Peabody Energy Corp facing problem over $1.47 bln self-bonding

February 18
9:29 AM 2016

With negotiations with debtors going on for several months, another problem has surfaced for Peabody Energy Corp. The latest issue involves a $1.47 billion self-bonding which poses a major threat to the Company. The Energy Corp faces bankruptcy on the lines of other coal miners, which may end up in financial crisis.

Chicago-based Peabody Energy Corp is the world's largest private sector coal company. The Self-bonding issue has been criticized by certain groups. The Self-bonding aspect has been challenged in courts by certain groups in five states.

Peabody Energy and other coal producers are said to have strong balance sheets and kept cash reserves under the Self-bonding privilege, which safeguards the coal miners from having to post collateral or obtain surety bonds covering future clean-up costs.

Bloomberg reports that Peabody Energy Corp self-bonds in five states including Wyoming state. Activists are raising questions about Peabody's ability to 'self-bond' $1.47 billion in future mine clean-up costs. Wyoming state accounts for $900 million self-bond in future mine clean-up costs, while New Mexico accounts for about $300 million, Illinois and Indiana states are in the range of $100-$200 million. Colorado state holds the rest of the self-bond practice.

The ongoing coal rout is leaving Peabody Energy Corp in financial doldrums. Environmentalists, lawyers and Federal officials are keeping pressure on Peabody Energy to crack down on self-bonding practice in five states. The prevailing situation may force coal mining companies to post billions of dollars for future clean-up costs as they're finding it difficult to sustain their current share in the US power market. The cheap natural gas is giving jitters to coal miners.

However, Peabody Energy Corp in a statement issued on 11 February said it continues to qualify for self-bonding in all five states. "Wyoming reaffirmed its eligibility in the fourth quarter of 2015. It qualifies through its affiliate Peabody Investments Corp." But, the financial records for this affiliate are not publicly available, according to St Louis Post-Dispatch.

Peabody Energy in Wyoming State has encouraging record of land restoration. "It spends tens of millions of dollars to restore lands that other companies mined," said Beth Sutton, a spokesperson at Peabody Energy Corp. In Wyoming, Peabody's self-bonding amounts to $900.5 million, said Keith Guille, a spokesman at the state's Department of Environmental Quality.

Meanwhile, Peabody Energy Corp has reported financial reports for the year ended December 2015. The gross margins eased to negative -0.29 percent from 6.26 percent. The narrowed operating margins led the decline in earnings, as reported by Capital Cube. The net margin further widened in the negative range from 1-11.29 percent to -33.2 percent. The revenues fell to $5609.2 million in 2015 from $6728.3 million in 2014.

If one state revokes Peabody's ability of self -bond may force other states to follow the suit. Anything that evaporates liquidity will lead to bankruptcy. The revolving credit facility has been exhausted and Peabody had $902.6 million in liquidity as on 9 February 2016.

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