I am trying to figure out why I along with MBAs, CPAs, CFAs, a former $2 billion mutual fund manager, etc. chose the riskier option for recovery on our Peabody Energy (NYSE:BTU) retail notes vs. a 138% greater recovery with no market risk or additional capital at risk?
We were given the option to accept a .21 recovery which involved the risk of having to cough up an additional 12.38% in cash to invest in the new Peabody Energy shares to get this recovery. Our other option was in the SECOND AMENDED JOINT PLAN OF REORGANIZATION OF DEBTORS AND DEBTORS IN POSSESSION AS REVISED MARCH 15, 2017. They bumped the cash pool maximum up to $75M in versus the earlier plan. It stated, if less than $150M face value of bonds elected a cash pool payment, you could get a 50% recovery. If more bondholders elected cash, you will get less than 50% recovery.
You needed a crystal ball to take the cash; the recovery could have even been .03 on the dollar especially given how unfair the Peabody Energy reorganization plan has been to all but the co-proponents of the plan (and the Peabody Energy senior management team). So much for equal treatment of those that owned the exact security. The cash recovery was a strange thing to offer. There was no way even a gambler could handicap the odds. It was smoke and mirrors. It was even discussed in court as evidence the unsecured committee was meeting their obligation to represent us. This obviously wasn't the case.
I was just told the Peabody Energy retail noteholders who have elected to receive cash from the cash pool will receive around 50% of their principal amount in 2 installments, in 100 days and 190 days after emerging from bankruptcy date. That works out to .50 on the dollar, 138% more than my recovery!
I suspect a small amount of retail noteholders chose the cash recovery. They likely consisted mainly of investors who were not willing to invest another dime in Peabody Energy securities after the reorganization nightmare. If an educated group had trouble deciding on the options, imagine if someone less educated or 90 years old had to make this decision. I understand many retail noteholders didn't mail in a decision and ended up with a .06 Peabody Energy stock recovery.
I just emailed David Hartie of KCC (Peabody Energy Reorganization Plan Subscription Agent) and Brad Brasser of Jones Day (Peabody Energy Attorneys) to ask how were retail noteholders supposed to make an educated decision on either taking the .21 recovery that involved market risk and risking additional cash to buy Peabody Energy stock or taking the cash recovery? I also asked what was the process that enabled them to come up with the .50 cash recovery? I received no comment.
I also asked David Hartie what would be the warrant allocation rate for the recovery on my Peabody Energy convertible bonds? He said there is no answer at this point. I asked him about this since my brokerage firm is clueless on the recovery of my convertible bonds.
There also is the unfinished business of former Peabody Energy retail noteholders seeking justice with their recent .06 and .21 recovery on their Peabody Energy 6s of 2018, 6.5s of 2020, 6.25s of 2021, and 7.875 of 2026 and no recovery I see on the 4.75 convertibles of 2066. Please message me on SeekingAlpha if you are a former Peabody Energy retail noteholders and you too would like to explore your options with me and other former Peabody Energy retail noteholders.
Since late last year, I have been keeping the SEC, USDOJ, The U.S. Trustee, and the Attorneys General of MO and NY very aware of how the retail noteholders and shareholders have been getting mistreated beyond comprehension with their investments in Peabody Energy.
I sold most of my BTU shares after they were received as a result of the Peabody Energy retail notes cancellation and rights offering. I have a small amount of shares left in a small Fidelity account. My Peabody Energy notes, which were $.79 in December, have been cancelled and are worthless. My Peabody Energy investment has dropped $90,000 from the December pricing.
Disclosure: I am/we are long A SMALL AMOUNT OF BTU SHARES AND BTU CONVERTIBLE BONDS WITH A TBD RECOVERY VALUE.
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.