Peabody to allow Patriot coal probe of financial advisers

coal firm looks for cash from ex-parent

Bloomberg NewsMay 22, 2013 

Patriot Coal Corp. can get documents from financial advisers Morgan Stanley and Duff & Phelps related to the company's 2007 spinoff after former parent Peabody Energy Corp. withdrew its opposition.

Peabody agreed to allow subpoenas for the documents to go forward, Steven Cousins, a lawyer for the company, told U.S. Bankruptcy Judge Kathy Surratt-States in St. Louis Tuesday. Patriot, seeking to reorganize in Chapter 11, had asked to probe the two financial advisers as part of a larger investigation into whether it can recover money from Peabody and other parties involved in Patriot's creation.

Patriot, which filed for bankruptcy in July, has been beset by protests over its attempt to cut health-care and retirement benefits. In St. Louis on Tuesday, members of the United Mine Workers of America, which represents about 42 percent of Patriot's 4,000 employees, again rallied.

They said they returned to protest as Surratt-States nears a ruling on Patriot's request to eliminate health-care benefits for more than 23,000 retired miners and their families.

Patriot has said it will have to liquidate if it doesn't come up with a way to save another $150 million a year. The UMWA has said money should be recovered from a lawsuit against Peabody and that Patriot hasn't been quick enough to take action against its former parent.

Patriot, based in St. Louis but with operations in Western Kentucky, has alleged the spinoff rid Peabody of $600 million in health-care and environmental liabilities, and may have "constituted an actual or constructive fraudulent transfer" that could lead to the recovery of money to be shared among all its creditors.

Morgan Stanley and Duff & Phelps had both agreed to accept subpoenas. Peabody had objected, saying it wanted to get any documents first so it could preview them for confidentiality and relevance.

"Peabody's attempt to control the investigation into potential claims against itself should be rejected," lawyers for Patriot wrote in court papers.

Morgan Stanley reviewed how Peabody might divest different assets for at least 15 months and issued an analysis of whether the Patriot spinoff was fair to Peabody's stockholders. It also advised Peabody's board on the spinoff, and analyzed the fair market value of Patriot shares to be distributed, Patriot said in court papers.

Duff & Phelps advised Peabody's board on the transaction, estimated the value of assets Peabody included in the spinoff, and gave an opinion on the solvency of those assets. Duff & Phelps later advised Patriot when it bought Magnum Coal Co. in April 2008, Patriot said.

Patriot has said it must cut retiree benefits now or run out of money in early 2014. The company went before Surratt-States April 29 to request approval of a plan to change agreements with unions following 12 rounds of negotiations. The judge is expected to rule by May 29, the UMWA said.

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