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Debt Restructuring Movement Fuels 25% Rally at Peabody Energy Corporation

By Matthew DiLallo - Sep 24, 2015 at 1:49PM

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Peabody Energy Corporation’s senior creditors have hired a law firm to represent their interests in the company’s potential restructuring.


What: Shares of Peabody Energy Corporation (BTU) jumped as much as 25% at the time of this writing. There were two drivers fueling today's surge, one relating to Peabody and one relating to an industry peer.

So what: In the news relating to Peabody, its senior lenders hired a law firm to help them protect the value of their assets according to a report by Bloomberg. These lenders hold a $1.17 billion term loan and they are concerned that a debt restructuring proposal from Peabody could dilute the value of the assets that are securing that debt. The reason this news is fueling a rally in Peabody Energy's stock is because it suggests the company is serious about de-leveraging and that such a move has the potential to wipe out some of the value of its outstanding debt.

In other news, one of Peabody Energy's close rivals announced the extension of its debt exchange plan for another month as it works to continue to grow support for its plan. Its plan includes exchanging existing debt for longer-term securities that would reduce its total debt and annual interest expense by about 20%. The deal is seen as a potential benchmark for a debt swap by Peabody Energy, which is why some of Peabody's lenders hired a law firm to protect their interests.

Now what: Peabody Energy still remains in a tight spot as the coal market is very weak and not showing any signs of life. That being said, if it can work out a debt restructuring agreement with its creditors it can buy itself time. The hope is that in buying time the company will be able to survive until he coal market turns around. Though, that's becoming more of an if and not a when given the fundamental shift away from coal and toward cleaner burning fuels.

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