“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 longterm stability and success in the future”.
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In a statement, the company mentioned that under bankruptcy protection, it ought to reduce its debt burden, lower its fixed charges, enhance its operating cash flows and prepare the company for long term success. They included the sharp drop in the price of metallurgical coal as well as the weakness of the Chinese economy.
Peabody said in its news release that despite the industry’s challenges, “multiple third-party estimates project that both the USA and global coal demand will stabilize”.
“It wasn’t a question of whether Peabody was going to file, it was a question of when and would they include the Australian assets”, Jeremy Sussman, a New York-based analyst for Clarksons Platou Securities, said by phone Wednesday.
The Wyoming Department of Environmental Quality was in the process of reviewing whether Peabody continued to be eligible for self-bonding when it declared bankruptcy. The amount of electricity generated from natural gas in the U.S.is expected to surpass power generated from coal for the first time in 2016, and no new coal-fired power plants are on the drawing board in the U.S.
In Gibson County, Peabody says its three-mine Somerville Complex and Francisco Underground operation employ more than 450 Hoosiers. That compares with a $34 million adjustment to Kinder Morgan’s Ebitda as a result of Arch Coal’s bankruptcy last year, which represented a half a percent of its Ebitda that year, according to a Wednesday report by Piper Jaffray unit Simmons & Co. Peabody shares closed Tuesday at a mere $ 2.06, leaving the company with just $38 million in its war chest. Asset sales in the beleaguered mining sector are hard given the coal market imbalance of supply, secular decline and a lack of financially sound strategic buyers.
As part of the process, Peabody has obtained $800 million in debtor-in-possession financing. Britain has promised to phase out such coal use by 2025 although China and India continue to build new plants. Those plunging prices and changing environmental regulations have pushed major utilities to choose natural gas over coal to power electric grids.
Peabody said in its statement that the company is proud of its work in land restoration, or repairing areas damaged by mining, and will “meet its reclamation obligations”.
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Peabody’s debt troubles date back to its $5.1 billion leveraged buyout of Australia’s Macarthur in 2011, a coveted asset at the time meant to position it as a supplier of metallurgical coal for Asian steel mills. Cheap, cleaner natural gas is cutting into coal’s share of electrical production, and efforts to rein in carbon emissions and head off risky levels of global warming are putting more pressure on the business.
