In a release from Peabody (NYSE:BTU) Monday, management disclosed the need to take on additional financing to post collateral on hedges. Peabody (BTU) has entered into an arrangement with Goldman Sachs (NYSE:GS), whereby the the lender will provide a $150m unsecured credit facility at a 10% yield.
The news comes as seaborne thermal coal prices hit record highs. Given the Company's strategy of hedging future production through derivatives and swaps, higher prices have reduced values of derivative contracts and required Peabody (BTU) to post collateral with their clearing broker. Year to date, the company has posted $534m to satisfy margin requirements.
Monday's news comes shortly after management elected to issue a convertible equity note, and following an announced partnership to build out solar assets. Make no mistake, business has never been better for Peabody (BTU) or the thermal coal industry globally. However, missteps by management continue to punish shareholders. Peabody (BTU) shares are down ~10% on the news, despite seaborne coal prices shattering prior record highs.