An investor with a large stake in Peabody Energy Corp. believes recent coal market recoveries means shareholders still stand to extract value from the company despite its earlier financial woes.
Mangrove Partners Fund LP recently acquired a 5.2% stake in Peabody despite Peabody's warning that its equity securities would likely be canceled and extinguished for no value upon reorganization. Mangrove paid about $7.1 million for 971,058 shares.
In a Dec. 8 bankruptcy filing, Mangrove asked the U.S. Bankruptcy Court for the Eastern District of Missouri to appoint an official committee for equity holders. Mangrove insists the shares of Peabody, the largest coal company in the United States, are worth at least hundreds of millions of dollars. Using estimates from Peabody's business plan, Mangrove said equity would recover meaningful value with metallurgical prices of around $145 per ton and thermal coal prices of $77 ton per ton or higher. Those prices are above the historical average, and recent rallies have pushed current prices over those levels.
"When the debtors filed their bankruptcy petition, they acknowledged that the filing was a result of a 'storm that has beset the coal industry' in the form of reduced demand and significantly lower coal prices," Mangrove said in its motion. "Since the filing of these cases, the coal industry has rebounded. Spot pricing for seaborne metallurgical coal has increased 235%, while thermal coal has increased 77%. Similarly, recent market projections indicate strong demand for coal for the foreseeable future."
Peabody noted in a statement the U.S. Trustee had denied the request to form an equity committee. The company also reiterated its belief that Peabody equity securities would likely be canceled or extinguished.
"We disagree with the position expressed by Mangrove, and we intend to respond in court," Peabody's statement reads.
Had the pricing rally happened earlier, Mangrove notes, "there is no reasonable dispute" Peabody would not have been forced into bankruptcy. A recent S&P Global Market Intelligence analysis shows that Peabody Energy production rebounded 32% from the second to third quarter after several periods of declining production. Peabody's monthly operating reports show the company has significantly boosted its cash on hand and in a recent filing the company requested court permission to pay its debtor-in-possession credit agreement ahead of its scheduled maturity.
As the company works its way through reorganization, Mangrove claims it and other shareholders have not been invited to participate in discussions about the reorganization.
"[Peabody] and their creditors apparently have already concluded that they do not believe there is any opportunity for the equity holders to meaningfully recover," Mangrove said. "It is critical that the equity holders of Peabody be given a fair opportunity to demonstrate that they are entitled to recover on their investments before their interests are improperly wiped out entirely."
Mangrove said it does not want a permanent equity holders committee but instead asks for a temporary seat at the table to determine whether there is value to its holdings. Mangrove has sought confidential materials of Peabody's reorganization process but said Peabody has denied access and opposed the appointing of an equity holders committee.
Mangrove pointed to Arch Coal Inc. as a recent example of companies capturing a windfall at the expense of equity holders. Arch emerged from bankruptcy Oct. 5 and estimated its first lien holders would recover only 41.1% to 58.2% par value of their $1.9 billion claim from a $145 million cash payment, $326.5 million of new first lien debt, and 94% of the equity. The same package, Mangrove notes, is now worth over $2.4 billion based on public market prices.