Apr 14, 2016

Peabody Energy in bankruptcy action

Peabody Energy in bankruptcy action

The world’s largest private-sector coal company, Peabody Energy Corporation, has filed for bankruptcy protection in the United States but says its Australian operations are not affected.

In a statement released overnight, the company said it had filed Chapter 11 petitions for the majority of its US entities in a bid to strengthen liquidity and reduce debt amid an unprecedented industry downturn.

No Australian entities were included in the filings, and Australian operations were continuing as usual, Peabody Energy said.

These operations include Queensland’s Burton, North Goonyella, Millennium, Coppabella, Moorvale and Middlemount mines in the Bowen Basin as well as sites in  New South Wales.

The CFMEU has called on Peabody to engage closely and regularly with the union and workforce on developments pertaining to the bankruptcy proceedings.

In a statement released today, the mining union said it was encouraging that Peabody had indicated Australian mines would be unaffected, but the local workforce of more than 3500 needed greater assurances from the company about the future.

Peabody president and chief executive officer Glenn Kellow said the bankruptcy action had been a difficult decision, but it was the right path forward for Peabody.

“Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop,” he said.

“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 long-term stability and success in the future.”

In connection with the process, Peabody has obtained $800 million in debtor-in-possession financing facilities, which were arranged by Citigroup and include participation of a number of the company’s secured lenders and unsecured noteholders.

The facilities include a $500 million term loan, a $200 million bonding accommodation facility and a cash collateralised $100 million letter of credit facility, and are subject to court approval as well as limitations as set out in the company’s filings.

In addition to the company’s existing cash position, Peabody said it believed that it had sufficient liquidity to operate its business worldwide post-petition and to continue the flow of goods and services to its customers.

The company statement listed the pressures affecting the global coal industry in recent years as including a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas in the US and ongoing regulatory challenges.

But it said multiple third-party estimates projected that global coal demand would stabilise and that coal was expected to be an essential source of global electricity generation and steel-making for many decades to come.

“A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world,” Mr Kellow said.

“We are a leading producer and reserve holder in our core regions of the Powder River Basin, Illinois Basin and Australia.  Peabody has a new management team, outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”

Peabody has filed pleadings, referred to as “first day” motions, with the U.S. Bankruptcy Court.  These motions are expected to enable the company to continue, among other things, paying employee wages and providing healthcare and other benefits without interruption.

Trading in shares of the company stock on the New York Stock Exchange is expected to be suspended.

The company also has established a call centre for questions: 1300 386 742 if calling from Australia.