The world's biggest privately-owned coal company has filed for bankruptcy protection. Peabody's insolvency is the most powerful convulsion yet in an industry that’s enduring the worst slump in decades.
Peabody Energy filed Chapter 11 bankruptcy protection for most of its United States entities in a court in St. Louis Wednesday, listing $10.1 billion (8.9 billion euros) in debt. The long-expected move made Peabody the latest and largest of dozens of US miners to go under as the fracking revolution made cleaner natural gas cheaper to use for steel plants and power generators.
Peabody lost $2.04 billion last year on $5.6 billion in revenues, as both coal prices and volumes shipped sank. Unable to keep servicing its debt load, Peabody said it took the step for court-protected restructuring "to strengthen liquidity and reduce debt amid an unprecedented industry downturn."
"This was a difficult decision, but it is the right path forward for Peabody," the company's president and chief executive Glenn Kellow said in a statement, adding: "We begin today to build a highly successful global leader for tomorrow."
Peabody also said that all of the company's mines and offices were continuing to operate in the ordinary course of business and were expected to doing so for the duration of the process.
To help it fund operations in bankruptcy, the company secured $800 million in financing, arranged by Citigroup. The loan, in which a number of the company's secured lenders and unsecured noteholders are participating, would require court approval, the company also said in the statement.
Battered by cheap gas
Founded in 1883 by 24-year-old Francis S. Peabody with $100, a wagon and two mules, the miner is now the largest private-sector coal company in the world, with customers in 25 countries and about 8,000 employees, according to its website.
However, the coal industry in the US and elsewhere is enduring its worst crisis in decades because tougher environmental policies, a flood of cheap natural gas and a global glut of metallurgical coal has dragged prices for steelmaking components to the lowest in more than 10 years. The price of metallurgical coal has tumbled about 75 percent since its 2011 peak.
The slump in coal prices has been particularly painful for Peabody, which spent $4 billion in 2011 to acquire Australia's MacArthur Coal. Peabody said its Australian holdings were not included in the bankruptcy filings.
As recently as October 2014, Peabody executives were optimistic, saying the worst might be over and investors were encouraged that coal pricing may have hit a bottom. But the uptick never came, and last year Peabody began cutting jobs and looking to sell assets. The planned sale of its New Mexico and Colorado assets was terminated after the buyer was unable to complete the transaction, Wednesday's statement said.
Glimmer of hope?
According to a report released by the US Energy Information Administration on Tuesday, American coal production peaked in 2008, at 1.17 billion metric tons. In recent years, it has plunged and may fall to 752.5 million in 2016, the agency said in its monthly Short-Term Energy Outlook.
Nevertheless, Peabody is hoping for a future, claiming that "multiple third-party estimates" would suggest a stabilization of coal demand. As the commodity was currently fueling about 40 percent of global electricity, it was expected to be an "essential source of global electricity generation and steel making for many decades to come," it said.
In addition, rising coal demand in India and Southeast Asia was expected to help the industry.
uhe/kd (AP, AFP, Reuters, dpa)