Shares of coal producer Peabody Energy (BTU -3.52%) jumped as much as 22% in trading on Monday after the company finalized an agreement with debtholders. At 2:50 p.m. EDT today, shares were near their highs of the day and showed no signs of stopping.
An agreement announced on Thursday finalizes a proposed deal from Dec. 24. The deal extends the maturity of senior secured notes due in 2022 to a 2024 maturity date. The company's revolving credit facility was also extended to December 2024. Part of the agreement also eliminates some covenants that management thought could restrict its flexibility.
Management is hoping that extending debt maturities to 2024 will give the company leeway to turn operations around. They see potential demand growth in international markets, which could offset a decline in U.S. demand. But creditors aren't giving the company a break on what they're owed, so Peabody has to start showing operational improvement or it's just kicking the can down the road.
I don't see this agreement as a game changer for Peabody Energy. The company is still in a business that's in structural decline as coal power plants are shut down around the world. That'll continue to put pressure on the business, and long term I think there are better opportunities in energy stocks outside of the coal industry than there are in the dying business.