Two months after Peabody Energy Corp. raised $1 billion from the junk-bond market, buyers have lost 18 percent in market value as a slump in coal prices worsened.
The company’s $1 billion of 10 percent securities sold in March slid below 80 cents on the dollar in trading Tuesday to yield 15 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt was sold at 97.6 cents in March after lenders insisted on additional protection by placing conditions on the company’s future borrowings.
With the coal industry mired in its worst downturn in decades, producers like Peabody are trying to find new ways to weather lower prices. Peabody has been considering sales of “non-core” reserves, land holdings and stakes in active operations in the U.S. and Australia to strengthen its balance sheet, according to an April filing.
Vic Svec, a spokesman for Peabody, declined to comment on the company’s bonds when reached by phone.
Coal prices have slumped amid a global oversupply and flagging demand. The thermal coal used by power plants is facing increased competition from cheaper natural gas and tougher emissions standards. The benchmark price of coal used in steelmaking is at a seven-year low of $109.50 per metric ton, down from $330 a metric ton in 2011.
At the time Peabody sold its second-lien bonds, an additional second-lien borrowing limit was halved to $500 million, in the absence of any equity sale.
Peabody’s shares are down 51 percent this year and fell to $3.74 -- an all-time low -- Tuesday in New York trading. Shares in competitor Arch Coal Inc. slid 59 percent and those of Alpha Natural Resources Inc. dropped 57 percent.
Peabody has also studied the prospect of placing some U.S. coal operations in a master-limited partnership, a structure that’s proven popular with investors in recent years since it typically pays no corporate income tax and returns more cash to shareholders via dividends. Such a move, though, would first require coal-market sentiment to improve, Chief Financial Officer Michael Crews said on an April earnings call.