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Monday, October 26, 2020

Peabody Energy Corporation (OTCMKTS:BTUUQ) Equity Adjusts Higher as Its Bonds Launch

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Peabody Energy Corporation (OTCMKTS:BTUUQ) has headed into full parabolic mode as traders watch the Chapter 11 coal producer’s bonds get bought in a panic despite no clear news from the bankruptcy court. As of midday today, the company’s 6.5% September 2020 bonds were up over 2700% from their levels near the lows in February. In addition, the cost to borrow for shorts came into the session at nosebleed levels, suggesting the fade was crowded in response to the prior rally – a situation we would imagine has rather neatly sorted itself out.

When we last looked at this stock, we said, “Could the market get caught by surprise and some value re-emerge in the legacy equity? Both commodity markets and legislative factors are highly unpredictable. It’s a long shot, but we will keep an eye on the situation.” Since then, we’ve witnessed a bit less than 340% in common shareholder upside.

Peabody Energy Corporation (OTCMKTS:BTUUQ) trumpets itself as a company that engages in the mining of coal. The company operates through Powder River Basin Mining, Midwestern U.S. Mining, Western U.S. Mining, Australian Metallurgical Mining, Australian Thermal Mining, Trading and Brokerage, and Corporate and Other segments.

Peabody Energy is involved in mining, preparation, and sale of thermal coal primarily to electric utilities; and metallurgical coal that include hard coking coal, semi-hard coking coal, semi-soft coal, and pulverized coal injection for industrial customers. The company supplies coal primarily to electricity generators, industrial facilities, and steel manufacturers.

As of December 31, 2015, BTUUQ owned interests in 26 active coal mining operations located in the United States and Australia. It also engages in direct and brokered trading of coal and freight-related contracts, as well as provides transportation-related services, which involves financial derivative contracts and physical contracts. In addition, the company operates a mine-mouth coal-fueled generating plant; manages its coal reserve and real estate holdings; and supports the development of Btu Conversion and clean coal technologies.

As of December 31, 2015, the company had 6.3 billion tons of proven and probable coal reserves.

On April 13, 2016, Peabody Energy Corporation along with its affiliates filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Missouri. Peabody Energy Corporation was founded in 1883 and is headquartered in St. Louis, Missouri.

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The current launch was sparked by something that has echoed some of the other monster BK rallies we’ve been seeing: More time.

On 10/11, the company announced that it had obtained approval from required debtor-in-possession lenders to amend several milestones related to the time for a decision on what is known as the CNTA issue; the company’s deadline for filing of a plan of reorganization/disclosure statement; and the date targeted for court approval of the disclosure statement.

In addition, the company also received DIP lender consent to an amendment to the interco loan facility related to the Australian platform that allows for the potential sale of some Australian assets. Peabody has stated that its Australian metallurgical and thermal coal platforms remain core to the co, though Peabody is exploring potential sale of selected Australia assets as part of its ongoing plan to optimize its portfolio.

“The extension approval recognizes the constructive discussions that have been occurring as part of the Chapter 11 process. The co now will file a related submission for court approval. If granted, the extensions will take the CNTA-decision deadline and the deadline to file an acceptable plan of reorganization/disclosure statement to Nov. 23 and Dec. 14, respectively, from the original DIP financing deadlines of Oct. 11 and Nov. 9. The co would also modify the related deadline for receiving court approval for the disclosure statement to Jan. 31, 2017 from its original date of Jan. 8, 2017.”

At this time, carrying a capital value in the market of $116M, BTUUQ is navigating the twists and turns of Chapter 11 reorganization, and every step will be unpredictable. But they have clearly handled things well thus far, and have been rewarded by reformed sentiment on future commodity pricing and regulations, and a concomitant adjustment in bets against the common stock. The situation may continue to be worth watching. The listing has benefited from a jump in recent trading volume to the tune of nearly 640% beyond the larger time frame average. Traders should note this as important given the stock’s relatively small trading float of about 18M shares. A massive squeeze has taken place. But that doesn’t mean there isn’t more vulnerability on that side of the equation. For continuing coverage on shares of $BTUUQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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