Leading global coal producer Peabody Energy Corp on Wednesday filed for US bankruptcy protection after a sharp drop in coal prices left it unable to service debt of US$10.1 billion, much of it incurred for an expansion into Australia.
The Chapter 11 bankruptcy filing ranks among the largest in the commodities sector since energy and metal prices began to fall in mid-2014 as once fast-growing markets including China and Brazil started to slow.
Peabody, the world’s biggest private-sector coal producer, said it expected its mines to continue to operate as usual and said its Australian assets were excluded from the bankruptcy.
Peabody estimated its assets at US$11.0 billion and liabilities at US$10.1 billion as of the end of last year, according to court documents.
“This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years and lay the foundation for long-term stability and success in the future,” Peabody chief executive officer Glenn Kellow said in a statement.
Peabody has agreed to US$800 million in debtor-in-possession financing from both secured and unsecured creditors, subject to court approval, including a US$500 million term loan, a US$200 million bonding accommodation facility for cleanup costs and a letter of credit worth US$100 million, it said.
Large coal companies have been allowed to leave a share of future mine cleanup without collateral through a program called “self bonding” that has come under federal scrutiny following financial distress in the coal sector.
Peabody has a total of US$1.1 billion in self-bonding across four states, court documents showed.
Shares of Peabody, which closed at US$2.07 on Tuesday, were halted on Wednesday.
Debt troubles for Peabody date to its US$5.1 billion leveraged buyout of Macarthur Coal in 2011, just when prices peaked for the metallurgical coal that the Australian company supplies to Asian steel mills.
As metallurgical coal demand fell, particularly in China, Peabody’s financial woes intensified. The company wrote down US$700 million on its Australian metallurgical coal assets last year.
In the US, the shale boom of the past few years made natural gas competitive with thermal coal, and environmental regulations of US President Barack Obama’s administration raised operational costs.
This year “will probably go down as the worst year in history for US coal,” JPMorgan said in a research note on Tuesday.
US production declined 31 percent in the first quarter year-on-year, although stockpiles still remain high, the note said.
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