Peabody Energy Corp. once had a significant presence in Kentucky as a large coal producer. After Peabody sold its Kentucky operations, it was unable to become profitable, and in April 2016, it filed a petition for reorganization under Chapter 11 of the federal Bankruptcy Act. The company’s reorganization plan was recently approved by the Bankruptcy court in St. Louis, but certain creditors and some shareholders are filing appeals from the court-approved plan.
The major features of the plan are the cancellation of $5 billion in debt, full repayment of $3.1 billion of secured debt with a mixture of cash and new debt, a $750 million stock offering in lieu of certain unsecured debt and common stock and a mixture of cash, debt and new stock for other creditors.
The plan was approved by the bankruptcy judge, but several parties to the bankruptcy proceeding have filed notices of appeal from the ruling. A dozen money managers who represent various shareholders and who voted against the plan are asking the appellate court to review the terms of a private stock sale that was a critical part of the cancellation of $5 billion in debt. Peabody’s plan required creditors to support the reorganization plan before they would be allowed to participate in the private offering. According to the attorneys for the objecting creditors, this feature of the plan violates the bankruptcy code. Peabody responded by observing that 93% of its creditors approved the plan and that it still expected to emerge from Chapter 11 in April.
If the appeals are rejected, or if the plan is modified to remove these objections, Peabody will be able to free itself from substantial debt and to return to profitable operations. If the claims of the objecting creditors are accepted by the appellate court, the plan will be returned to the bankruptcy court for further changes. In either case, Chapter 11 will have given Peabody an opportunity to eliminate business debt and rejuvenate its financial health.
Source: St. Louis Post-Dispatch, “Peabody’s adversary creditors to appeal bankruptcy exit approval,” Tracy Rucinski Reuters, Mar. 23, 2017