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Peabody Energy says it will miss debt payments, moves closer to bankruptcy

Peabody Energy says it will miss debt payments, moves closer to bankruptcy

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Peabody Energy said in financial filings Wednesday it will miss two interest payments due this week — a sign America’s largest coal company may be headed toward bankruptcy.

The Missouri-based firm officially invoked a 30-day grace period on two separate credit lines with interest payments totaling $71 million. The move mirrors a similar step taken by Arch Coal before it filed for Chapter 11 protection in January.

The filing means Peabody may face an acceleration of its debt payments, with the company required to pay off its outstanding loans immediately. It could also put the mining giant in violation of its lending agreements once the grace period expires.

“We may not have sufficient liquidity to sustain operations and to continue as a going concern,” Peabody wrote in a filing to the S.EC.

The filing marks what is, in many ways, the culmination of a gruesome trend for the coal industry. Leading mining firms like Arch Coal and Alpha Natural Resources have been forced to file for bankruptcy protection, weighed down by debts incurred in better times and battered by cheap natural gas prices and tightening environmental regulations.

The U.S. Energy Information Administration said Wednesday it anticipates natural gas will for the first time overtake coal as the country’s chief source of electricity production in 2016.

Peabody, like many of its peers, has suffered from a losing bet on Chinese demand for metallurgical coal used in steel production. The company paid $5 billion for Australian miner MacArthur Coal in 2011, hoping to capitalize on the seemingly insatiable appetite of China’s steel mills.

Yet a number of other coal companies, including Arch and Alpha, made similar bets, and the market for metallurgical coal was soon flooded. The situation was made worse in recent years, as economic growth in China slowed and demand ebbed.

The company’s revenues from its Australian metallurgical mines slumped from $1.6 billion in 2014 to nearly $1.2 billion last year.

Peabody’s thermal mines, which produce coal used for electricity production, are centered around the Powder River Basin, where it operates the Caballo, Rawhide and North Antelope Rochelle mines.

North Antelope Rochelle is the largest coal mine in the country and employed roughly 1,430 people as of the end of 2015, according to federal figures.

The Powder River Basin has been a relative bright spot for the company. Revenues there fell from $1.92 billion to $1.87 billion, year-over-year.

But Peabody’s strength in the region has not been enough to overcome the wider trends in the coal market.

In its updated financial filing issued Wednesday, the company said it lost $1.9 billion in 2015. Peabody has $6.3 billion in long-term debt obligations, of which $5.9 billion could be due this year.

The company was forced to borrow the remaining $945 million on its $1.65 billion credit line earlier this year. And the mining giant’s lenders have recommended the company file for bankruptcy protection. Peabody has said it is trying to convince its creditors to consider a bond exchange instead.

Beth Sutton, a company spokeswoman, said in a statement Peabody is focused on preserving liquidity and reducing debt. She noted the grace period was allowed under the company’s loan agreements.

“In our case, we plan to continue to use this time to have conversations with our lenders about our alternatives, while maintaining options around our interest payments,” she said in a statement.

The company has tried to sell assets in a bid to raise cash and stave off a Chapter 11 filing. But Peabody has yet to close on the planned $358 million sale of three mines in Colorado and New Mexico to Bowie Resource Partners LLC.

In its Wednesday filing, Peabody said it had not classified the three mines as discontinued operations due to the uncertainty surrounding the sale.

Company executives, in a letter to employees, said day-to-day operations would continue as normal as Peabody explores alternatives to strengthen its balance sheet.

“None of this changes our approach toward best practices in mining and our mission and values,” Peabody CFO Amy Schwetz wrote.

The company last week announced what it termed a “small” layoff at the Caballo and Rawhide mines, which produce a lower quality coal than North Antelope Rochelle.

Follow energy reporter Benjamin Storrow on Twitter @bstorrow


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