Shareholders Want Voice In Cloud Peak Bankruptcy

May 29, 2019

A few of the many letters requesting an equity committee on Cloud Peak's court docket
Credit Prime Clerk

More than 300 individuals who own stock in Cloud Peak Energy are looking for a seat at the table in the coal giant’s bankruptcy. Together, the group owns more than 24 percent of Cloud Peak's stock. The shareholders are asking the court to appoint an equity committee to represent their interests.

With each share of Cloud Peak falling to less than ten cents, shareholders are concerned they won't get any value back in the bankruptcy process. Plus, a low bid on Cloud Peak's assets could result in only the highest priority creditors getting paid back.

Shawn Cariglio was one of five leaders requesting an equity committee be appointed to the case. He owns over 30,000 shares in Cloud Peak.

"I definitely want to get ahead of the game before they decide to give the company away at bare minimum value or without any form of reason," Cariglio says. "Just say, ‘'Yeah, we were such in financial distress we have to, you know, give away the company at bare minimum value of $300 million or $350 million. Sorry, but you bondholders and you shareholders are actually worth nothing.' Not great. I don't think that's fair."

Cariglio says getting an equity committee appointed isn't just about the money. Fifteen shareholders sent letters to the Delaware court with complaints about Cloud Peak’s actions. The primary concern was related to the value, or lack thereof, of the companies' assets. It's still not clear the full value of them and may not be until after the auction in late June. Cariglio thinks the company could be undervaluing its own assets.

The company has yet to release a breakdown of its assets, but its latest 10-Q form says the book value of its assets outweigh its liabilities. That's likely different from the market value.

Other shareholders' letters worry the company will burn through its bankruptcy financing with increased production, is driving down its market capitalization down, and is conducting back-door deals. One letter points to executive management giving itself bonuses throughout the year. By the end of 2019, court filings show those bonuses total $16.1 million.

Cariglio hopes an equity committee could help the judge see the other side of Cloud Peak.

"It was just so in the dark and silent. The chain of events that went on with the company itself is the reason why I think so many people are as steamed about starting something where their voices can get heard because they have a lot to say," Cariglio said.

In bankruptcy cases, there are levels of priority in debt collection. Secured debt holders rank first. Typically following secured debt holders are administrative expenses, unsecured creditors, priority tax claims and wage claims, and then, lastly, equity. A bankruptcy attorney not involved in the case says all those other players would have to get paid in full before stock holders would see a dime.

A page on corporate bankruptcy from the Financial Industry Regulatory Authority (FINRA) explains it's normal in a bankruptcy filing for stock shareholders to end up with little to nothing.

"When a company files for bankruptcy protection, chances are its shares will lose most — if not all — of their value, and that the company will be delisted from its exchange. That's bad news for shareholders," FINRA staff writers explain.

Clark Williams-Derry, director of energy finance at Sightline Institute, says there's a rationale behind equity falling to last place.

"The problem is they're the owners. During a bankruptcy, the owners get wiped out. That's usually it. Not always. As owners of the Cloud Peak, they owe all their creditors money," Williams-Derry says.

There's a chance shareholders will see a return on Cloud Peak's bankruptcy. Williams-Derry says it will depend on how well the assets sell for in the upcoming June auction. The bid would have to be high enough to see every creditor above them getting paid in full.

The Delaware court considering Cloud Peak's bankruptcy has yet to appoint the committee officially. Last week, the shareholders retained Bayard P.A. to represent their request for an equity committee.