Peabody Energy, the nation’s largest coal miner and one of the largest companies still headquartered in the city of St. Louis, moved closer to bankruptcy with a warning Wednesday that it may have to restructure in court.
The coal mining company said bankruptcy was possible in a regulatory filing with the Securities and Exchange Commission, and it opted to skip a $71.1 million interest payment that starts the clock on a 30-day grace period.
Falling demand for coal, strict environmental controls and growing competition from natural gas have pushed several big coal miners into bankruptcy protection over the past year, including Creve Coeur-based Arch Coal Inc., the country’s second-largest coal company.
After a nearly $2 billion loss last year, Peabody referenced “continued uncertainty around global coal fundamentals” and said there was “substantial doubt whether the company will be able to continue as a going concern.”
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Peabody had already warned in a previous filing that auditors might have to include the “going concern” language in the financial report, but it said that it could seek a waiver from lenders to avoid triggering a credit default.
Peabody was working to finish the sale of three western U.S. coal mines before filing its annual financial report in order to boost earnings enough to meet debt covenants. But the company’s plan to sell the 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 told Bloomberg last month.
Now, without the sale, Peabody’s auditors say its financial trajectory may not be sustainable, giving the miner’s secured lenders more leverage to potentially force it into bankruptcy.
“One practical effect is that this opinion impacts our credit agreement and may result in an acceleration of our debt obligations,” Peabody said in a statement.
Its plans to cut expenses and reduce debt might not be successful, the company warned.
“We may need to voluntarily seek protection under Chapter 11,” Peabody said in the filing.
A bankruptcy filing for Peabody would deal the biggest blow yet to an industry that has an outsize corporate presence in the St. Louis region.
Peabody is the only nonutility Fortune 500 company still headquartered in the city of St. Louis. Its building is a prominent part of the city skyline, visible to thousands during Cardinals baseball games at Busch Stadium.
A former chief executive sits on the board of Washington University and Peabody and its employees have donated millions to local civic and philanthropic organizations in recent years. The company helped pay for the remodel of the old Kiel Opera House downtown, buying naming rights for the popular venue now known as the Peabody Opera House.
But years of bad coal markets have forced the company to reduce the number of employees at its Market Street headquarters from about 600 five years ago to roughly 375. Once a member of the influential S&P 500 index, it lost its place there in 2014.
Peabody’s decision to skip the interest payment comes as it tries to renegotiate a substantial debt load outside of court. With more than $900 million in liquidity as of Feb. 9, including some $775 million in cash, Peabody emphasized the deferral wasn’t because it couldn’t pay.
“In our case, we plan to continue to use this time to have conversations with our lenders about our alternatives, while maintaining options around our interest payments,” Peabody said in a statement.
Peabody has been negotiating with its unsecured bondholders, who have more to lose in a bankruptcy, in an attempt to restructure $6.3 billion in debt. But some of Peabody’s secured lenders, who stand to be repaid first in a bankruptcy, are pushing for a court restructuring. Money manager Franklin Resources has pressed Peabody to restructure its debt in court, anonymous sources told Bloomberg.
“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.”
Much of the miner’s debt was racked up earlier in the decade when it made big bets on Australian coal reserves that it anticipated would be used to make steel and electricity in China, India and other fast-growing Asian economies.
But metallurgical coal used in steelmaking is now selling for a third of what it was in 2011, when Peabody paid $5.2 billion for Australian miner Macarthur Coal Ltd. It is now the cheapest in more than a decade amid a global glut and slowing Chinese demand.
In the U.S., demand from power plants has fallen over the last decade as fracking unlocked vast reserves of natural gas and environmental regulations prodded utilities to move away from coal. A decade ago, coal was still fueling about 50 percent of U.S. electricity generation, but by last year, it had fallen to just one-third of power production.
On Wednesday, the U.S. Energy Information Administration predicted that for the first time, this year natural gas would produce more electricity than coal on an annual basis.
Peabody plunged 45 percent to $2.19 in trading Wednesday. Shares have dropped more than 95 percent in the past year.
Peabody and Arch aren’t the only coal mining companies to face financial challenges.
On Tuesday, St. Louis-based Foresight Energy LP said it may file for Chapter 11 bankruptcy if it does not reach an out-of-court restructuring agreement with its lenders.
Patriot Coal Corp., which was spun off from Peabody in 2007, filed for bankruptcy protection in May, just 18 months after emerging from its previous Chapter 11. The former Creve Coeur company has since sold off its assets to other companies.
Other coal miners that have filed for protection include Walter Energy and Alpha Natural Resources Inc.
Reuters and Bloomberg contributed to this report.
