Current Equity Outlook for Peabody Energy Corporation (OTCMKTS:BTUUQ)

Current Equity Outlook for Peabody Energy Corporation (OTCMKTS:BTUUQ)


Peabody Energy Corporation (OTCMKTS:BTUUQ) is a major player in the thermal and met coal space. The stock is in Chapter 11 reorganization and nearing a contentious emergence back onto the big board. As we noted last time around, if you are trading this ticker, then this is just about the only key point to note in recent events: “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.”

That said, we are seeing a rapid upward repricing in many commodities over the last few months, and coal is no exception. The market has had to react to a shortage driven by inefficiencies in Chinese production, as well as a massive stigmatization effort in the West over recent years. That has produced a sharp upward repricing, which translates to a revaluation of Peabody’s reserve assets, and a shift in the nature of valuing this company. But that has not spurred so much as an apparent conversation among bankruptcy participants about an Equity Committee in this case, according to the company’s latest update (see further below).

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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In the company’s update, it was announced that “as of 5:00 p.m., New York City time, on Dec. 30, 2016, additional eligible holders of approximately 16.6 percent of the outstanding principal amount of the company’s senior secured second lien notes and approximately 3.8 percent of the outstanding principal amount of the company’s senior unsecured notes became parties to the Plan Support Agreement (PSA) relating to the company’s plan of reorganization and also joined the Backstop Commitment Agreement (BCA) relating to the proposed $750 million common stock rights offering and the Private Placement Agreement (PPA) relating to the proposed private placement of $750 million of mandatorily convertible preferred stock as Phase Two parties.”

So, there is a lot of momentum here towards wrapping this up at this point. When combined with the holdings of the creditors party to the PSA, BCA and PPA through Dec. 29, 2016, holders of approximately 40.1 percent of the company’s outstanding first lien debt are parties to the PSA, and holders of approximately 81.9 percent of the outstanding principal amount of the company’s senior secured second lien notes and 72.3 percent of the outstanding principal amount of the company’s senior unsecured notes are parties to each of the PSA, BCA and PPA.

“Peabody is pleased with the continued momentum demonstrated by the substantial consensus shown among multiple creditor classes,” says Peabody President and Chief Executive Officer Glenn Kellow.  “We look forward to advancing our plan toward approval and ultimate confirmation.”

All of that said, the plan of reorganization is subject to confirmation by the court. It pays to take note of this fact with a float in play that’s relatively small — barely over 17M shares. If there is a move by the court to question the process of eliminating a conversation about current equity holders, the reaction could be memorable.

BTUUQ is pulling in trailing 12-month revenues of $4620.2M. And one point that really captures the on-the-ground reality for this company: the company is seeing declines on the top line on a quarterly y/y basis, with revenues falling at -12.8%, but huge sequential q/q top line growth of 17% in the Fall. You can bet we will update this one again as new information comes into view. 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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