Peabody Energy Corporation asks for grace period to consider possible options before filing for bankruptcyIs Bankruptcy In The Best InterestWhat’s Best For Shareholders?
Peabody Energy Corporation (BTU) announced earlier in a 10-k filing that it appears difficult for the company to continue as a going concern. It opted for grace period after failing to make its interest payments, and it seems that it has no options left out except for filing for bankruptcy.
Its peer Arch Coal had earlier filed bankruptcy after failing to survive in lower commodity prices arena. Peabody stated that it had opted for grace period, but it appears that the grace period is just to further delay its bankruptcy.
Some options available for the company to survive include divesting its noncore assets, negotiate with its debtors, debt exchange, and cost improvement, which could enhance its shattered liquidity concern. One of the available options also includes debt buyback as mentioned by the company in its regulatory filing.
Peabody had options to keep its ship afloat, and it took certain measures too such as attempts to negotiate with creditors back in December, last year. However, difficult market conditions forced the company consistent failure in opting for any possible solution.
With just a month in grace period, it seems highly unlikely that there is any possible solution to the company’s depressed condition. By the end of 2015, Peabody had a liquid position of around $1.2 billion. However, this also declined to $900 million when the company filed its 10-k due to its operational expenditures.
Is Bankruptcy In The Best Interest
Yes, bankruptcy appears to be in best interest of the company. If this isn’t the case, it would tend to weaken its liquidity position further as Peabody had mentioned in its filing that it expects negative cash flows.
With a mountain of debt hovering above the company, smooth operations appear difficult. Debt holders can make the company survive by negotiation, but it appears unlikely that they would do so. Hence, any delay in bankruptcy would mean further cash bleed which the company should avoid in favor of all stakeholders.
What’s Best For Shareholders?
Its stock has already declined by around 97% in the past one year, reducing the value of its shareholders. However, in the past day’s trading, the stock surged by around 9.5%. It appears that it is the best time for shareholders to get rid of their investment by cashing out.