All Peabody Energy employees may own a piece of the company when it emerges from bankruptcy.
The coal company said Monday that it intended to issue shares to all 7,000 employees as part of its reorganization plan, which calls for canceling Peabody’s current shares and replacing them with new stock, most of which would be owned by creditors.
First, though, the company must navigate a series of hearings in U.S. Bankruptcy Court in St. Louis. On Thursday, the court will hear arguments from shareholders who are upset about seeing their investments wiped out. It is the company’s first time before the court since it submitted a reorganization plan last month.
Thursday’s hearing will address whether an official equity committee should be established to represent the interests of shareholders. Peabody and a committee of unsecured creditors have filed motions opposing the request.
Shareholders who support forming a committee have said they question Peabody’s valuation of itself in the Chapter 11 bankruptcy process.
“The price is nowhere near reality,” says Mark Gottlieb, a New Jersey-based Peabody investor who argues that the company is deliberately overlooking a rebound in coal prices. “The only [coal company] who says we’re still at the depth of the depression of coal is Peabody Energy and that’s because they want the low valuation.”
Peabody denies that it is undervaluing itself.
“The company recognizes that any Chapter 11 process is challenging for a number of stakeholders,” Peabody said in a statement released Monday. “While objections are a natural part of the process, Peabody has advanced a plan of reorganization that it believes maximizes the value of the enterprise.”
Peabody confirmed that shareholders “are unlikely to receive any value and their shares are likely to be canceled,” an outcome it has predicted for months.
On Jan. 26, another hearing will feature a broader discussion of Peabody’s proposed reorganization plan.
That conversation is likely to include concerns about the company’s coverage of environmental cleanup costs. Critics have said that it is not clear how the company will account for reclamation obligations in states that allow self-bonding, a practice in which companies pledge to cover future cleanup costs. Peabody’s self-bonding obligations were only partially covered in an August bankruptcy ruling.
“Peabody should not be able to shift its obligation for reclamation and cleanup costs onto the public – onto taxpayers,” said Howard Learner, executive director of the Environmental Law & Policy Center, an organization challenging Peabody’s plan. Learner says any reorganization plan should not be considered feasible until self-bonding concerns are addressed.
Vic Svec, a Peabody spokesman, said the company “has and will continue to meet all its obligations related to reclamation.”
Wednesday afternoon, the government official tasked with oversight of district bankruptcy proceedings filed an objection opposing Peabody’s plan. The filing from the U.S. Trustee outlined multiple issues, including the company’s attempt to lock in payment terms prior to confirmation, unlawfully pay certain professionals and cover transaction fees.
Peabody’s plan to award stock to employees is unusual for a company in bankruptcy. It’s similar to the way technology companies hand shares to workers before an initial public offering.
The reorganization plan calls for 10 percent of shares to be reserved for incentives, with 2.5 percent able to be issued to employees right away.
“What’s unusual in our case is the incentives are being pushed in every level of the company,” said Svec. “It’s really the company’s view that having all employees as owners is a great way to provide for a successful future.”
Svec said the employee stock grants would vest over two to three years.
Beyond this month’s hearings, Peabody hopes to have creditors vote on its plan by early March. The company hopes to get its plan approved at a hearing March 16 and to emerge from Chapter 11 by April, one year after it filed for bankruptcy.
