Peabody Energy, the nation’s largest coal miner, filed for bankruptcy protection Wednesday as a crosscurrent of environmental, technological and economic changes wreak havoc across the industry.
Mines and offices at Peabody, a company founded in 1833 by 24-year-old Francis S. Peabody, will continue to operate as it moves through the bankruptcy process. However, Peabody’s planned sale of its New Mexico and Colorado assets were terminated after the buyer was unable to complete the deal.
The company’s bankruptcy filing comes less than three months after another from Arch Coal, the country’s second-largest miner, which followed bankruptcy filings from Alpha Natural Resources, Patriot Coal and Walter Energy.
New energy technology and tightening environmental regulations have throttled the industry and led to a wave of mine closures and job cuts. Peabody makes most of its money by selling its coal to major utilities that power the nation’s electric grid.
The financial well-being of Peabody, whose stock has been halved in just the last year, has been in decline since 2011, said James Gellert, CEO of Rapid Ratings International, a New York firm that evaluates default risks.
“This one was pretty obvious to see coming for a while,” Gellert said.
“I think coal’s been under pressure for quite some time and certainly from environmental standpoints as well as overall industry shifts. It’s still a big part of the energy grid but it is a declining portion of it,” Gellert said.
New drilling techniques allowed U.S. energy companies to free enormous amounts of natural gas, driving prices lower. The result of those plunging prices and changing environmental regulations has pushed major utilities to choose natural gas over coal to power electric grids.
Coal demand has tumbled and the effects have been devastating in coal mining communities from West Virginia to Montana. Slowing economic growth globally has added to the pressures.
“We will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop,” said CEO Glenn Kellow. “This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years and lay the foundation for long-term stability and success in the future.”
Peabody Energy Corp. filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Eastern District of Missouri.
The St. Louis miner has obtained $800 million in debtor-in-possession financing facilities. They include a $500 million term loan, a $200 million bonding accommodation facility and a cash-collateralized $100 million letter of credit facility.
There were warnings last month that the coal miner had run into funding issues. It delayed interest-rate payments on a pair of loans and said it might not be able to continue operations without some intervention.
The company was founded in Chicago and moved to downtown St. Louis in 1957. Peabody had about 7,600 employees at the end of last year and has ownership stakes in 26 mines in the U.S. and Australia. Its U.S. mines are in Indiana, Arizona, Colorado, Illinois, New Mexico and Wyoming.
Coal companies like Peabody “are looking at the future and saying we need to be better positioned for it if we can survive it at all,” Gellert said. “So bankruptcy is not a surprise … that they would want to kind of reset the clock.”