Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
In what some are saying is the final nail in the coffin for the coal industry, the largest private-sector coal mining company in the world filed for Chapter 11 business reorganization bankruptcy on April 13. The filing, by St. Louis-based Peabody Energy, is but one in a long stream of bankruptcies filed by major coal companies in the United States in the last several years. However, Peabody’s liabilities make it the biggest U.S. corporate bankruptcy this year according to data compiled by Bloomberg. The filing estimates the coal giant’s debt at $10.1 billion.
Experts say the coal slump is the compacted effect of tougher environmental policies, floods of cheap natural gas, and global excess of metallurgical coal (used in the production of steel) that has dragged down prices for the steelmaking component to lower than they have been in over 10 years. Coal used to provide roughly half of the nation’s power, but natural gas surpassed it as our top source of electricity for the first time a year ago. The outcome of Peabody’s bankruptcy may very well turn on what trajectory coal prices take over the course of the company’s reorganization, which could take years.
Peabody’s has said it will stay in operation throughout the reorganization. However, the corporation’s case has other issues complicating the matter: non-bankrupt operations in Australia and battles over environmental obligations.
In 2011, Peabody’s spent $4 billion to acquire Australia’s MacArthur Coal Ltd. in order to expand sales of metallurgical coal, the steelmaking component. However, the price for metallurgical coal was at its peak in 2011 and has since tumbled about 75 percent.
Financial analysts said the question for months has not been whether or not Peabody would file for bankruptcy, but rather when it would file, and if they would include its Australian assets. Peabody did not include MacArthur Coal in its filing and said that the mines there would continue to operate as usual.
The Australian company says its assets that Peabody purchased with debt will be central to any resurrection of the group’s other operations. However, the Australian company said they do not yet know whether or not its assets are security on Peabody’s other debts.
However, although he admitted the MacArthur acquisition was “ill-fated,” New York-based securities analyst Jeremy Sussman told Bloomberg that most of Peabody’s mines are actually profitable, unlike those belonging to other bankruptcy miners such as Alpha Natural Resources Inc. and Walter Energy Inc. Some financial analysts say that the bankruptcy filing isn’t the “death knell” for coal, but rather simply shows the pains of a shrinking industry.
Coal companies have been exchanging debt they owe lenders in exchange for equity in the company, known in the financial world as a “debt-for-equity” swap. The majority of energy experts say that coal will most likely provide as much as a third of our nation’s energy for years to come.
Meanwhile, market analysts say that industry indicators out of China have seen a rally in steel prices in some other commodities. If coal output in the United States continues to reduce so drastically, it could cure the domestic oversupply of coal.
Time will tell how the market responds and whether or not Peabody’s Australian assets are listed as security on the corporation’s other debts. The corporation is still producing coal for its customers in 25 countries on six continents.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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