A significant dip in demand from China, along with falling prices have deeply affected its operations. The Obama administration’s climate change policies have only compounded its woes.
Faced with a significant drop in coal prices, U.S. coal producer Peabody Energy Corp has filed for bankruptcy protection, as it is unable to service its debt of $10.1 billion at such abysmal price levels. Much of the debt was incurred for increasing its foothold in Australia.
This bankruptcy filing with the U.S coal producing giant is significant as it is a large company in the commodities sector. Energy and metals were once considered fast growing industries, with booming markets in China and Brazil. However since mid-2014, these sectors have seen a slowdown.
The world’s largest private-sector coal producer, Peabody, has said this filing will not affect the operations in its mines as they will continue to operate as usual. Furthermore, it has also disclosed that its Australian assets are excluded from this bankruptcy filing.
According to court documents, the company has estimated its assets to be at $11.0 billion and its liabilities to be $10.1 billion, as of 31.03.2015.
“This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years and lay the foundation for long-term stability and success in the future,” said Glenn Kellow, Peabody’s CEO in a statement.
As of now, the company has agreed to $800 million in debtor-in-possession financing from both unsecured and secured creditors, subject to court approval. This amount includes a $500 million term loan, as well as a $100 million letter of credit and $200 million for a bonding accommodation facility.
Through a program called “self bonding”, large coal companies in the U.S. have been allowed to set aside a portion of future mine cleanups. This has now come under federal scrutiny following the distress call in the coal sector. As per documents filed in court, Peabody has $1.1 billion in self-bonding from across four states.
Unlike its peers, Peabody’s Chapter 11 filing did not include a plan for cutting debt.
“Essentially through the bankruptcy process the debt will be pared down to a significant degree and lenders will essentially become shareholders,” said Monica Bonar, an analyst with credit rating agency Fitch Ratings.
If this were to happen, Peabody’s existing stock would have to be cancelled. Trading in its shares have been halted in light of the filing.
As per court documents, creditors now want the U.S. Bankruptcy Court in St Louis to resolve a $1 billion dispute over claims on Peabody’s collateral.
The coming court proceedings will involve some of the most litigious investment firms on Wall Street, including Elliott Management Corporation and Aurelius Capital Management, according to a regulatory filing. Both funds have spent the better part of this decade fighting Argentina in U.S. courts over the country’s 2001 default.
Peabody’s bankruptcy can be largely traced to its leveraged buyout of Macarthur Coal in 2011 for $5.1 billion. At that time, coal prices were at their zenith following increased demands from Asian steel mills.
However, with the demand for coal diminishing particularly in China, Peabody’s financial woes began. With the result that it had to write-off $700 million of its Australian metallurgical coal assets in 2015.
Growing environmental concerns due to climate change and global warming have only forced the Obama administration’s hands for bringing in environmental regulations, which raised its operational costs.
“2016 will probably go down as the worst year in history for U.S. coal,” reads a research note from JPMorgan. The note goes on to mention that despite coal production falling by a record 31%, U.S stockpiles were still high.
In last November, Peabody had agreed to provide investors with more detailed disclosures on how its business would be affected by the government’s move to tackle climate change.
The case is in the U.S. Bankruptcy Court for the Eastern District of Missouri, St. Louis, case number 16-42529.
Categories: Economy & Finance, HR & Organization, Regulations & Legal, Strategy, Uncategorized
manageria.biz 
Leave a comment