Peabody, Shareholders Face Off in Bankruptcy Court
Shareholders led by hedge fund Mangrove Partners hope to prove at a hearing in St. Louis on Thursday that Peabody may be the rare bankruptcy where a company's assets are valuable enough to repay creditors and have money left over for stockholders.
Many of the dozens of bankruptcies filed by energy companies in the past year have involved similar campaigns by shareholders who have pointed to rising commodity prices to justify the appointment of an official equity committee.
Few, however, could convince a judge to order an official committee for shareholders, which would receive money from the bankrupt company for lawyers and advisers as well as play a role in crafting a reorganization plan.
The coal industry has been recovering from weak prices that pushed three of the four largest U.S. producers into bankruptcy over the past two years.
Mangrove said in December that the value of Peabody would recover if prices stabilize around $145 per ton for metallurgical coal used in steelmaking and around $77 per ton for the thermal type used to generate electricity.
At that time, both types of coal were trading above those levels.
"This is more than enough to show that Peabody is not 'hopelessly insolvent' - all that is required to show at this stage to obtain appointment of an equity committee," Mangrove said in a motion filed in December.
Peabody has objected to the request, saying current equity holders are unlikely to receive any value, and their shares are likely to be cancelled.
U.S. Bankruptcy Judge Barry Schermer will preside at Thursday's hearing.
Peabody hopes to exit bankruptcy in April, a year after its Chapter 11 filing. The vast majority of its creditors support its plan to cut $5 billion of debt and raise capital from creditors with a $750 million private placement and a $750 million rights offering.
The company's shares, which fell to a record low of 55 cents after its Chapter 11 filing in April, were up 11 percent at $4.31 in over-the-counter trading on Thursday.
The U.S. Trustee, a government watchdog for bankruptcies, objected to parts of Peabody's reorganization plan on Wednesday.