Peabody Energy files for Chapter 11

June 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Due to a prolonged downturn in the global coal industry, Peabody Energy Corporation has taken action to strengthen liquidity and reduce debt by filing for voluntary Chapter 11 protection in the United States Bankruptcy Court for the Eastern District of Missouri.

Under the auspices of the Chapter 11 process, Peabody 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.

As part of the process, Peabody has obtained $800m in debtor-in-possession financing facilities, including a $500m term loan, a $200m bonding accommodation facility and a cash collateralised $100m letter of credit facility. These are subject to court approval as well as limitations as set out in the company’s filings.

Along with its existing cash position, Peabody believes that it has sufficient liquidity to operate its business worldwide post-petition and to continue the flow of goods and services to its customers in the ordinary course.

While the Chapter 11 proceeds, Peabody has stated that all of its mines and offices are continuing to operate in the ordinary course of business and are expected to continue doing so for the duration of the process. Furthermore, no Australian entities are included in the filings and Australian operations are continuing as usual.

In addition, Peabody has announced that the planned sale of its New Mexico and Colorado assets has been terminated after the buyer declared an inability to complete the transaction.

Peabody, the world’s largest private-sector coal company and a Fortune 500 company, serves metallurgical and thermal coal customers in 25 countries on six continents. However, there has been a range of unprecedented factors affecting the global coal industry in recent years, including industry pressures such as a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges.

That said, third-party estimates project that both the US and global coal demand will stabilise, with US gas prices projected to rebound from recent lows. In a global context, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction. Coal currently fuels approximately 40 percent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come.

“This was a difficult decision, but it is the right path forward for Peabody,” said Glenn Kellow, Peabody Energy’s president and chief executive. “We begin today to build a highly successful global leader for tomorrow. Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop. 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.”

For the duration of the Chapter 11 process, Peabody has retained Jones Day as its legal adviser, Lazard Fréres & Co. LLC as its investment banker and financial adviser and FTI Consulting Inc. as its restructuring adviser.

Reiterating his company’s status as a leading producer and reserve holder in its core regions of the Powder River Basin, Illinois Basin and Australia, Mr Kellow said: “A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world. Peabody has a new management team, an outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”

Fraser Tennant