Peabody Energy Corp. has held discussions with one of the first lien lenders under its secured credit agreement regarding proposed bond exchanges and other issues, as plummeting coal prices spark an increase in debt defaults among U.S. coal companies.

The largest U.S. coal miner indicated its preference for pursuing liability management transactions such as the exchanges, while the lender expressed concern that Peabody wasn’t pursuing an in-court restructuring, it said in a filing dated Feb. 29.

"Peabody and the lender also discussed Peabody’s continued compliance with its covenants under the credit facility," it said in the filing. "If Peabody experiences or expects to experience a financial covenant breach or other default, it could request an amendment to, or waiver of, the covenant from its lenders. If Peabody is unable to obtain waivers from its lenders, Peabody would be in default under the Credit Agreement and certain of its other debt arrangements and the debt owed under such agreements could be accelerated."

Peabody is meeting with debt holders as it faces the coal market’s worst downturn in decades. Challenged by cheap natural gas, mounting environmental regulations and weak demand overseas, rivals including Alpha Natural Resources Inc. and Arch Coal Inc. have already filed for bankruptcy. Earlier this month, Peabody reported earnings that missed analysts’ estimates and cut its U.S. sales guidance for this year.

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