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Peabody Energy Corporation (OTCMKTS: BTUUQ), is the world’s largest private sector coal miner, but in April 2016, it filed for Chapter 11 bankruptcy protection following months of rumors and speculation. The company serves metallurgical and thermal coal customers in 25 countries on six continents.
It recently announced closing of its previously announced private offering of $1.0 billion aggregate principal amount of senior secured notes. Proceeds of the offering have been funded into an escrow account pending Peabody’s emergence from bankruptcy. It will be released from escrow to fund a portion of the distributions to creditors provided for under the plan of reorganization, and Peabody will become the obligor under the notes.
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After courts approval for reorganization, the odds for recovery for shareholders got minimized significantly. Furthermore, the management confirmed a deal with debtors to give management substantial rewards and up to 10% equity in a new vehicle while the owners of the company, who bear no responsibility for management wrong doings, end up with nothing.
Under original reorganization plan, shareholders and convertible bond holders are scheduled to get nothing. While, unsecured note holders get new equity and rights. Second lien holders expected to get combination of cash, new debt, equity, and rights.
While share holders are seeking to be part of a reorganized company. But even with appointment of an equity holders’ committee, it’s unlikely that the bankruptcy will leave anything for existing shareholders. Peabody creditors have already agreed to support the plan that cancels the stock.
Also, considering reorganization will be a long-drawn affair, it is less likely to provide any relief to share holders over near term.
Industry/Operational update:
From an industry perspective, notwithstanding a short-term surge in coal prices, nothing has fundamentally changed in prospects of the coal industry. In fact, there has been significant negative news recently. There are also too many companies sitting with sizeable inventory chasing a dull market – This makes the situation even worse for the company.
Recent developments in coal industry, both in the US and international market suggests that the structural decline in the industry continues to impinge the business risk profile of the company. Also, so far increasing or even preserving the value for share holders is concerned, previous track record of management is not very encouraging. Therefore, prospects for shareholders is not very optimistic over the near to medium term.
Moreover, from a business perspective, management made it clear that recent recovery in the seaborne coal industry has seen sharp price recovery due to restrictive production policies in China that led to increased imports. It notes that these improved conditions are unlikely to be sustained.
In a court document filed on 25 January 2017, Peabody Energy projects coal demand for electricity in the US to decline by 15-25 million tons from 2016 to 2021. On the flip side, in its own business plan, approved on 10 August, 2016, it projected coal demand in the US to “grow a total of 20-25 million tons between 2016 and 2021”. Therefore, Company’s projections/assumptions are highly sensitive to change in its own assumptions.
Recent developments:
Mangrove Partners, who use to own 5.2% of the stock, sold almost all of its holding last month.
Convertible bond holders could get a modest recovery under an amended disclosure statement. Reorganization plan is expected to be confirmed March 16.
The company did not go for valuations citing expense and delay as part of the reason. Management and the debtors just finalized a figure that they agreed to. There was no input from the shareholders of the company. Therefore, shareholders should not pin their hopes with the management.
Opponents of Peabody Energy’s reorganization plan filed an appeal against the proposal which they say violates U.S. bankruptcy law by prematurely requiring creditors to approve the plan.
The plan was approved by the bankruptcy judge on Jan. 26, but an ad hoc committee of dissenting creditors filed an appeal on Friday, claiming BTU “improperly” forced creditors to vote in favor of the plan before it received court approval.
Australian Competition And Consumer Commission issued statement of issues in relation to transaction between Peabody Australia and South32 Aluminum.
Peabody Energy Corp – co does not expect ultimate outcome of transaction to impact expected timing of company’s emergence from bankruptcy.
Earnings review:
- Peabody Energy Corp sees 2016 total revenue $4.71 billion to $4.72 billion. Total 187 million tons sold in 2016.
- Peabody Energy says on January 27, 2017, bankruptcy court issued an order approving exit facility commitment letter, dated as of January 11, 2017.
- Peabody Energy Corp sees 2016 adjusted EBITDA $482 million.
Stock Performance
On Friday, February 24, 17, Peabody shares remained unchanged at $2.75 on an average volume of 1.13M shares exchanging hands. Market capitalization is $50.88 million. The current RSI is 30.2
In the past 52 weeks, shares of Peabody have traded as low as $0.55 and as high as $18.75
At $2.5, shares of Peabody are trading well below its 50-day moving average (MA) at $4.23 and 200-day MA at $8.00.
The present support and resistance levels for the stock are at $2.68 & $3.01 respectively.
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