Peabody Energy teeters on the edge of bankruptcy

Bob Burton

Peabody Energy, the world’s largest private coal company, has today notified the US Securities and Exchange Commission (SEC) that it can’t file its 2015 annual report on time without risking triggering the financial collapse of the company.

At the heart of the company’s latest problem is the inability of Bowie Resources to raise finance to enable it to complete the US$358 million purchase of three mines in the US from Peabody Energy.

In its filing with the SEC Peabody Energy states that it can’t complete its annual return by the required deadline as the lack of funds from Bowie Resources for the mines “impacts the Company’s forecasted covenant compliance and its independent registered public accounting firm’s going concern assessment.”

In short, if Peabody doesn’t receive the payment from Bowie Resources it may not have enough money to service its debts. This would trigger a default of its loan obligations.

The company also states:

“Based on an analysis of a range of 2016 financial projections and continued coal market deterioration, the Company believes there is substantial doubt as to whether the Company can comply with its financial covenants under its 2013 Credit Facility without consummation of the Transaction.”

The company also warns that if its annual return was completed and included a warning from the accountant that there was uncertainty that the company was a ‘going concern’ this would constitute an “event of default” of the agreement governing its credit facility.

While Peabody Energy flag it could request its lenders to agree to a waiver or amendment of the credit agreement, the company notes reaching an agreement may not be possible.

If no agreement for an amendment or waiver to the finance conditions was possible, Peabody Energy states “the 2013 Credit Facility and certain of its other debt arrangements would be in default and the debt owed under such agreements could be accelerated.”

Last week Marina Lou from Greenpeace’s EnergyDesk posed the question “when is Peabody going to declare bankruptcy?”

Based on the company’s February 29 notice to the SEC, the answer may well be “very soon.”

Bob Burton is the Hobart-based Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) Bob Burton’s Twitter feed is here.