Peabody Energy (OTCMKTS:BTUUQ), the world’s largest privately owned coal producer which filed for bankruptcy in April, is said to have taken the first steps towards a major restructuring following the release last week of a preliminary plan, sources familiar with the matter said.
The company’s lawyers plan to hold a call with lenders before the end of the week to inform them of the steps taken towards creating a formal steering committee for reorganization talks, an analyst at corporate debt specialist Debtwire told MINING.com.
Peabody circulated a term sheet last week that implied the first lien debt would be impaired, prompting the organizational push, Debtwire’s sources said. A lien is the legal right of a creditor to sell collateral property of a debtor who has failed to meet the obligations of a loan or other contract.
The valuations embedded in the plan, however, are expected to change, as they incorporate the rapidly rising outlooks for coal prices, the sources added.
Coal miners in the US have been have been struck by a range of structural and cyclical factors that hit consumption hard and forced many of them to seek bankruptcy protection during 2015 and this year.
Coal has also fallen victim to the shale revolution, which unlocked an enormous quantity of cheap natural gas from previously impermeable rock formations. According to a report by the US Energy Information Administration 2016 will be the first year that natural gas overtakes coal as the largest energy source in the US.
However, an ongoing sharp increase in coal prices is prompting miners to restart projects and resume operations at mines that were shut only a few months ago, when both the commodity were trading close to 10 years-lows.
Last week, prices for coking coal price — the steelmaking kind — reached $230 a tonne, up from $75 a tonne just a few months ago. And thermal coal, used in power generation, has doubled to more than $100 a tonne last week, up 27% just since the start of October.
The surge in met coal prices has allowed the St. Louis-based company, which traces its history back to 1883, to settle fourth quarter contracts for the steelmaking commodity at $200 per tonne, far outstripping expectations for around $120 a tonne for the period. That is why, according to Debtwire, the company’s Australian met coal-producing assets — which back the company’s secured debt — are now expected to be key in its restructuring.
“The tremendous run-up in coal prices and trading levels in Peabody’s debt put already diverging valuations front and center as creditors negotiate a restructuring,” said Timothy Hynes, head of Distressed Research at Debtwire. “Some market participants even think enough value flows through the waterfall in a restructuring to provide shareholders a recovery.”
The company’s over-the-counter stock was trading almost 11% higher Friday morning at $9.24.