Peabody says it no longer owes benefits to Patriot retirees

Peabody Energy Corp , the company responsible for creating now-bankrupt Patriot Coal through a 2007 spinoff, on Friday said it has no obligation to fund health and pension benefits for Patriot retirees affected by the company's insolvency.

In court papers in U.S. Bankruptcy Court in St. Louis, Peabody said new labor deals between Patriot and the United Mine Workers of America effectively relieve Peabody of any funding obligations.

In a lawsuit relating to Patriot's bankruptcy, Patriot and Peabody are fighting over the responsibility to fund benefits for a group of about 3,100 retirees that Peabody agreed to continue covering after the October 2007 spinoff.

A judge in May declared that Peabody was relieved of that burden when Patriot abrogated its labor obligations for all employees and retirees earlier this year and negotiated new, cost-saving deals as part of its restructuring in Chapter 11 bankruptcy.

An appeals court last month reversed that ruling, saying the abrogation of labor deals should have exempted the group in question, and that the group's benefits remained the responsibility of Peabody.

But that ruling was "not concerned with, and expressed no opinion on, what effect a new labor agreement would have on Peabody's" obligations, Peabody argued in Friday's filing.

Under the new deal, Peabody's funding obligations, which are tied to the amount of benefits Patriot provides to its workers, disappear, because the deal transfers all benefits to an outside trust, Peabody argued.

The trust is to be funded by some up-front cash and equity in the post-bankruptcy Patriot, but ongoing contributions from Patriot will cease after January 1, 2014.

Peabody's funding obligation should be proportionately reduced, in this case to zero, Peabody argued. It asked the court to confirm the termination of its contractual funding obligation.

In a statement, Peabody blamed the union for "grandstanding," saying it eschewed offers by Peabody to help fund the new benefits trust.

A union spokesman did not respond to a request for comment, while a spokesman for Peabody declined to comment.

Under Patriot's restructuring, retiree benefits will be reduced, while current workers stand to absorb cuts in salary, vacation time and other perks.

That Patriot's miners will sustain much of the pain of the company's collapse has made the case vitriolic, with the union staging myriad protests and rallies before reluctantly agreeing to new deals.

The union has bargained for lifetime healthcare and pension benefits since the 1940s, considering those benefits sacrosanct. But coal companies have become less able to afford them in the face of modernization, a shrinking workforce and the growing prevalence of new sources of energy.

The union, like Patriot, has made efforts to hold Peabody responsible for any benefits Patriot cannot afford to maintain. The union last year sued Peabody saying it designed Patriot to fail by loading it with hefty debt and weak assets, and should remain on the hook for worker benefits.

Peabody has denied the allegations, saying Patriot was "highly successful" in the wake of the spinoff, eventually falling victim to the realities of the energy market.

(Editing by Bob Burgdorfer)