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Monday, July 16, 2012

Patriot Coal is latest spinoff to run into trouble

Patriot Coal is latest spinoff to run into trouble

When Patriot Coal gained its independence in late 2007, executives' slogan was “right team, right assets, right time, right plan."
How wrong they were.
While it seemed like a great time to be in the coal business – energy prices were soaring, and China's demand for coal seemed insatiable – the euphoria wouldn't last long. A worldwide recession soon sent coal prices plummeting.
As for Patriot's assets, they were high-cost mines in Appalachia that would be losing money by 2010. Patriot's plan, which was to buy more such mines, would make things worse.
Last week, the company that was launched with such high hopes found itself in bankruptcy court, needing to restructure debts to survive.
Patriot's former parent company, Peabody Energy, will be more than an interested spectator during the case. Peabody has already disclosed that it may be responsible for payments to a fund for black lung disease victims “should Patriot not fund these obligations as they come due.”
Lawyers may look for other ways to tap Peabody's deep pockets. When a spun-off company fails, creditors often accuse the former parent of fraud, charging that it didn't fully disclose the liabilities it was off-loading on its offspring.
As a result of such actions, Monsanto had to assume environmental liabilities from Solutia, its former chemical subsidiary, and General Motors got stuck with some debts of its old Delphi auto parts business. Creditors of Tronox, a chemical company spun off from Kerr-McGee, are pursuing a suit over environmental liabilities.

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