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Friday, January 22, 2021

Action Heats Up for Peabody Energy Corporation (OTCMKTS:BTUUQ)

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Peabody Energy Corporation (OTCMKTS:BTUUQ) is a Chapter 11 play in the thermal and metallurgical coal space. The company was destroyed by a combination of overproduction of coal in China, the broad commodities bear market in 2014-15, and the legislative and societal turn away from acceptance of coal as an environmentally viable energy source. However, after a long and winding road, yesterday evening, the company filed its plan of reorganization and disclosure statement with the U.S. Bankruptcy Court for the Eastern District of Missouri.

“Today’s proposed plan is an important achievement in our path toward emergence,” said Peabody Energy President and Chief Executive Officer Glenn Kellow.  “The plan charts Peabody’s course forward and reflects an enormous amount of work by the company and multiple creditor groups to advance a proposal that has broad consensus, maximizes the value of the enterprise and paves the way for a sustainable future.  We look forward to moving toward confirmation of the plan.”

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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As noted above, a reorganization plan was filed late yesterday. Here is the main detail for traders of BTUUQ: “As part of the plan of reorganization, the company anticipates emerging as a public company.  As frequently occurs in Chapter 11 processes, the plan provides that current Peabody Energy equity securities will be canceled and extinguished upon the effective date of a confirmed plan of reorganization by the bankruptcy court, and holders would not receive any value for such equity interests.”

However, we would note the following point: “The proposed plan provides for a new, sustainable capital structure that significantly reduces the pre-filing debt levels by more than $5 billion, lowers fixed charges and recapitalizes the company through a backstopped rights offering of $750 million, a private placement of mandatorily convertible preferred stock of $750 million and the issuance of new common stock to satisfy certain creditor claims.  The plan also anticipates that Peabody will emerge with substantial liquidity to satisfy near and long-term needs.”

The fact that coal prices have been rising, and the company would emerge with lots of extra cash after satisfying all creditors suggests that the market isn’t crazy for holding the equity up despite the prior paragraph stating the rule for cancellation.

$7.46/share is a long way from $0/share. The market is pricing in a fight here.

Earning a current market cap value of $138M, BTUUQ has been weathering this contentious process for over 8 months at this point. Much is still unresolved.

The company is, in fact, making serious money at this point, with trailing 12-month revenues coming in at 4.62B. But the top line has fallen off on y/y basis, declining at -12.1%. This is an exciting story and will continue to be front page OTC news as the new year hits, and we look forward to a follow-up chapter as events transpire. 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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