Peabody Energy Is Officially Dead

| About: Peabody Energy (BTUUQ)

Summary

Peabody Energy has voluntarily filed for Chapter 11.

The Company has left the Australian operations out of the filings.

Will more bankruptcies follow? They sure can.

U.S. coal giant Peabody Energy (NYSE: BTU) has voluntarily filed for Chapter 11, confirming the worst fears which I discussed in an earlier analysis A Stock Which Once Sold For $1300 Is Now Just $2.

Click to enlarge

The shares of Peabody Energy have been suspended. They were trading at $2.07.

The sale of coal mines in New Mexico and Colorado could have provided a short-term relief to the Company, however, the talks were terminated after the buyer was unable to complete the transaction.

The Company has not included any Australian entity in the filings and Australian operations are continuing. Peabody had recently expanded into Australia but was unable to service the debt commitments as the slump in coal prices continued.

Peabody President and Chief Executive Officer Glenn Kellow was quoted as saying,

"This was a difficult decision, but it is the right path forward for Peabody. We begin today to build a highly successful global leader for tomorrow. Through today's action, we will seek an in-court solution to Peabody's substantial debt burden amid a historically challenged industry backdrop. This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we've made in recent years and lay the foundation for long-term stability and success in the future."

Among the factors that dealt a death blow to Peabody is the slowdown in Chinese economy, an unprecedented drop in metallurgical coal prices, increased acceptance of cleaner sources of fuel such as natural gas and regulatory hurdles crippling the industry.

The Company claims to have taken this step towards significant debt reduction and improving the cash flows. It has secured $800 million in debtor-in-possession financing from a group of secured/unsecured lenders led by Citigroup.

The Company will focus on the Australian market, which earned more in 2015 than the prior year even amid record-low prices.

But this is not a case of a Company looking to strengthen its liquidity position; it is the scream of an industry writhing in pain. Will more bankruptcies follow? They definitely can.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.