The company says this action is a major step towards strengthening liquidity and reducing debt amid an “unprecedented industry downturn”.
Through this process, the company intends to reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process.
All of the company’s mines and offices are continuing to operate in the ordinary course of business and are expected to continue doing so for the duration of the process.
No Australian entities are included in the filings, and Australian operations are continuing as usual.
“This was a difficult decision, but it is the right path forward for Peabody Energy. We begin today to build a highly successful global leader for tomorrow,” says Peabody Energy President and CEO Glenn Kellow.
“Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop.”
[quote]In connection with the process, Peabody has obtained $800 million in debtor-in-possession financing facilities, which were arranged by Citigroup and include participation of a number of the company’s secured lenders and unsecured note holders.
The facilities include a $500 million term loan, a $200 million bonding accommodation facility and a cash collateralised $100 million letter of credit facility, and are subject to court approval as well as limitations as set out in the company’s filings.
In addition to the company’s existing cash position, Peabody believes that it has sufficient liquidity to operate its business worldwide post-petition and to continue the flow of goods and services to its customers in the ordinary course.
Peabody Energy still upbeat about the future of coal
Industry pressures in recent years include a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and on-going regulatory challenges.
Still, multiple third-party estimates project that both the US and global coal demand will stabilise. US gas prices are projected to rebound from recent lows. Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction.
Coal currently fuels approximately 40% of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come.
“A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world,” says Kellow.
“We are a leading producer and reserve holder in our core regions of the Powder River Basin, Illinois Basin and Australia. Peabody has a new management team, outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”
In 2015, all of Peabody’s US operations were cash-flow positive, the Australian platform earned more than the prior year despite lower prices for coal and the company’s administrative expenses and capital investments were at the lowest levels in nearly a decade.
Peabody Energy terminates asset sale
Peabody Energy also announced that the planned sale of its New Mexico and Colorado assets was terminated after the buyer was unable to complete the transaction.