Is Peabody Energy Preparing for Bankruptcy?

Energy

Published: March 6, 2016 9:09 am

Last Updated: January 13, 2020 12:20 pm

Last Monday Peabody Energy Co. (NYSE: BTU) filed a report with the U.S. Securities and Exchange Commission (SEC) detailing its recent discussions with some of its creditors and outlining potential debt swaps that would not guarantee any of the company’s existing debt. The coal mining company also said it has discussed its options with a senior lender that has expressed concern that Peabody is not filing for a bankruptcy reorganization.

The unidentified lender also discussed with Peabody the company’s “continued compliance with its covenants under the Credit Facility.” SNL reported on Friday that Peabody also disclosed recently that its auditors may be filing “a notice expressing doubt about the company’s ability to continue as a going concern if certain actions do not go as hoped and indicated that a lender is pushing for a court restructuring.”

If Peabody does file for bankruptcy that would mean that 75% of the coal mined in Wyoming would be dug up by a company that has recently entered bankruptcy. Both Alpha Natural Resources Inc. and Arch Coal Inc., which have already filed, mine coal in Wyoming.

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The company described its goals this way:

[Peabody seeks] to address the challenges of the current industry environment by pursuing aggressive actions with respect to its three core priorities: operational, financial and portfolio. Within the financial area, Peabody has dual objectives of preserving liquidity and reducing debt. … Peabody’s multiple objectives through its discussions include preserving liquidity, reducing leverage, lowering interest expense and extending maturities, while taking into account the timing of a transaction and other factors.

The company has agreed to sell three mines to privately held Bowie Resource Partners LP for $358 million, but Bowie has had trouble rounding up financing for the deal. Which should be no big surprise considering the plight of the coal industry and its uncertain future. The master limited partnership (MLP) filed for an initial public offering last June, but nothing more has happened on that front since that time.

A bankruptcy filing by Peabody, the world’s largest publicly traded coal producer, would have enormous symbolic impact on the global industry. In the U.S., a bankruptcy could mark the beginning of the end of the country’s coal industry.

The stock closed up about 4.6% on Friday at $3.39 in a 52-week range of $2.01 to $99.90.

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