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H:\Orders As of 022205\ORDERS\Patriot Coal\12-51502 1113 and 1114 Motions ORDER.Wpd UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION In Re: ) ) PATRIOT COAL CORPORATION, et. al., ) Case No. 12-51502-659 ) Chapter 11 ) Debtors. ) Jointly Administered ) PUBLISHED MEMORANDUM DECISION AND ORDER ON MOTION TO REJECT COLLECTIVE BARGAINING AGREEMENTS AND TO MODIFY RETIREE BENEFITS PURSUANT TO 11 U.S.C. §§ 1113, 1114 OF THE BANKRUPTCY CODE The matter before the Court is the Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code and the UMWA’s Objection to the Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113 and 1114. Also filed were the following objections of other interested parties, whose participation was limited by this Court to I) one 15-page brief or objection, ii) an opening statement, and iii) a closing argument: Statement of the Official Committee of Unsecured Creditors in Connection with the Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code which was withdrawn in part at the time of closing argument,1 Objection to Motion to Reject 1 At closing argument, counsel for the Official Committee of Unsecured Creditors read the following agreement into the record: The Committee, by majority vote of its unconflicted members, has determined to withdraw its objection to the implementation of the Fifth Proposal, based on the following agreements and reservations. The Debtors and the Committee agree that: one, the Committee's advisors received Blackstone's detailed recovery analysis in the last seventy-two hours; two, the Committee's advisors have engaged in detailed discussion with the Debtors' advisors over the last seventy-two hours to more closely reconcile their respective recovery models and the assumptions used to analyze various percentages of equity that are allocable to the UMWA in certain circumstances; three, among the assumptions affecting the allocation of equity to the UMWA are: the probable amount of the UMWA's claims, preliminary estimates of the value distributable to unsecured creditors, the allocation of that value among the various Debtors, the amount of third-party trade and litigation claims against the various Debtors, the likelihood that intercompany claims are allowed or disallowed, and the likelihood of substantive consolidation. The Committee has determined that the Fifth 1114 Proposal allocates to the UMWA approximately thirty-nine percent of the equity value of the reorganized Debtors, comprised of thirty-five percent of the equity, plus Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code filed by The Ohio Valley Coal Company and The Ohio Valley Transloading Company, Objection to Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefit[s] Pursuant to Sections 1113 and 1114 of the Bankruptcy Code filed by Drummond Company, Inc., Objection to Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefit[s] Pursuant to Sections 1113 and 1114 of the Bankruptcy Code filed by Energy West Mining Company, Statement of Bank of America, N.A., as Second Out DIP Agent, With Respect to the Hearing on Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code, Limited Objection of U.S. Bank National Association, as Indenture Trustee, to Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code, Objection of Wilmington Trust Company, as Indenture Trustee, to the Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code, Noteholders’ Objection to Motion to Reject Collective-Bargaining Agreements and to Modify Retiree Benefits royalty and profit-sharing payments, which the Committee values as equal to an additional four percent of the equity. The Committee continues to believe that the Fifth Proposal's allocation of thirty-nine percent of the equity value to the UMWA is high. However, after seventy-two hours of consultation and modeling by the Committee and Debtor[s’] advisory team, the Committee, by a majority vote of its unconflicted members and the Debtors have agreed that, based on the range of assumption[s] shared by Houlihan and Blackstone, even if substantive consolidation is given a zero likelihood and the disallowance of intercompany claims is given a zero likelihood, the Fifth Proposal's allocation of equity to the UMWA is fair and equitable with respect to other creditors. Because the Committee and the Debtors have reached a mutual understanding on the basis of the Fifth Proposal's allocation of equity to the UMWA, the Committee, by a majority vote of its unconflicted members, no longer requests proof of such basis or a second hearing on the implementation on the Fifth Proposal and withdraws that portion of its statement in support that objects to the implementation of that Proposal without proof that it treats creditors fairly and equitably. The Debtor[s] and the Committee agree that the range of assumptions shared by Houlihan and Blackstone is not an admission with respect to any assumption. Neither the Debtors nor the Committee shall be bound by any of the shared assumptions in any future litigation. The Debtors and the Committee agree that the foregoing determination is without prejudice to the rights of any party with respect to substantive consolidation or the allowance of intercompany claims. The Committee has made no determination as to whether substantive consolidation or the allowance of intercompany claims is appropriate or inappropriate.1113/1114 Hr’g Tr. 18:24-21:3, May 3, 2013. -2- Pursuant to 11 U.S.C. §§ 1113 and 1114, Objection to Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefit[s] Pursuant to Sections 1113 and 1114 of the Bankruptcy Code filed by Cliffs Natural Resources Inc. and Sureties’ Reservation of Rights Regarding Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code. In response to the various objections filed by the “other interested parties” as well as the UMWA’s Objection, Debtors filed Omnibus Reply Memorandum of Law in Further Support of the Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 and the UMWA filed UMWA’s Omnibus Reply Memorandum Regarding the Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113 and 1114. Also of note is that on April 2, 2013, as represented in this Court’s April 5, 2013 Order, this Court granted the Motion to Intervene by the United Mine Workers of America 1974 Pension Trust and the United Mine Workers of America 1993 Benefit Plan in large part because of the contents of the 1113 Proposal at that time. Upon counsel’s representation that the 1974 Pension Trust and the 1993 Benefit Plan cannot “independently grant concessions” and must “work with the bargaining parties that created these obligations in the first place,”2 the Court granted Debtors’ oral motion to limit the participation of the 1974 Pension Trust and 1993 Benefit Plan going forward,3 in large part because these parties do not have the ability to negotiate which is an inherent component of Sections 1113 and 1114. Nevertheless, the Court also considers the Objection of the United Mine Workers of America 1974 Pension Trust and the United Mine Workers of America 1993 Benefit Plan to the Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits 2 1113/1114 Hr’g Tr. 169:20-170:2, April 29, 2013. 3 1113/1114 Hr’g Tr. 174:23-175:15, April 29, 2013. By agreement of Debtors and the UMWA, the Declarations, as well as the Deposition Designation of Mr. Dale Stover, witness for the 1974 Pension Trust and 1993 Benefit Plan, as well as the 2012 Retiree Bonus Account Plan, were admitted. -3- Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code as well as the Objection and Joinder of the United Mine Workers of America 2012 Retiree Bonus Account Plan to Objection of the UMWA 1974 and 1993 Plans to Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code. The Court held hearings on this matter which commenced on April 29, 2013 and concluded on May 3, 2013. The matter was taken under submission. In accordance with the ‘30-day from the commencement of the hearing’ constraint imposed by Congress as stated in Section 1113(d)(2), and because of the implicitly intertwined nature of the relief requested pursuant to Sections 1113 and 1114 in Debtors’ Motion to Reject Collective Bargaining Agreements and to Modify Retiree Benefits Pursuant to 11 U.S.C. §§ 1113, 1114 of the Bankruptcy Code (hereinafter the “1113/1114 Motion”), the Court herein rules on the 1113/1114 Motion in its entirety. I. INTRODUCTION On July 9, 2012, Debtor Patriot Coal Corporation and a number of its affiliates (hereinafter collectively “Debtors”) filed Voluntary Petitions for relief under Chapter 11 of the Bankruptcy Code in the Southern District of New York. These Chapter 11 cases are being jointly administered pursuant to Federal Rule of Bankruptcy Procedure 1015(b) as well as the Joint Administration Order entered on July 10, 2012. Debtors are authorized to operate their businesses and manage their properties as Debtors In Possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.
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