Peabody Energy Buys Itself Time Amidst Bankruptcy Risk
Peabody Energy struck a deal with creditors over the holidays to give itself more time to pay off significant debt; the deal provides the massive coal producer additional credit as well.
Peabody warned of a default last year with coal markets floundering and a looming violation of its own debt agreement. Following several rounds of furloughs and layoffs at its Wyoming mines, the company also ended a health care benefit plan to cut costs. Now, the company has given itself an additional two-years to right the ship - until 2024.
"Closing of the exchange transaction will provide Peabody with the flexibility needed to continue to pursue operational improvements across our operations as well as capture potential seaborne met and thermal market improvements," said Glenn Kellow, Peabody President and CEO, in a press release.
The deal includes $1.52 billion in funded debt and more than $300 million in credit.
After watching its share prices fall throughout 2020, share prices bounced back roughly 40 percent in response to the agreement.
Gregory Marmon, principal analyst with Wood Mackenzie, an energy research and consulting firm, said the agreement effectively replaces old debt with new debt, while extending its deadline to pay off that debt by two-years, until 2024.
He said the move from Peabody makes sense for several reasons. One, many debt-holders became stockholders during the last bankruptcy, just a few years ago, and they are likely determined to avoid another bankruptcy.
"If [stockholders] could do that by just providing the company with a minimum additional liquidity, it seems a pretty reasonable price to pay in order to have to secure your current ownership stakes in either the stock or the debt of a company," he said.
Plus, Marmon said his firm expects coal markets to bounce back in 2021. After a difficult year for both coal production and coal prices, Wood Mackenzie expects a 28 percent increase in coal generation across the U.S.
"In many ways, it's best to give the company an additional two years to manage its finances so they can take advantage of this rebound," he said, qualifying that his firm also expects the U.S. to slowly phase out coal.
Peabody operates three mines in Wyoming.