Signature Sponsor
Debt Restructuring Eases Pressure on Peabody, Which Lost $1.9 Billion in 2020

 

 

By Greg Johnson

February 5, 2021 - A recently completed effort to reduce short-term debt and new agreements with its reclamation surety bond holders has eased some financial pressure and given Peabody Energy Corp. officials a more optimistic outlook for 2021, despite a disastrous 2020 that saw the company lose about $1.9 billion.

A perfect storm of an already weak market for domestic thermal coal and low natural gas prices was significantly impacted by the COVID-19 pandemic on energy consumption.

Add in a federal court upholding a Federal Trade Commission rejection of a joint venture between Peabody and Arch Natural Resources Inc. and demands for increased collateral by its surety bond holders, much of the fourth quarter 2020 involved speculation about how close Peabody was to its second bankruptcy in five years.

Last year “brought immense challenges both in the U.S and across the globe,” said Peabody President and CEO Glenn Kellow in a Thursday morning year-end earnings call. “As the COVID pandemic came in full force, so did lower natural gas prices, lower global energy prices and the disruption of other markets throughout the year.”

The year ended on a shaky note with a net revenue loss of nearly $128 million in the fourth quarter. But 2021 is looking better with the company having secured an agreement with its surety bond holders and an overhaul of its debt structure that pushes out much of its obligations beyond 2022, Kellow said.

The debt refinancing was completed last week and includes about $1.5 billion that pushes out the sunset of all but $60.3 million maturing prior to the end of 2024.

“Our new capital structure provides a foundation for future value creation and the time needed to continue to pursue cash flow improvements across our operations,” said Chief Financial Officer Mark Spurbeck in a company statement announcing its year-end financials.

He also said Peabody has put up another $75 million in collateral to its surety holders and has agreed to provide another $25 million annually through 2024.

Those agreements have been well-received by investors and is reflected in the company’s stock rising from a low of 83 cents at one point in the fourth quarter of 2020 to close at $4.35 on Wednesday.

The Powder River Basin

As one of the world’s largest thermal and metallurgical coal producers, Peabody’s three Powder River Basin mines saw production fall from 107.9 million tons mined in 2019 to 84.2 million last year, a decline of 22%.

That includes a 23% drop at its flagship North Antelope Rochelle mine in southern Campbell County, which has traditionally been the largest-producing coal mine on the planet.

Last year, NARM produced 66.1 million tons, according to the federal Mine Safety and Health Administration. That’s down from 85.3 million tons in 2019 and represents the mine’s lowest output in more than two decades, when it produced 55.8 million tons in 1998.

Production at Peabody’s other PRB mines, Caballo and Rawhide, were down 32% and 5%, respectively.

U.S. thermal coal “continues to be heavily influenced by natural gas prices, renewable generation and weather,” Kellow said. “This is especially evident by what happened in 2020.

“There is no question U.S. thermal coal is a challenging market; however, we stand by our thermal (operations). We have the ability to, and continue to, shift contracts among mines to meet our customers’ needs and maximize revenue.”

Peabody’s mines have been able to reduce their costs per ton, Kellow said, despite the acceleration of utilities retiring coal-fired generation, along with significant power consumption reductions because of the pandemic and a warm winter so far.

Coal last year fell to about 19% of the overall electricity generation in the United States last year, down from about 23% in 2019, Peabody reports.

Part of the company’s response has been to implement strategic suspensions of production at some mines while downsizing its overall workforce by about 2,000 people last year, or about 30%, according to the year-end report.

In the Powder River Basin, that was a drop from 1,562 employees at the end of 2019 to 1,311 at the end of last year, according to MSHA reports. That loss of 251 positions represents 16% of the combined workforce at NARM, Caballo and Rawhide.

Looking ahead, Peabody projects 2021 will be “largely in line” with 2020, Spurbeck said. The first quarter especially could be rough because a warm winter has impacted energy consumption. Uutility companies already have sufficient coal stockpiles to start the year.

Having put off the immediate threat of losing its surety bonds and maturity of 2022 debt that the company couldn’t pay by that time, Peabody begins a new year in a better place than it ended 2020, Spurbeck said.

Although the last 12 months made for “an extremely challenging year,” he said those challenges “were met head-on.”