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PBGC, Texas Utilities, Lehman Merchant Banking Group Agree on Financial Guarantees for Peabody Coal Pension Plans

May 19, 1998

The Pension Benefit Guaranty Corporation (PBGC) has reached an agreement under which The Energy Group Plc, being acquired by Texas Utilities (NYSE: TXU), and P&L Coal Holdings Corporation, a company controlled by Lehman Merchant Banking Group, are providing $153 million worth of protection for underfunding in three Peabody Coal pension plans covering 7,700 workers and retirees. The agreement comes as a result of P&L Coal Holding's acquisition of Peabody.

"In shaping this transaction, both seller and buyer agreed to guarantee the financial health of pension plans that benefit Peabody Coal's workers," said PBGC Executive Director David M. Strauss.

Under the agreement, Peabody Coal's former owner, The Energy Group, will guarantee payment to PBGC of up to $110 million if one or more of the plans were to terminate with unfunded pension benefits. Peabody or P&L Coal will provide a $37 million letter of credit which PBGC may use to cover any additional losses in case of a plan termination. P&L Coal has also agreed to accelerate its required contributions by making an immediate payment to the plans of about $6 million cash. The agreement protects three Peabody pension plans which are underfunded on a PBGC termination basis by $126 million, with assets of $441 million and liabilities of $567 million. Underfunding in the pension plans is expected to increase over the next several years.

In the transaction, P&L Coal Holdings acquired Peabody Coal from The Energy Group, and Texas Utilities acquired the rest of The Energy Group. P&L Coal Holdings is controlled by an investment fund managed by the Lehman Merchant Banking Group.

St. Louis-based Peabody is the largest coal mining company in the United States, with production located mainly in Arizona, Wyoming, Illinois, Indiana and Kentucky.

The agreement is a product of PBGC's Early Warning Program under which the agency monitors some 500 companies with underfunded pension plans and negotiates agreements when transactions occur to ensure that workers' pensions are protected.

PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by more than 42 million American workers and retirees participating in about 45,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.

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PBGC No. 98-25