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Mr. Peabody’s coal mine might just go away

Coal_Shovel_at_Mine

Peabody Energy, the biggest producer of coal in America, just missed an interest payment of $71 million and will almost certainly file Chapter 11 bankruptcy. Their auditor says there is uncertainty about Peabody continuing as a going concern. Their big problem is enormous amounts of debt. As of Dec. 31 they had total debt of $6.3 billion and cash equivalents of $261.3 million. Would someone please explain why such reckless amounts of borrowing is justifiable and why any lender would be stupid enough to give them money? Or is GAAP accounting only for the little people?

Many more energy companies are expected to default in the new six months on $40 billion in bonds, which means lots of jobs will go away and there will be unpredictable carnage in some areas of the bond market. Maybe you have a retirement fund and maybe it owns some of these now mostly worthless bonds. Or you or friends live in a town dependent of coal mines and which might now dry up and blow away when the mines shut down.

The company also said that in February 2016 it borrowed approximately $945 million under the 2013 Revolver, the maximum amount available, for general corporate purposes. The company’s lender banks will surely be excited that they are about to see another $1 billion in secured loans promptly impaired in one month when BTU has no choice but to file for bankruptcy.

Peabody, which flagged bankruptcy risk under the “risk factors” section of a regulatory filing on Wednesday, said it skipped a $71.1 million interest payment on its senior notes, kicking off a 30-day grace period. The company also raised “substantial doubt” about its ability to remain a going concern.

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