Just a few weeks ago, the coal giant expressed doubts over the company’s ability to operate outside the protection of bankruptcy, according to Digital Journal. But the crisis in the coal mining sector has ended up claiming its biggest victim to date.
Peabody Energy filed for Chapter 11 bankruptcy protection in Missouri on Wednesday, reports the Financial Times, blaming a number of “unprecedented” factors that have affected the coal mining industry globally. They included the sharp drop in the price of metallurgical coal as well as the weakness of the Chinese economy.
Through the process of filing for Chapter 11 bankruptcy protection, the company intends to reduce its overall debt level while lowering fixed charges. This will improve the company’s operating cash flow and put it in a position to continue operating under the court’s protection, says a press release.
For several months, there was the fear that Peabody would end up following other major coal companies, including both Arch Coal, Patriot Coal Corporation, and Alpha Natural Resources. All three companies ended up filing for Chapter 11 bankruptcy.
“This was a difficult decision, but it is the right path forward for Peabody. We begin today to build a highly successful global leader for tomorrow,” Glenn Kellow, Peabody Energy’s chief executive was quoted as saying by the Financial Times. “Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop.”
Natural gas has come out the winner over coal for powering our electrical grids. Add to that increasingly demanding environmental regulations, coupled with a global economic downturn and falling prices and the scene has been set for disaster in the coal industry. In the U.S., coal mining communities from West Virginia to Montana have been devastated.
In the meantime, Peabody has also announced that the sale of the company’s New Mexico and Colorado assets was terminated after the buyer was unable to complete the transaction. Peabody had $6.3 billion of debt at the end of 2015, posting a net loss of $2 billion.
The energy company is seeking $800 million in “debtor-in-possession” financing facilities from CitiGroup that includes a $500 million term loan, a $200 million bonding accommodation facility and a cash-collateralized $100 million letter of credit facility, pursuant to the court’s approval.
