Peabody Energy Corp. (BTUUQ) filed its reorganization plan and disclosure statement (docket 1821) on Dec.22. Using a third-party source, I was able to get the term sheet. Using the numbers presented the term sheet, estimated values for recovery for the unsecured note holders and 2lien holders can be determined. Since the results are much below the current trading values, one assumes that the market is not using the arbitrary plan enterprise values of $4.275 billion and plan equity value of $3.105 billion. These numbers were the agreed upon numbers to make allocation of recoveries and may not be a true valuation that are used by investors.
Valuing the Rights
They are issuing rights to purchase $750 million in new equity at a 45% discount. The value of these rights is $337.5 million ($750 million x 0.45=$337.5 million). The unsecured noteholders are getting 85.2% of the rights. The value of the rights for the unsecured holders is $287.55 million ($337.5 million x 0.852=$287.55 million). The value of the rights for the 2liens is $49.95 million ($337.5 million x 0.148=$49.95 million).
Valuing the Stock Received
Using the estimates from exhibit #9, 2lien and unsecured holders are getting 12,490,700 shares @$25. The total value of these shares is $312.27 million. Again, using the 85.2% for unsecured holders, the value of new shares would be $266 million ($312.27 million x 0.852=$266 million). The 2liens value of new shares would be $46.22 million ($312.27 million x 0.148=$46.22 million).
Valuing the Penny Warrants Received
Those that participate in the rights offering will get half of the "penny warrants" that are exercisable at a penny. (Noteholder Co-Proponents get the other half.) Since there will be a total of 6.21 million shares issued via these warrants, the total value issued to the rights participants will be $77.6 million (6.21 million x $25 x 0.5=$77.6 million). Using the same 85.2%, unsecured holders would get $66.1 million and 2liens would get $11.5 million.
Total Amounts Received
The unsecured noteholders would receive: $287.55 million + $266 million + $77.6 million=$631.15 million total recovery against claims of $3.7 billion plus unpaid interest, which totals an estimated $3.96 billion-$4.16 billion. Using a mid-point of $4.06 billion claim, the estimated recovery is 15.5%. This compares to the notes trading in the mid 60s.
The 2liens are getting $450 million in some combination of cash, 1lien, and 2 lien debt besides the rights and new shares. 2liens total recovery is $450 million + $49.95 million + $46.22 million + $11.5 million=$557.67 million. Since the total claim is $1.158 billion, 2liens are estimated to get a 48.2% recovery. The 2lien notes (10% 3/15/2022) are trading at 91-94.
There are news reports about the fact that there is no detailed information about the $1.568 billion in domestic future reclamation expenses contained in the reorganization plan. Some of the other coal companies that were in Ch.11 did not include these details in their plans either. Negotiations regarding these reclamation claims are often separate from the negotiations amongst creditors to formulate a reorganization plan. I do, however, expect extensive litigation from environmentalist groups, especially since Peabody is the largest coal company in the U.S.
The problem with enterprise plan values and equity values used in reorganization documents is that they may not actually reflect how the market will value the company. These are agreed to figures used as the basis for allocation of stock, rights, and other items. They are sort of like the appraised values used to determine property taxes, which are often not remotely close to the appraised value used by a bank to determine valuation used in making mortgages.
Shareholders and holders of the convertible bonds are not getting any recovery under the reorganization plan. Clearly, the market is valuing the new stock to be received under the plan at much higher valuations than those used in the plan. I did not include the recovery estimates in my recent article because of the lack of clarity in the wording in both the reorganization plan and disclosure statement, but using the presentation in term sheet I have been able to give some type of estimates. Since these recoveries estimates are much below the market prices, I cannot recommend the purchase of the debt. That, however, does not mean that I am recommending selling the debt.
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.
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