ST. LOUIS – Patriot Coal held bright promise at the time of its spinoff from parent company Peabody Energy, or seemed to.
The St. Louis Post-Dispatch’s David Nicklaus writes that when Patriot was formed in 2007, the market for coal was robust. China was ravenously hungry for energy, and coal companies enjoyed high prices for the commodity in the days before the U.S. natural gas boom.
Fracking and the recession put an end to all that, and a warm winter and looming regulation changes are weighing heavily on the market today. Add to that the expensive Appalachian mines Patriot inherited in the spinoff, and Peabody’s offspring is standing on the brink.
Patriot filed for bankruptcy protection week, and its progenitor Peabody may be on the hook for medical costs for employees suffering black lung disease.
That may not be the end of Peabody’s liabilities in Patriot. Rosy executive statements made in 2007 about Patriot’s future could come back to haunt Peabody. As Nicklaus writes:
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.
“There is always a risk that the parent is going to face a suit down the road if some of their predictions didn’t come true,” says Daniel Doyle, a bankruptcy attorney with Lathrop & Gage in Clayton.