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'Unprecedented' challenges force largest US coal producer into bankruptcy

Peabody EnergyCorp., the world's largest private sector coal company, its distressedpeers to U.S.bankruptcy court April 13.

The bankruptcy includes most of the company's U.S.operations, but excludes its Australian subsidiaries. St. Louis-based Peabodywarned bankruptcy waspossible if it was unable to complete a deal with Bowie Resource Partners LP for several of its coal minesbecause it would not have enoughliquidity to avoid filing for Chapter 11 bankruptcy.

In announcing its bankruptcy, Peabody also disclosed theplanned sale of those New Mexico and Colorado assets was terminated becauseBowie was unable to complete the transaction.

Peabody had disclosed earlier it was delaying payments onits debt and warned investors of a potential bankruptcy filing. Peabody said itplans to reduce itsoverall debt level, lower fixed charges, improve operating cash flow andposition the company to return as a major competitor in the long-term.

"Thiswas a difficult decision, but it is the right path forward for Peabody. We begin today to build a highly successful global leaderfor tomorrow," said Peabody President and CEO Glenn Kellow. "Through today's action, we will seek an in-court solution to Peabody'ssubstantial debt burden amid a historically challenged industry backdrop."

Inits announcement, Peabody said the factors affecting the global coal industry"have been unprecedented." Like its peers that have turned tobankruptcy, Peabody has faced a dramatic drop in the price of metallurgicalcoal, weakness in the Chinese economy, overproduction of domestic shale gas andregulatory obstacles.

Thecompany expects domestic and global coal demand to stabilize and plans to takeadvantage if U.S. gas prices rebound.

"Acompany like Peabody with safe, efficient operations will be well positioned toserve coal demand that will continue in the United States and around theworld," said Kellow. "We are a leading producer and reserve holder inour core regions of the Powder River Basin, Illinois Basin and Australia."

Peabodysaid all of its operations were cash-flow positive in 2015 and said Australianoperations even outperformed year-over-year.

Peabody has secured $800 million in debtor-in-possessionfinancing and plans to continue operations as usual as it proceeds throughreorganization.

"In short, coal will remain an essential part of theenergy mix … and Peabody is here to stay," Kellow wrote in a letter toemployees. "In fact, today's actions are being taken to strengthen ourorganization."

The company also warned employees of "speculative andoften unfounded stories in the media" and said it has obtained financingto last up to 18 months as it intends to continue paying employee wages andproviding healthcare and other benefits without interruption.

Tradingin Peabody shares on the New York Stock Exchange is expected to be suspendedimmediately. Peabodysaid it plans to work with government agencies to meet reclamation .

Peabody'spetition for bankruptcy shows the company reported between $11.02 billion inassets and $10.12 billion in debts.

As one of the largest, oldest coal mining companies,Peabody's bankruptcy carries hefty symbolism, particularly for those in opposition to theindustry. LukeSussams, senior analyst at the London-based Carbon Tracker Initiative said the"demiseof Peabody Energy is the most significant signal yet that the global coalmarket is nearing a structural decline."

"Afew years ago, Peabody Energy was telling investors demand for coal was goingto rise. Today it has filed for bankruptcy," Sussams said. "This is atimely reminder that investors must not accept the demand expectations offossil fuel companies on face value."

Building a giant from $100,a wagon and two mules

Accordingto Peabody's website, the company was founded with $100 in start-up capital, awagon and two mules by Francis Peabody. From there the company grew andexpanded its empire.

TheSt. Louis-based company is likely the most well-known in the U.S. both for itssize and controversy, including a mention in John Prine's famous country song"Paradise."The company opened its first coal mine in 1883 in Williamson County, Ill.

Peabodywould later turn its focus to Wyoming. Its North Antelope Rochelle mine is thelargest surface coal mine in the country and produces more coal than some topcoal mining states' cumulative production.

Whileit once had a presence in the now particularly hard-hit Appalachian coalbasins, it spun most of those operations off into the now twice-bankruptPatriot Coal Corp. in2007.  

Likemany of the coal companies to fall into bankruptcy, a part of Peabody'sdownfall was a huge bet on met coal markets. The company spent billions topurchase Macarthur Coal in Australia at what ended up being near the top of themet coal market.

Thedebt many coal companies took to purchase met coal assets proved difficult toservice once the met coal market collapsed on slower Chinese economic growthand an increasing supply glut from global producers.

Signsof distress began showing up in recent months. Despite record production fromNorth Antelope at the end of 2014, Peabody released a string of bad newsthrough 2015 and 2016.

Thecompany's FutureGenAlliance carbon capture project lost U.S. Department of Energy funding early in2015. By September 2015, Peabody announced a 1-for-15 reverse stock split in abid stay on the NYSE.

Thefirst several months of 2016, the company spent much of its publiccommunications efforts on explaining to investors that it was aiming to workout a deal with Bowie. In late-March, it was revealed Peabody was planningsignificant layoffsat North Antelope.

"The biggest coal gianthas fallen, and Peabody Energy's bankruptcy should serve as a wake-up call toanyone promising that coal's glory days will return," said Mary Anne Hitt, Director of Sierra Club's BeyondCoal Campaign in a news release April 13."As Peabody grapples with the reality that the world is turning away fromcoal, it's essential that it doesn't turn away from its obligations to workers,communities, and the environment."

Withthe addition of Peabody's operations, about 44% of the nation's coal mined inthe final quarter of 2015 came from a coal company that has for bankruptcy since 2012. About69.5% of the coal mined from the Powder River Basin in that period camefrom a coal company in bankruptcy.