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Sunday, January 24, 2021

What Will Happen to Common Shares of Peabody Energy Corporation (OTCMKTS:BTUUQ)

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Peabody Energy Corporation (OTCMKTS:BTUUQ) almost surprisingly continues to be a focus among OTC traders. This is despite the fact that the story would seem to be well and truly in the books on the common shares: according to the company executives, creditors, and the bankruptcy court, common shares now trading under the BTUUQ ticker will be canceled as worthless.

This was further confirmed last week when U.S. Bankruptcy Judge Barry Schermer said he was ready to sign an order to approve Peabody’s bankruptcy emergence once language regarding a late settlement of certain U.S. Department of Justice complaints had been finalized.

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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“Peabody has accomplished the goals set out nearly a year ago, against an industry backdrop that has strengthened,” Chief Executive Officer Glenn Kellow said in a statement.

As it stands, the reorganization plan will repay secured lenders in full. The plan has naturally received total support from the creditors. The likelihood of an objection that manages to pass muster defending the potential for an allocation to current common shareholders is minimal at best, especially considering that they may be given access to purchasing access into a private stock sale.

As perhaps a final nail in the coffin, Judge Schermer went on to specifically overrule the shareholder objection on being wiped out in the reorganization plan.

Something is holding the shares up above $0 now, and our guess is closing short exposure on diminished reward-to-risk ratio from arb funds, as we noted last time around: “Will this result in a rethinking of the reorganization plan? It’s extremely doubtful. However, if you are a large arb fund and you have taken the story on in a portfolio as a short, you may be up some serious dough at this point, with only a couple bucks to go to $0. Why risk getting blown up by politics? I think you cover. I think they did. I would, too.”

According to a recent Reuters piece, “Peabody’s plan is being financed through a $1.5 billion sale of stock, consisting of a $750 million rights offering available to bondholders and a $750 million private placement of preferred equity for institutional investors. A small group of asset managers opposed the plan because they said it was proposed in bad faith and attacked the private placement for enriching the select funds that helped negotiate the company’s bankruptcy plan.”

If there is a crack of doubt, it lies in the private placement: “The value of the private placement is truly extraordinary,” said Andrew Leblanc, a lawyer who represented the opponents to the plan.

The Reuters piece noted that Leblanc said they would appeal the bankruptcy confirmation.

BTUUQ has a much-improved situation in front of the company. Unfortunately, that will likely not be available to current common shareholders in this ticker. It would take a Doug Flutie-style “Hail Mary” event in the course of this reorganization discourse to pull it out for common holders at this point given that the current plan is favored by management, creditors, and the judge. We will update the story again soon as further details emerge. 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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