• Coal miner skipped $71 million of coupon payments on Tuesday
  • Peabody lender had been pressing for in-court restructuring

Peabody Energy Corp., the largest U.S. coal miner, said it may not be financially strong enough to remain in business in its current form and that the company may seek bankruptcy protection.

Peabody’s ability to operate as a “going concern” is in doubt, the company said in a regulatory filing with the U.S. Securities and Exchange Commission Wednesday. “Going concern” is an accounting term used to describe a business that has the resources it needs to continue running.

The St. Louis-based company, which has been ravaged by the coal market’s worst downturn in decades, is seeking ways to ease its debt burden as rivals including Alpha Natural Resources Inc. and Arch Coal Inc. filed for bankruptcy. Peabody in recent months has struggled to close the sale of three coal mines in the western U.S. to Bowie Resource Partners and to renegotiate payment terms with its creditors. 

“There can be no assurance that our plan to improve our operating performance and financial position will be successful,” Peabody said in the filing. “We may need to voluntarily seek protection under Chapter 11.”

Skipped Payment

The company elected to skip $71 million in semi-annual coupons that were due Tuesday and has entered a 30-day grace period to make the payments. The interest is due on Peabody’s $1 billion of 10 percent second lien notes maturing in March 2022 and its $650 million of 6.5 percent unsecured bonds coming due in September 2020, according to the filing.

Peabody plunged as much as 49 percent, the most ever, in intraday trading in New York. Shares were down 43 percent to $2.27 at 10:11 a.m., and have lost 97 percent in the past year.

Peabody’s $1.5 billion of 6 percent senior unsecured notes maturing Nov. 2018 jumped 2.75 cents to trade at 6.25 cents on the dollar at 9:29 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. 

Peabody had warned that it may have to include the “going concern” language in the filing, but said that it could seek a waiver from lenders to avoid defaulting on a credit agreement. The company said Wednesday that its consolidated earnings before interest, taxes, depreciation and amortization will probably fall too low to comply with its financial covenants as of March 31.

“Absent waivers or cures, non-compliance with such covenants would constitute a default under the 2013 Credit Facility,” the company said.

Lender Pressure

Money manager Franklin Resources Inc. has pressed Peabody to restructure its $6.3 billion debt in court, according to people with knowledge of the matter who asked not to be identified because the talks were private.

“You have a lender out there who is on record advocating for an in-court restructuring,” said Lucas Pipes, an analyst for FBR Capital Markets. A potential default “could provide the opportunity to that lender to pursue their options and their interest.”

Peabody had $902.6 million in liquidity as of Feb. 9, including $778.5 million in cash.

The miner’s plan to sell three mines to Bowie Resource Partners hit a snag amid the slump in coal prices and souring sentiment in credit markets, people familiar with the matter said Feb. 20, asking not to be identified because they weren’t authorized to speak publicly about the discussions.

Power plants are burning less coal because of cheap natural gas and tougher emissions standards. The metallurgical coal used in steelmaking is the cheapest in more than a decade amid a global glut and slowing Chinese demand.

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