Alternative bankruptcy plan could ‘imperil’ Peabody -court paper

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By Tracy Rucinski | CHICAGO

CHICAGO Peabody Energy Corp, the
world’s largest private sector coal producer, stood by its
current bankruptcy exit plan on Tuesday, saying in court papers
that alternative proposals threatened to send the company back
into Chapter 11.

Peabody’s plan to slash $5 billion of debt has the support
of the vast majority of its creditors but is opposed by Indiana,
Missouri, environmental groups and certain former employees,
creditors and shareholders.

A small committee of objecting creditors has sent Peabody a
series of alternative proposals to its own plan, which calls for
the coal producer to emerge from bankruptcy in April with about
$2 billion in debt.

In a filing with the U.S. Bankruptcy Court in St. Louis,
Lazard’s Tyler Cowan, who has been advising Peabody on its
restructuring, said the alternative plans contained “major
flaws” in terms of valuation, debt capacity and feasibility.

Given the “cyclical and volatile nature” of the coal
industry, Cowan said Peabody’s debt should not exceed $2 billion
given a long list of risks including China’s coal policy, U.S.
natural gas prices, and financing for environmental cleanup and
retirement obligations.

Failing to take into account the downside risks inherent in
coal mining could impair Peabody’s competitive position in the
future, Cowan said.

In a worst-case scenario, he said Peabody risked another
bankruptcy filing similar to Patriot Coal, which filed for
Chapter 11 a second time in 2015 after emerging from its first
bankruptcy filing in 2012 with too much debt.

“The burden of onerous debt service and heightened leverage
would imperil the debtors’ ability to maintain the flexibility
needed to withstand such downside scenarios,” Cowan said.

He called the risk of Peabody emerging from Chapter 11 with
heightened leverage “immense” and said it would undermine its
efforts to achieve an appropriate and “cycle-proof”
post-bankruptcy capital structure.

With $2.4 billion of debt proposed by dissenting creditors,
Cowan said Peabody’s leverage would exceed healthy peers like Arch Coal Inc, which emerged from Chapter 11 in October
with virtually no debt.

An initial proposal by the creditors valued Peabody at
approximately $1.8 billion above the high end of Lazard’s $4.2
billion to $4.9 billion valuation range for the company.

In a separate filing, Peabody said its own plan “is
presently the only plan that provides a certain and timely exit”
from Chapter 11.

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