Peabody Energy Corp. (BTU) is increasing the fee it’s willing to pay creditors to six times what was originally offered to cancel a covenant on convertible bonds sold in 2006.
The biggest U.S. coal miner will pay $11 million to the holders of $732.5 million of notes in exchange for amending terms that prohibit the company from paying interest in cash if it breaches leverage requirements attached to the securities, according to a regulatory filing today. Peabody, which was earlier offering $1.8 million to secure the change, extended the deadline for bondholders for a second time to June 25, according to a statement this week.
Peabody will be forced to sell warrants and preferred stock to finance the interest payments on the convertibles if it doesn’t get the waiver, according to a May 28 regulatory filing. The notes were structured in this manner to limit their effect on the St. Louis-based miner’s leverage as it sought financing to acquire Sydney-based Excel Coal Ltd.
The initial offer was “an understandable starting point to obtain the consents,” Vic Svec, a spokesman for Peabody, wrote in an an e-mail. “The ultimate amount represented standard discussions on what was needed to accomplish the transaction.”
The prospectus for the convertible bonds identifies so-called “mandatory trigger events” that would lead to deferral of cash interest payment. That situation comes into play when Peabody’s ratio of debt to earnings before interest, taxes, depreciation and amortization remains at more than 6 times for three consecutive quarters and the ratio of Ebitda to interest expense is less than 2 times for the same duration, according to the prospectus.
The coal producer may be close to falling out of compliance with the requirements on the credit pact, according to Bloomberg Industries analyst Spencer Cutter.
The company’s statement earlier this month that it would make a June 15 cash interest payment when announcing the first extension indicates it is in compliance with the requirements as of now, according to Cutter.
Peabody’s ratio of debt to Ebitda has increased to 6.6 times on an unadjusted basis, the most since it went public in 2001, Bloomberg data show.
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