In 2007, it was all smiles as Peabody Energy(BTU) spun off Patriot Coal(PCXCQ). But loaded with debt and retiree health and pension obligations, Patriot filed for bankruptcy in July 2012. Now, Patriot and its creditors, led by the United Mine Workers of America, are investigating whether the spinoff was a fraudulent transfer which might give Peabody back the hot potato it sought to dispose of in 2007. Creditors will point to the large liabilities and claim that Patriot was insolvent from its inception. Peabody will point to five years of operation prior to bankruptcy, to the financial crisis, to the weakness in the coal market, and to decisions by Patriot management.
It is difficult to handicap the likelihood of these claims being successful, but it is something Peabody shareholders should be watching closely.
Disclosure: The author holds no position in any stock mentioned
- Peabody Dispute Patriot Coal Healthcare Claims (dailyfinance.com)
- Patriot, creditors ask for probe of Peabody Energy (stltoday.com)
- 13 arrested at Peabody Energy protest in downtown St. Louis (kmov.com)
- Patriot investigating ‘fraud’ claim involving its creation (courierpress.com)
- UMWA chief blasts Patriot Coal bankruptcy move (miamiherald.com)