Bowie Resource Partners is scrapping a loan sale that would’ve funded its purchase of mines from Peabody Energy Corp., jeopardizing a deal that would help stave off a Peabody bankruptcy filing, according to a person with knowledge of the matter.
The company dropped the $650 million financing after getting a cool reception from investors, said the person, asking not to be identified because the matter is private. Bowie had put the loan deal on hold last month and was seeking to renegotiate the terms of the purchase.
The asset sale was critical to Peabody, which has until April 14 to make an overdue interest payment. The largest U.S. coal miner, which has been ravaged by the coal market’s worst downturn in decades, this month said it may not be financially strong enough to remain in business in its current form and may seek bankruptcy protection.
Peabody spokesman Vic Svec declined to comment. Brian Settles, a representative for Bowie Resource, didn’t respond to e-mail and phone requests for comment.
There’s “substantial doubt” as to whether Peabody can comply with its loan covenants “without consummation of the transaction," the company said in a Feb. 29 filing.
Under the terms of the acquisition, Louisville, Kentucky-based Bowie Resource will have to pay Peabody a $20 million fee if the deal can’t be done because of the buyer’s failure to obtain sufficient funding, according to a regulatory filing. The companies have the right to terminate the deal if the transaction hasn’t closed by March 31.
Peabody has been seeking ways to ease its debt burden as rivals including Alpha Natural Resources Inc. and Arch Coal Inc. filed for bankruptcy. On March 15, Peabody elected to skip $71 million in semi-annual coupons due and entered a 30-day grace period to make the payments.