The federal bankruptcy watchdog says a judge should not approve Peabody Energy Corp. court motions since they lock in "exorbitant" payments before creditors can vote on the full reorganization plan.
Daniel Casamatta, the acting U.S. Trustee for the Eastern District of Missouri, said in a Jan. 18 court document that the coal producer "unlawfully" pays numerous professionals and "exorbitant" transaction fees.
"If the court approves the motion, it remains unclear what substantive plan provisions could be objected to and inappropriately shifts the burden of proving the plan not confirmable on those opposing the plan, thus relieving the proponents from their burden in demonstrating that the plan satisfies all confirmation requirements," the court document said.
The trustee said agreements between Peabody and the secured lenders and certain creditors commit the coal producer to pay $240 million in transaction fees, plus a monthly ticking fee of 2.5% of $750 million starting April 3 until the plan effectively starts. Other payments include break-up fees, private placement fees and money to professionals who have not been retained.
"The agreements, if approved, bind the debtors to pay the entirety of the subject fees regardless of the ultimate outcome of the case," the document said.
These transaction fees are on top of the unrestricted amounts of non-estate professional fees Peabody already agreed to pay. "Indeed, debtors have agreed to pay every cent of the subject fees without adherence to the Bankruptcy Code, the process of court review or even a determination of reasonableness of those fees," the document said.
The professional fees include the lawyers, accountants, advisers, consultants and other unnamed professionals who represent "co-proponents" of the agreements, the trustee said.
Peabody has been making a number of announcements of increased support for its reorganization plan as it makes deals with the holders of certain senior notes. Other Peabody investors have objected to these deals, however. Mangrove Partners Fund LP, which has bet big on Peabody shares during the Chapter 11 reorganization, said the coal producer's plan agreement with noteholders should not be approved before the confirmation of the plan as a whole.
A Peabody spokesperson told S&P Global Market Intelligence that the company was "reviewing the comments as we continue to advance a plan to maximize the value of the enterprise."
Meanwhile, the company announced that it had agreed on Jan. 18 to a settlement with an unsecured creditors' committee that could resolve potential objections to the reorganization plan from the latter. According to the agreement, filed Jan. 19 in a Form 8-K, the committee will get approval rights on matters that affect the amount of equity and cash distributions to holders of general unsecured claims that are not unsecured senior notes claims.
"We are pleased to have reached agreement with the UCC and are encouraged by the support we have received," said Peabody Energy President and CEO Glenn Kellow in a release. "We look forward to continuing to advance a plan that we believe maximizes the value of the enterprise."
Certain unsecured creditors who sign onto the deal will be able to access a pool of $60 million in cash distribution, though recoveries will be capped at 30% of their allowed claims.