Newspaper article St Louis Post-Dispatch (MO)

Peabody Energy Files for Bankruptcy in Largest Coal Industry Restructuring

Newspaper article St Louis Post-Dispatch (MO)

Peabody Energy Files for Bankruptcy in Largest Coal Industry Restructuring

Article excerpt

ST. LOUIS * Weeks after signaling that a heavy debt load and weak coal demand could push it into bankruptcy, Peabody Energy surprised few when it filed for Chapter 11 protection here on Wednesday.

The fall of the world's largest coal company is the starkest example of the plunge in the coal industry's fortunes over the last few years. Yet with the grace period on a skipped interest payment ending this week and the failure of a big mine sale Peabody was counting on to raise cash, the news wasn't unexpected.

"All signs were pointing to it coming," said Kris Inton, an analyst at Chicago-based Morningstar.

As a hub for big coal, the St. Louis region has been at the center of several large coal bankruptcies in recent years. Peabody's rival and the nation's second-largest coal mining company, Creve Coeur-based Arch Coal, filed for bankruptcy protection in St. Louis in January. Peabody spinoff Patriot Coal's first bankruptcy was heard here in 2012, and St. Louis-based Foresight Energy also warned of a bankruptcy risk last month.

But Peabody has been one of the more prominent corporate names in the region, especially when times were good. It is one of the largest companies headquartered in the city of St. Louis, its former CEO serves on the board of Washington University and it has sponsored numerous civic organizations.

In recent years, however, it has had to pare its giving and its downtown workforce from about 600 people to the roughly 375 who now work at its Market Street headquarters.

The decline coincided with both the rise of cheap natural gas from fracked shale fields and environmental regulations that have discouraged investment in U.S. coal plants. No new coal plants are being considered domestically, with utilities instead turning to gas plants and wind and solar energy.

The U.S. Energy Information Institute predicts natural gas will overtake coal as the top source of electricity generation this year. Already, U.S. coal production is down 32 percent from last year's levels.

Abroad, a slowdown in China and other developing economies has sapped the world's hunger for steelmaking coal from mines that Peabody paid hefty prices to acquire.

"After the acquisitions of 2011 through 2012, international coal prices began a downward cycle dropping to their lowest levels in 2016," Peabody Chief Financial Officer Amy Schwetz said in a bankruptcy filing Wednesday. "This, coupled with lower volumes, resulted in the Company's debt burden becoming unsustainable."

Peabody has $10.1 billion in liabilities and $11 billion in assets, according to a court filing.

A large chunk of Peabody's debt came from its 2011 deal to buy Australian miner Macarthur Coal Ltd. for $5.2 billion, a transaction it hoped would position it as a key supplier to Asian countries undergoing rapid urbanization.

"The debt load is for sure an issue and I would imagine the bankruptcy process here will be one of cleaning up the balance sheet," said James Gellert, CEO of Rapid Ratings International, a New York firm that evaluates companies' health and default risks. "I don't by any stretch see this as the end of Peabody. I see this as a classic restructuring."

That's what Peabody has argued its problem is a debt-induced one, it has cut expenses enough to make its operations cash-flow positive and it believes coal demand should stabilize from levels depressed by incredibly cheap natural gas. Peabody has said it will remain in St. Louis, the global headquarters for a company that even last year, its worst, managed to generate $5.6 billion in revenue.

"Peabody is open for business," company spokesman Vic Svec said Wednesday. "There are no impacts and no effects from today's announcement on jobs, on offices or on operations."

The company has secured debtor-in-possession financing of $800 million and expects to continue operating normally through bankruptcy.

However, depending on what the St. …

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