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Peabody Energy files for bankruptcy protection
April 13, 2016

Peabody Energy, the largest coal company in the United States, filed for Chapter 11 bankruptcy protection Wednesday as the coal industry grapples with the fallout of low natural gas prices, costly regulations and China's economic slowdown.

The announcement is the latest in a growing line of bankruptcies from coal companies. According the USA Today, some 50 coal companies have already field including large coal companies such as Arch Coal, Patriot, Alpha Natural Resources and Walter Energy

Peabody has posted four consecutive yearly losses, including a $2 billion loss in 2015 as revenue fell 17 percent to $5.6 billion.Peabody's market capitalization peaked at about $20 billion in 2011, illustrating the swift contraction in the coal market over the last half decade. The company has about 7,100 employees globally, including 5,400 hourly workers. On Wednesday, it was $34 million.

The U.S. Energy Information Administration projected that 2016 U.S. coal production will equal about 752.5 million tons, representing a 25 percent decline from 2014.

Peabody is expected to use the bankruptcy process to shed debt and restructure its operations instead of pursuing a sale of assets, Reorg Research analysts said.

The company listed $10.1 billion in debts and $11 billion in assets, including ownership interest in 26 active mines in the U.S. and Australia. Shareholders with at least 5 percent of the company are Blackrock, Kopernik Global Investors, Vanguard Group and Susquehanna Securities, according to a court filing.

"Through this process, the company intends to reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process," Peabody said in a statement.

"This was a difficult decision, but it is the right path forward for Peabody. We begin today to build a highly successful global leader for tomorrow," CEO Glenn Kellow said. "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."

Peabody said it had secured $800 million in bankruptcy financing from a group that includes secured and unsecured creditors to maintain operations.

Peabody noted that the sale of assets in New Mexico and Colorado had collapsed after a prospective buyer could not complete the deal. The company hired law firm Jones Day to provide bankruptcy counsel, investment bank Lazard for financial advice and FTI Consulting for restructuring guidance.

The company owned 6.3 billion tons of "proven and probable" coal reserves and about 500,000 acres of land as of Dec. 31, according to a court filing.

Over the last decade, the U.S. shale oil and gas boom has flooded the market with cost-competitive natural gas, swiping market share away from coal and giving utilities alternatives.

In 2015, utilities burned almost exactly the same amount of coal as natural gas, with each commodity representing 33 percent of U.S. electricity generation, according to the EIA. The EIA projects that coal will still deliver 20 percent of U.S. electricity by 2040.

But as recently as 2008, the U.S. burned more than double as much coal as it did natural gas, illustrating coal's swift decline.
 

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 Peabody    Coal