What happened
Shares of coal producer Peabody Energy (BTU 0.77%) 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.
So what
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.
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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.
Now what
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.
