The world’s largest private-sector coal producer filed for Chapter 11 bankruptcy in a Missouri court Wednesday, citing “debt burden” and a “historically challenged industry backdrop”.
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In a statement, Peabody said its mines will continue operating as usual as its restructures.
Peabody has agreed to $800 million in debtor-in-possession financing from both secured and unsecured creditors, subject to court approval, including a $500 million term loan, a $200 million bonding accommodation facility for cleanup costs and a letter of credit worth $100 million, it said. Unable to keep servicing its debt load, Peabody said it took the step for court-protected restructuring “to strengthen liquidity and reduce debt amid an unprecedented industry downturn”.
After having a miserable time in the recent past, Peabody Energy Corporation (NYSE:BTU) voluntarily filed for chapter 11 bankruptcy.
Coal’s share is seeing declining to 34% in 2040 from 39% in 2013, although the EIA has cautioned its projections are highly dependent on natural gas prices in relation to coal plants and renewables. Dividend payouts to shareholders were halted in July 2015. He opened Peabody’s first mine a few years later. Arch Coal is the second largest coal producer in the U.S.
The company was founded in Chicago and moved to downtown St. Louis in 1957. Its downtown workforce has been pared in recent years from about 600 people to about 375.
But as some experts point out, the company’s optimism may be misplaced.
The coal industry’s descend claimed another victim in February when Illinois-based coal company Alliance Coal announced it planned on laying off 275 employees.
It stated that the Australian assets earned more than the prior year despite lower prices for coal. Year-to-date in 2016, Wyoming coal production is down 30 percent and natural gas is expected to be the dominant fuel source for USA power in 2016.
New drilling techniques have allowed USA energy companies to free enormous amounts of natural gas, driving prices lower.
“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. “United States companies are going bankrupt, European countries including the UK are phasing it out, and our research also shows that talk of a coal renaissance in Asian countries is likely to be a red herring”.
One of Peabody’s biggest mistakes was the $4.9 billion acquisition of MacArthur Coal Ltd in 2011, although the company’s Australian operations aren’t part of the bankruptcy.
That shows how hard the coal sector is now.
Moreover, slowdown of Chinese economy which is the world’s largest importer of coal has also been painful for coal companies.
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Coal companies like Peabody “are looking at the future and saying we need to be better positioned for it if we can survive it at all”, Gellert said. “As Peabody grapples with the reality that the world is turning away from coal, it’s essential that they don’t turn away from their obligations to workers, communities, and the environment”, said Mary Anne Hitt, the director of the Sierra Club’s Beyond Coal campaign in a statement.
