion is necessary to the reorganization of the Debtors and in the best interests of their
estates, creditors, and all parties in interest; (b) the Debtors have met their obligation to
negotiate with the UMWA in good faith; (c) each of the Debtors’ proposals were based on the
most complete and reliable information at the time they were made; and (d) that the UMWA has
rejected the Proposal without good cause.
62.
I declare under penalty of perjury that the foregoing is true and correct to the best
of my knowledge and belief.
Respectfully submitted,
Dated: July 16, 2015
/s/ Dale F. Lucha
Dale F. Lucha
Vice President, Human Resources of Patriot
Coal Services, LLC
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Exhibit 1
First Proposal
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PROPOSED CHANGES TO 2013 COAL WAGE AGREEMENTS
BETWEEN THE
UNITED MINE WORKERS OF AMERICA
AND
HERITAGE COAL COMPANY, LLC
EASTERN ASSOCIATED COAL, LLC
APOGEE COAL COMPANY, LLC
HOBET MINING, LLC
COLONY BAY COAL COMPANY
MOUNTAIN VIEW COAL COMPANY, LLC
RIVERS EDGE COAL COMPANY, INC
HIGHLAND MINING, LLC
PINE RIDGE COAL COMPANY, LLC
GATEWAY EAGLE COAL COMPANY, LLC
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Terminate contracts of Heritage Coal Company, Colony Bay Coal Company, Mountain View
Coal Company, Rivers Edge Coal Company and Pine Ridge Coal Company
The operations/assets of these companies have been sold or permanently closed, and they
have no employees.
The following changes are proposed to the labor agreement for each remaining signatory
company.
Article I – Enabling Clause
Eliminate successorship provision
Article II – Job Opportunity and Benefit Security (JOBS)
Eliminate
Article IX – Allowances
Maintain the number of Personal and Sick Leave days during a calendar year at the
current 2015 level
Article X - Wage Increase
Eliminate wage increase for 2016-2018
Article XII – Holidays
Maintain the number of holidays at current the current 2015 level
Article XIII – Regular Vacation
Maintain the number of Floating Vacation Days during a calendar year at the current
2015 level
Article XIV – Graduated Vacation
Limit the maximum number of Graduated Vacation Days during a calendar year to five
(5)
Article XX – Health, Retirement and Other Benefits
1 – Terminate participation in 1974 Pension Plan and Trust
2 – Terminate requirement to fund the Patriot Retirees’ VEBA if (i) the CARE Act or
similar legislation is enacted that provides funding for participants in the VEBA, or (ii)
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with respect to any mine or facility or coal reserves sold or otherwise conveyed to an
unrelated third party.
3 -Terminate requirement to contribute 3% of wages into USP for 2012 NIMS
4 - Provide a Health Care Plan that conforms to the Company’s Salaried and NonUnion Health Care Plan (HSA Plan), including monthly medical premiums
Article XXIII – Settlement of Disputes
Eliminate all grievances filed but not resolved prior to the effective date of a new contract
Article XXIX – Ratification and Termination of This Agreement
Term of the agreement shall be six years
Memorandum of Understanding Regarding Job Opportunities
Eliminate
Appendix A – Wage Rates
1- Reduce Wage Rates to the level of Patriot’s non-union hourly rates
2- Terminate Wage Reopener
Memorandum of Understanding Regarding Alternative Schedules
Incorporate an additional Alternative Schedule of 5 days-on / 2 days-off, 10 hour shifts
Memorandum of Understanding between the UMWA and Patriot Coal Company, on
behalf of itself and the Signatory Companies
Terminate the August 26, 2013 Memorandum of Understanding (Master MOU), and
replace with a new Memorandum of Understanding, as may be necessary and
appropriate.
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Exhibit 2
Second Proposal
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June 5, 2015
SECOND PROPOSAL OF CHANGES TO 2013 COAL WAGE AGREEMENTS
BETWEEN THE
UNITED MINE WORKERS OF AMERICA
AND
HERITAGE COAL COMPANY, LLC
EASTERN ASSOCIATED COAL, LLC
APOGEE COAL COMPANY, LLC
HOBET MINING, LLC
COLONY BAY COAL COMPANY
MOUNTAIN VIEW COAL COMPANY, LLC
RIVERS EDGE COAL COMPANY, INC
HIGHLAND MINING, LLC
PINE RIDGE COAL COMPANY, LLC
GATEWAY EAGLE COAL COMPANY, LLC
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June 5, 2015
SECOND PROPOSAL
I.
Terminate contracts of Heritage Coal Company, Colony Bay Coal Company,
Mountain View Coal Company, Rivers Edge Coal Company, Highland Mining
Company, Pine Ridge Coal Company, Gateway Eagle Coal Company’s Sugar Maple
Mine, and Gateway Eagle Coal Company’s Farley Eagle
The operations/assets of these companies have been permanently closed, and they
have no employees.
II.
The following changes are proposed to the labor agreement for each remaining
signatory company. Articles may vary in the Gateway Agreement.
Article I – Enabling Clause
Retain successorship provision but include language that allows purchaser to sign a new,
agreement that is identical in terms and conditions and all other aspects, but without
language that requires they assume the obligations of the selling Employer
Article IA – Scope and Coverage
Incorporate that the agreement applies only within the geographic boundaries and
coal reserves that constitute each mine
Article II – Job Opportunity and Benefit Security (JOBS)
Eliminate
Article IX – Allowances
Freeze the number of Personal and Sick Leave days during a calendar year to two (2)
during the term of the agreement
Article X - Wage Increase
Eliminate wage increases for years 2016 - 2018
Establish wage reopener to set wages for years 2018 -2021 based on then current market
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June 5, 2015
Article XII – Holidays
No Snap-back of Birthday Holiday in 2016
Article XIII – Regular Vacation
Section (e) – No Change to Regular Vacation days or vacation schedule
Section (d) – Eliminate Floating Vacation Days
Article XIV – Graduated Vacation
Provide five (5) days of Graduated Vacation after five years of service, with no additional
days earned
Article XVII – Seniority
Section (h) – Assure that only the signatory company shall be obligated to panel rights
Article XX – Health, Retirement and Other Benefits
1 - Terminate participation in 1974 Pension Plan and Trust
2 - Provide a contribution of 4% of gross wages into a Union Savings Plan (USP)
3 - Eliminate 3% contribution into USP in lieu of Retiree Health Care
4 - Eliminate 3% contribution into USP in lieu of 1974 Pension participation
5 - No change to Health Care, Dental and Vision Coverage
6 - No change to extended Health Care Coverage
Article XXII – Miscellaneous
Section (i) - Change current attendance control program to limit two (2) unexcused
absences in 180 days or three (3) unexcused absences in 365 days
Section (j) – Eliminate Memorial Days
Article XXIII – Settlement of Disputes
Eliminate all grievances filed but not resolved prior to the effective date of a new contract
Article XXIX – Ratification and Termination of This Agreement
Term of the agreement shall be seven years
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June 5, 2015
Memorandum of Understanding Regarding Job Opportunities
Eliminate
Appendix A – Wage Rates
1- Reduce Underground Wage Rates by $2.00 per hour
2- Reduce Preparation Plan Wage Rates by $2.50 per hour
3- Reduce Surface Mine Wage Rates by $3.00 per hour
Memorandum of Understanding Regarding Alternative Schedules
Incorporate an additional Alternative Schedule of 5 days-on / 2 days-off, 10 hour shifts
Incorporate an additional Alternative Schedule of 6 days-on / 3 days-off, 10 hour shifts
Memorandum of Understanding between the UMWA and Patriot Coal Company, on
behalf of itself and the Signatory Companies
Terminate the August 26, 2013 Memorandum of Understanding (Master MOU)
VEBA Funding Agreement
Eliminate
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Exhibit 3
Third Proposal
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June 12, 2015
THIRD PROPOSAL OF CHANGES TO 2013 COAL WAGE AGREEMENTS
BETWEEN THE
UNITED MINE WORKERS OF AMERICA
AND
HERITAGE COAL COMPANY, LLC
EASTERN ASSOCIATED COAL, LLC
APOGEE COAL COMPANY, LLC
HOBET MINING, LLC
COLONY BAY COAL COMPANY
MOUNTAIN VIEW COAL COMPANY, LLC
RIVERS EDGE COAL COMPANY, INC
HIGHLAND MINING, LLC
PINE RIDGE COAL COMPANY, LLC
GATEWAY EAGLE COAL COMPANY, LLC
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June 12, 2015
THIRD PROPOSAL
I.
Terminate contracts of Heritage Coal Company, Colony Bay Coal Company,
Mountain View Coal Company, Rivers Edge Coal Company, Highland Mining
Company, Pine Ridge Coal Company, Gateway Eagle Coal Company’s Sugar Maple
Mine, and Gateway Eagle Coal Company’s Farley Eagle Mine
The operations/assets of these companies have been permanently closed, and they
have no employees
II.
The following changes are proposed to the labor agreement for each remaining
signatory company. Article and section numbers refer to 2013 Coal Wage
Agreements and may vary in the 2013 Gateway Collective Bargaining Agreement
Article I – Enabling Clause
Retain successorship provision in a new contract but include language that allows
purchaser, at its sole option, to sign a new contract that is substantially similar in terms
and conditions to the 2013 Gateway Collective Bargaining Agreement as modified by
this proposal, with language that makes clear the purchaser is not assuming or bound by
any obligations of the selling Employer, including any of the selling Employer’s labor
agreement obligations
Article IA – Scope and Coverage
Agreement applies only within the geographic boundaries and coal reserves that
constitute each mine as defined by the mining permit
Article II – Job Opportunity and Benefit Security (JOBS)
Eliminate
Article IX – Allowances
Establish the number of Personal and Sick Leave days during a calendar year at two (2)
during the term of the agreement
Article X - Wage Increase
Provide $0.25 per hour wage increase on July 1, 2017, July 1, 2019, and July 1, 2021
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Article XII – Holidays
Maintain holidays at eight per year, but parties may jointly agree to make the employee’s
birthday a holiday that replaces either Memorial Day or Labor Day
Article XIII – Regular Vacation
Section (e) – No Change to Regular Vacation days or vacation schedule
Section (d) – Eliminate Floating Vacation Days
Article XIV – Graduated Vacation
Provide five (5) days of Graduated Vacation to be used as Paid Time Off or to be paid in
lieu of time off (employee’s choice) to employees with five years of seniority at the
operation (not five years with the purchaser’s company), with no additional days earned
Article XVII – Seniority
Section (h) – Provide “Mother Mine” recall rights to Employees who are laid off from an
operation by the purchaser
Fill three (3) of five (5) new openings at Rocklick Plant, Fanco Plant and Loadout, Wells
Plant, Black Oak Mine, Gateway Eagle Mine and CC10 Mine by providing panel rights
at and among those facilities so long as they are owned by the purchaser or an affiliate of
the purchaser
Patriot’s subsidiaries will honor the panel rights of any Employee who is currently on a
panel and eligible for recall to a Patriot subsidiary even if the mining operation where the
Employee is employed is sold or otherwise conveyed to an unrelated third party, so long
as such Patriot subsidiary remains owned by or affiliated with Patriot.
Article XX – Health, Retirement and Other Benefits
1 - Terminate participation in 1974 Pension Plan and Trust
2 - Provide a contribution of 4% of gross wages into a 401(k) type savings plan
3 - Eliminate 3% contribution into USP in lieu of Retiree Health Care
4 - Eliminate 3% contribution into USP in lieu of 1974 Pension participation
5 - No change to Health Care, Dental and Vision Coverage
6 - No change to extended Health Care Coverage
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June 12, 2015
Article XXII – Miscellaneous
Section (i) - Maintain current attendance control program
Section (j) – Eliminate Memorial Days
Article XXIII – Settlement of Disputes
Grievances filed prior to or arising during the Employer’s ownership or operation of the
mine remain with the Employer, and do not become the responsibility of a new owner of
the operation
Article XXIX – Ratification and Termination of This Agreement
Term of the agreement shall be seven years
Memorandum of Understanding Regarding Job Opportunities
Eliminate
Appendix A – Wage Rates
1- Reduce Underground Wage Rates by $1.50 per hour
2- Reduce Preparation Plan Wage Rates by $2.00 per hour
3- Reduce Surface Mine Wage Rates by $3.00 per hour
Memorandum of Understanding Regarding Alternative Schedules
Incorporate an additional Alternative Schedule of 6 days-on / 3 days-off, 10 hour rotating
shifts
Memorandum of Understanding between the UMWA and Patriot Coal Company, on
behalf of itself and the Signatory Companies
Purchaser assumes no obligations under the MOU
VEBA Funding Agreement
Royalty payments of $0.20 per ton will be made to the VEBA on all clean tons processed
through Rocklick Plant and Wells Plant through December 31, 2018, unless there is
legislation that provides other funding sources to the VEBA.
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Exhibit 4
Fourth Proposal
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From: "Lucha, Dale" <[email protected]>
Date: June 14, 2015 at 1:16:49 PM EDT
To: Cecil Roberts <[email protected]>
Cc: "Bennett, Bob" <[email protected]>, "Woodrum, John"
<[email protected]>
Subject: 4th Proposal
June 14, 2015
Fourth Proposal
Cecil,
This email is a general summary of the phone conversation we had yesterday regarding the status
of our ongoing negotiations for a consensual labor agreement. Relative to the company’s Third
Proposal of Changes to 2013 Coal Wage Agreements which we provided to the union on June
12th, Blackhawk has confirmed to Patriot that it is willing to provide additional job security and
job opportunities to the represented operations it intends to acquire from Patriot. Accordingly,
Patriot provides the union this Fourth Proposal, which amends its Third Proposal as follows,
subject to defining language:
Scope and Coverage Withdraw the current proposal that the agreement will apply only within the geographic
boundaries and coal reserves that constitute each mine as defined by the mining permit, and
instead recognize the concept that the contract will cover the operation of the coal lands, coal
producing and coal preparation facilities that a new signatory employer acquires from Patriot;
and further agree that the labor contract will apply to any relocation of an existing operation, and
will apply to new operations of the Employer upon the union’s recognition, certification, or
otherwise obtaining bargaining rights.
Provide that the contract will apply to the Flying Eagle underground mine if it opens for coal
production during the term of a new agreement, and that it will apply to other new operations of
acquired coal lands upon the union’s recognition, certification, or otherwise obtaining bargaining
rights during the term of this agreement.
Job Opportunity Provide that three (3) of five (5) new classified job openings at the non-represented Black
Stallion and Eagle 3 underground mines will be offered to current and future laid off panel
members qualified to do the work who were employed at any UMWA-represented mining
operation acquired from a Patriot subsidiary by Blackhawk.
Seniority Provide panel rights at and among the UMWA-represented operations acquired from Patriot
subsidiaries by Blackhawk, including recognition of panel rights for currently laid off employees
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of those operations
Make job offers to senior qualified panel members to fill all new openings at Rocklick Plant,
Fanco Plant and Loadout, Wells Plant, Black Oak Mine, Gateway Eagle Mine and CC10 Mine
that are not filled by the active work force
We also discussed that the reduction of hourly wage rates and scheduled hourly wage rate
increases, and the amount of paid time off (i.e. Floating Vacation Days, Graduated Vacation
Days and Personal and Sick Leave Days) are critical concerns of Blackhawk. I request that you
consider the economics of the operations to be acquired and that those operations, which are for
the second time in bankruptcy status, have production costs that exceed selling prices, and as
such are operating at a loss. Blackhawk needs to run these operations profitably, which will
require a reduction in labor cost and an increase in production and efficiency that can be aided by
increased attendance.
The Memorial Days the Union has scheduled at Patriot operations for Tuesday and Wednesday
will not only cause our employees and your members to lose two days of income, it will cause
economic hardship to Patriot at a time when income is critical for the payment of wages,
providing of benefits, and procurement of safety and operating materials and supplies. I trust
that you recognize Patriot is working with the Union in good faith to achieve the best possible
results for both parties in our contract negotiations. UMWA closure of the mines next week will,
of course, have no adverse financial impact on a potential purchaser, but will damage Patriot’s
ability to maintain cash flow during this critical period. By addressing the union’s requests for
job security and job opportunities, I hope the observance the Memorial Days may be avoided.
Thanks for your prompt consideration of this proposal. We would appreciate a quick response.
Dale
_____________________________________________________________________________
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Exhibit 5
Fifth Proposal
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FIFTH PROPOSAL OF CHANGES TO 2013 COAL WAGE AGREEMENTS
BETWEEN THE
UNITED MINE WORKERS OF AMERICA
AND
HERITAGE COAL COMPANY, LLC
EASTERN ASSOCIATED COAL, LLC
APOGEE COAL COMPANY, LLC
HOBET MINING, LLC
COLONY BAY COAL COMPANY
MOUNTAIN VIEW COAL COMPANY, LLC
RIVERS EDGE COAL COMPANY, INC
HIGHLAND MINING, LLC
PINE RIDGE COAL COMPANY, LLC
GATEWAY EAGLE COAL COMPANY, LLC
June 22, 2015
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FIFTH PROPOSAL
The following changes are proposed to the labor agreements that cover Black Oak
mine, Gateway Eagle mine, CC10 mine, Rocklick Plant, Wells Plant, and Fanco Plant
and Loadout. Article and section numbers refer to 2013 Coal Wage Agreements and
may vary between the 2013 Coal Wage Agreement and the 2013 Gateway Collective
Bargaining Agreement
Article I – Enabling Clause
Retain successorship provision in new contract but make it clear that Blackhawk does not
assume the obligations of Patriot and that Blackhawk is not bound by any
obligations of the selling Employer, including any of the selling Employer’s labor
agreement obligations
Article IA – Scope and Coverage
The Valley (“Valley”) means coal lands being acquired by Blackhawk or a Blackhawk
subsidiary that are currently controlled or owned by Eastern Associated Coal, LLC or
another Patriot owned signatory entity and assigned to the Rocklick Plant or Wells Plant,
and other coal lands controlled or owned by non-signatory Patriot subsidiaries which are
assigned to the Rocklick Plant and Wells Plant, and also means the Fanco Preparation
Plant and Loadout. A specific list of coal lands that comprise the Valley will be provided
by Blackhawk.
New contracts will cover these represented Valley Operations upon their acquisition by
Blackhawk subsidiaries:
Black Oak Mine
Gateway Eagle Mine
CC10 Mine
Rocklick Plant
Wells Plant
Fanco Plant
The new Agreement will cover Flying Eagle Underground Mine when it opens for coal
production, and will cover any relocation of an existing operation, and will cover new
operations in the Valley opened on coal lands acquired from Patriot or a Patriot
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subsidiary upon the union’s recognition, certification, or otherwise obtaining bargaining
rights.
Article II – Job Opportunity and Benefit Security (JOBS)
Three (3) of five (5) new job openings at the current non-represented mining operations
of Black Stallion and Eagle 3, and at all new underground non-represented mining
operations in the Valley which are opened on coal lands acquired by Blackhawk or a
Blackhawk subsidiary from a Patriot subsidiary, will be offered to qualified laid-off
miners on the panels of:
Black Oak Mine
Gateway Eagle Mine
CC10 Mine
Wells Plant
Rocklick Plant
Fanco Plant
If new openings at underground mines and preparation plants are not filled by job offers
to panel members as listed above, then the senior laid-off miners on the panels of Apogee
Coal Company LLC and Hobet Mining LLC who are certified, if required, and qualified
to step in and perform the work of the job will be offered be offered three (3) of five (5)
new openings at all non-represented underground mines in the Valley.
Leasing, subleasing, or licensing out of coal lands or operations in the Valley shall be
permitted where the lessee-licensee agrees in writing that all offers of employment shall
first be made in accordance with paragraph 6 and paragraph 7 above. In the event a
lessee-licensee has an existing UMWA panel obligation, it shall first recognize such
obligation.
Article IX – Allowances
Provide three (3) Personal and Sick Leave days per calendar year during the term of the
contract
Article X - Wage Increase
If the quarterly met coal benchmark index reaches $150 any time during 2016, then a
$0.50 per hour raise will be provided at the beginning of the following quarter. If the
quarterly met coal benchmark index is maintained or reaches $120 any time during 2017,
then a $0.50 raise will be provided at the beginning of the following quarter. A
guaranteed $0.50 per hour increase will be provided annually during the term of the
agreement beginning on January 1, 2018.
Article XII – Holidays
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Maintain holidays at eight per year
Article XIII – Regular Vacation
Section (e) – No Change to Regular Vacation days or vacation schedule
Section (d) – Provide two (2) Floating Vacation Days per calendar year during the term
of the contract
Article XIV – Graduated Vacation
Employees may take up to five (5) earned Graduated Vacation Days as leave time and
will be paid for up to nine (9) additional days for which the employee may be eligible
Article XVII – Seniority
Panel rights for all new job openings will exist at and among represented underground
and preparation plant operations in the Valley. Blackhawk represented subsidiaries will
recognize the panel rights of laid-off miners who are properly paneled to underground
mines and preparation plants in the Valley prior to a change of ownership and will
recognize the panel rights of miners who properly panel to underground mines and
preparation plants in the Valley if laid-off after a change of ownership from a Patriot
subsidiary to a Blackhawk subsidiary.
If new openings at underground mines and preparation plants are not filled by job offers
made in accordance with the paragraph above, then the senior laid-off miners on the
panels of Apogee Coal Company LLC and Hobet Mining LLC who are certified, if
required, and qualified to step in and perform the work of the job will be offered all new
openings at represented operations in The Valley.
Article XX – Health, Retirement and Other Benefits
1 - Terminate participation in 1974 Pension Plan and Trust
2 - Provide an Employer contribution into a 401(k) type savings plan on the following
basis:
If Employee
Contributes
Then Employer Will
Contribute
Total of Employee
and Employer
Contributions
1%
2%
3%
2%
4%
6%
3%
6%
9%
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3 - Eliminate 3% contribution into USP in lieu of Retiree Health Care
4 - Eliminate 3% contribution into USP in lieu of 1974 Pension participation
5 - No change to Health Care, Dental and Vision Coverage. Blackhawk will have its own
UMWA Health Care, Dental and Vision plans in place at the time of acquisition. Copays, deductibles, maximum out of pocket expenses and other applicable allowances or
requirements of the Health Care plan will transition at the time of the change of control
without interruption. As an example, if an employee has an annual $250 deductible and
has paid $200 of the deductible requirement prior to moving to Blackhawk’s Health Care
plan, he will be required to pay only $50 during the balance of 2015
6 - No change to extended Health Care Coverage
Article XXII – Miscellaneous
Section (i) - Maintain current attendance control program
Section (j) – Provide ten (10) Memorial Days that may be observed during the term of the
new contract if the reason for the observance is national in scope and if the observance
applies to signatory operations located in West Virginia and Pennsylvania controlled by
signatory of employers whose contract contains Memorial Day provisions as well as to
Blackhawk’s signatory operations.
Article XXIII – Settlement of Disputes
Blackhawk subsidiaries will honor non-monetary grievance settlements for grievances
filed before the effective date of the Asset Purchase Agreement (APA).
Article XXIX – Ratification and Termination of This Agreement
The agreement shall terminate on December 31, 2022.
Memorandum of Understanding Regarding Job Opportunities
Eliminate the JOBS MOU. The job opportunities will be provided in Article II
Appendix A – Wage Rates
1- Reduce Underground Wage Rates by $1.50 per hour, with the exception of
Underground Rate 5.
2- Reduce Preparation Plan Wage Rates by $1.50 per hour
Memorandum of Understanding Regarding Alternative Schedules
Incorporate an additional Alternative Schedule of 6 days-on / 3 days-off, 10 hour shifts
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Memorandum of Understanding between the UMWA and Patriot Coal Company, on
behalf of itself and the Signatory Companies
Purchaser assumes no obligations under the MOU. Company will recognize this contract
at Flying Eagle underground mine when it opens for coal production, and will recognize
this contract at any operations where the union gains recognition, certification, or
otherwise obtains bargaining rights.
VEBA Funding
Royalty payments of $0.20 per ton will be made to a trust which will then convey the
payments to the VEBA on all clean tons processed through Rocklick Plant and Wells
Plant through December 31, 2018, and on clean tons produced from Stanley Fork mine
and Buffalo Mountain mine if processed through a Valley preparation plant, including
Fanco, prior to December 31, 2018, unless there is legislation that provides other funding
sources to the VEBA, at which time the obligation to make royalty payments will cease.
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Exhibit 6
Sixth Proposal
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SIXTH PROPOSAL OF CHANGES TO 2013 COAL WAGE AGREEMENTS
BETWEEN THE
UNITED MINE WORKERS OF AMERICA
AND
HERITAGE COAL COMPANY, LLC
EASTERN ASSOCIATED COAL, LLC
APOGEE COAL COMPANY, LLC
HOBET MINING, LLC
COLONY BAY COAL COMPANY
MOUNTAIN VIEW COAL COMPANY, LLC
RIVERS EDGE COAL COMPANY, INC
HIGHLAND MINING, LLC
PINE RIDGE COAL COMPANY, LLC
GATEWAY EAGLE COAL COMPANY, LLC
June 22, 2015
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SIXTH PROPOSAL
The following changes are proposed to the labor agreements that cover Black Oak
mine, Gateway Eagle mine, CC10 mine, Rocklick Plant, Wells Plant, and Fanco Plant
and Loadout. Article and section numbers refer to 2013 Coal Wage Agreements and
may vary between the 2013 Coal Wage Agreement and the 2013 Gateway Collective
Bargaining Agreement
Article I – Enabling Clause
Retain successorship provision in new contract but make it clear that Blackhawk does not
assume the obligations of Patriot and that Blackhawk is not bound by any obligations of
the selling Employer, including any of the selling Employer’s labor agreement
obligations
Article IA – Scope and Coverage
The Valley (“Valley”) means coal lands being acquired by Blackhawk or a Blackhawk
subsidiary that are currently controlled or owned by Eastern Associated Coal, LLC or
another Patriot owned signatory entity and assigned to the Rocklick Plant or Wells Plant,
and other coal lands controlled or owned by non-signatory Patriot subsidiaries which are
assigned to the Rocklick Plant and Wells Plant, and also means the Fanco Preparation
Plant and Loadout. A specific list of coal lands that comprise the Valley will be provided
by Blackhawk.
New contracts will cover these represented Valley Operations upon their acquisition by
Blackhawk subsidiaries:
Black Oak Mine
Gateway Eagle Mine
CC10 Mine
Rocklick Plant
Wells Plant
Fanco Plant
The new Agreement will cover Flying Eagle Underground Mine when it opens for coal
production, and will cover any relocation of an existing operation, and will cover new
operations in the Valley opened on coal lands acquired from Patriot or a Patriot
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subsidiary upon the union’s recognition, certification, or otherwise obtaining bargaining
rights.
Article II – Job Opportunity and Benefit Security (JOBS)
Three (3) of five (5) new job openings at the current non-represented underground
mining operations of Black Stallion and Eagle 3, and at all new underground nonrepresented mining operations in the Valley which are opened on coal lands acquired by
Blackhawk or a Blackhawk subsidiary from a Patriot subsidiary, will be offered to
qualified laid-off miners on the panels of:
Black Oak Mine
Gateway Eagle Mine
CC10 Mine
Wells Plant
Rocklick Plant
Fanco Plant
If new openings at underground mines and preparation plants are not filled by job offers
to panel members as listed above, then the senior laid-off miners on the panels of Apogee
Coal Company LLC and Hobet Mining LLC who are certified, if required, and qualified
to step in and perform the work of the job will be offered be offered three (3) of five (5)
new openings at all non-represented underground mines in the Valley.
Leasing, subleasing, or licensing out of coal lands or operations in the Valley shall be
permitted where the lessee-licensee agrees in writing that all offers of employment shall
first be made in qualified, certified panel members, as defined in Article XVII of this
proposal, who have the ability to step in and perform the work of the job. In the event a
lessee-licensee has an existing UMWA panel obligation, it shall first recognize such
obligation.
Article IX – Allowances
Provide three (3) Personal and Sick Leave days per calendar year during the term of the
contract
Article X - Wage Increase
If the quarterly met coal benchmark index reaches $150 any time during 2016, then a
$0.65 per hour raise will be provided at the beginning of the following quarter. If the
quarterly met coal benchmark index is $120 any time during 2017, then a $0.65 raise will
be provided at the beginning of the following quarter. A guaranteed $0.65 per hour
increase will be provided annually during the term of the agreement beginning on
January 1, 2018.
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Article XII – Holidays
Maintain holidays at eight per year
Article XIII – Regular Vacation
Section (e) – No Change to Regular Vacation days or vacation schedule
Section (d) – Provide two (2) Floating Vacation Days per calendar year during the term
of the contract
Article XIV – Graduated Vacation
Employees may take up to five (5) earned Graduated Vacation Days as leave time and
will be paid for up to nine (9) additional days for which the employee may be eligible
Article XVII – Seniority
Panel rights for all new job openings will exist at and among represented underground
and preparation plant operations in the Valley. Blackhawk represented subsidiaries will
recognize the panel rights of laid-off miners who are properly paneled to underground
mines and preparation plants in the Valley prior to a change of ownership and will
recognize the panel rights of miners who properly panel to underground mines and
preparation plants in the Valley if laid-off after a change of ownership from a Patriot
subsidiary to a Blackhawk subsidiary.
If new openings at underground mines and preparation plants are not filled by job offers
made in accordance with the paragraph above, then the senior laid-off miners on the
panels of Apogee Coal Company LLC and Hobet Mining LLC who are certified, if
required, and qualified to step in and perform the work of the job will be offered all new
openings at represented operations in The Valley.
Article XX – Health, Retirement and Other Benefits
1 - Terminate participation in 1974 Pension Plan and Trust
2 - Provide an Employer contribution into a 401(k) type savings plan on the following
basis:
If Employee
Contributes
Then Employer Will
Contribute
Total of Employee
and Employer
Contributions
0%
1%
2%
3%
3%
4%
5%
6%
3%
5%
7%
9%
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3 - Eliminate 3% contribution into USP in lieu of Retiree Health Care
4 - Eliminate 3% contribution into USP in lieu of 1974 Pension participation
5 - No change to Health Care, Dental and Vision Coverage. Blackhawk will have its own
UMWA Health Care, Dental and Vision plans in place at the time of acquisition. Copays, deductibles, maximum out of pocket expenses and other applicable allowances or
requirements of the Health Care plan will transition at the time of the change of control
without interruption. As an example, if an employee has an annual $250 deductible and
has paid $200 of the deductible requirement prior to moving to Blackhawk’s Health Care
plan, he will be required to pay only $50 during the balance of 2015
6 - No change to extended Health Care Coverage
Article XXII – Miscellaneous
Section (i) - Maintain current attendance control program
Section (j) – Provide ten (10) Memorial Days that may be observed during the term of the
new contract if the reason for the observance is national in scope and if the observance
also applies to signatory operations located in West Virginia and Pennsylvania which are
controlled by signatory of employers other than Blackhawk whose contracts contains
Memorial Day provisions.
Article XXIII – Settlement of Disputes
Blackhawk subsidiaries will honor non-monetary grievance settlements for grievances
filed before the effective date of the Asset Purchase Agreement (APA).
Article XXIX – Ratification and Termination of This Agreement
The agreement shall terminate on December 31, 2020.
Memorandum of Understanding Regarding Job Opportunities
Eliminate the JOBS MOU. The job opportunities will be provided in Article II
Appendix A – Wage Rates
1- Reduce Underground Wage Rates by $1.25per hour, with the exception of
Underground Rate 5.
2- Reduce Preparation Plan Wage Rates by $1.25 per hour
Memorandum of Understanding Regarding Alternative Schedules
Incorporate an additional Alternative Schedule of 6 days-on / 3 days-off, 10 hour shifts
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Memorandum of Understanding between the UMWA and Patriot Coal Company, on
behalf of itself and the Signatory Companies
Purchaser assumes no obligations under the MOU. Company will recognize this contract
at Flying Eagle underground mine when it opens for coal production, and will recognize
this contract at any operation where the union gains recognition, certification, or
otherwise obtains bargaining rights.
VEBA Funding
A royalty of $0.20 per ton will be paid on clean tons produced from coal lands and
operations acquired in this transaction from Patriot or a Patriot subsidiary if processed
through a Valley preparation plant, including Fanco, prior to December 31, 2018; unless
there is legislation that provides other funding sources to the VEBA, at which time the
obligation to make royalty payments will cease. The payments will be made to a trust
which will then convey the royalty payment to the VEBA.
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