Coal mining giant Peabody Energy Corp. has filed for US bankruptcy protection after a sharp drop in coal prices left it unable to pay debt of US$10.1 billion.
Much of the debt was 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, Reuters reports.
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 2015, 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 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.
Unlike most large corporate bankruptcies, Peabody’s filing did not sketch out a plan for cutting debt.
“Essentially through the bankruptcy process the debt will be pared down to a significant degree and lenders will essentially become shareholders,” said Monica Bonar, an analyst with credit rating agency Fitch Ratings.
In that scenario, existing stock would be canceled. Shares of Peabody, which closed at US$2.07 on Tuesday, were halted on Wednesday.
Court documents indicate creditors want the US Bankruptcy Court in St Louis to resolve a US$1 billion dispute over claims on the Peabody collateral.
The looming fight involves some of the most litigious investment funds on Wall Street, including Aurelius Capital Management and Elliott Management Corp., according to a regulatory filing.
The two funds have spent years battling Argentina in US courts over the country’s 2001 default.
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