The largest coal mining company in the United States may file for bankruptcy, the company reported in a government filing Wednesday.
In a filing with the Securities and Exchange Commission, Peabody Energy said it has a plan to improve operations and financial performance, but that plan is not guaranteed to work. It also said the company has “substantial doubt about our ability to continue as a going concern.”
The main issue is the profitability of coal. If prices are too low, the company could go bankrupt, the filing stated.
“Depressed coal prices have reduced our revenues, and sustained prices at current levels or further declines in coal prices will adversely affect our operating results and financial condition,” the report stated. “Further declines in coal prices will adversely affect the value of our coal reserves.”
Should Peabody go bankrupt this year, it would be the second major company to do so. Arch Coal, the second-biggest coal mining company, filed for Chapter 11 bankruptcy protection in January.
Peabody is dealing with a significant amount of debt, according to the filing.
At the end of 2015, the company was $6.3 billion in debt and had $940 million worth of borrowing capacity. It left open the possibility of adding to that debt if its credit rating worsened and the low price of coal meant that it wasn’t making enough money.
The company is planning for a loss from operations, but it is also attempting to sell assets, restructure debt obligations and refinance debt obligations. But, it’s not guaranteeing that will work.
“Our ability to restructure our debt obligations may be impacted by cash tax liabilities that result from the cancellation of debt income if we are unable to offset that income with tax losses or other tax planning strategies,” the filing states.
“If the actions described above are not successful and we are unable to meet our debt service obligations when due, we could be required to reorganize our company in its entirety, including through bankruptcy proceedings.”
Coal companies have been under immense stress in recent years as the one-two punch of the growth in supply of natural gas, and the cheap prices that has brought, has driven down demand for coal and President Obama’s environmental regulations have hurt the industry.
The top concern for Peabody in its SEC filing about its future profitability is the supply and demand for coal products. The second concern was the “sustained depressed levels or further declines in coal prices.”
Among the numerous other factors that could affect the coal business are government actions, such as new laws and regulations, that affect the industry.
The potential bankruptcy of such a large company would undoubtedly bring the issues facing coal country back into the mainstream political conversation.
Earlier this week, Democratic presidential candidate and former Secretary of State Hillary Clinton, who has openly tried to court coal country by releasing a jobs plan for the area, made waves with her statement that she would “put a lot of coal companies” out of business.
“I’m the only candidate [who] has a policy about how to bring economic opportunity, using clean, renewable energy as the key, into coal country,” she said. “Because we’re going to put a lot of coal companies and coal miners out of business.”
Indeed, environmental groups were already cheering the potential bankruptcy of Peabody.
Amanda Starbuck, program director at Rainforest Action Network, said Peabody had bad business practices and coal is a dying energy source.
“It is critical that a bankruptcy process for Peabody entails a just transition for workers and the environment, not organized looting by creditors and executives,” she said. “This includes ending leasing and profiting off public lands.”
