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A worsening financial crisis for the nation’s biggest coal companies is threatening their existence, as Peabody Energy, the world’s largest publicly traded coal company, has been forced to appeal to creditors for an extra time to pay its debts. Two of the four other biggest U.S. coal companies have declared bankruptcy in the past six months.
Several coal giants are struggling to make payments on debts for ill-timed multibillion-dollar acquisitions of their rivals in recent years. On top of that, they have been financially squeezed by competition from cheap natural gas and declining U.S. and Chinese demand for coal.
Peabody alone has cleanup obligations of nearly $1.4 billion guaranteed by self-bonding, according to statements filed by the company last year with the Securities and Exchange Commission. Arch Coal and Alpha — the nation’s second- and fourth-largest coal companies — have self-guaranteed liabilities exceeding$485 million and$640 million, respectively, in reclamation costs.
The coal giants are currently in no condition to spend those amounts. Arch and Alpha filed for Chapter 11 bankruptcy protection last year. Peabody stock prices have fallen by more than 97 percent over the past year, and the coal behemoth’s market value at Thursday’s closing price was less than $44.3 million. Barclays Capital said the company’s debt-to-capital ratio was a towering 88 percent.
Alpha bought rival Massey Energy for $7 billion. Arch Coal bought International Coal for $3.4 billion. Peabody paid $5.1 billion for Macarthur Coal. And Walter Energy bought Western Coal for $3.3 billion.
In 2011, when the merger wave picked up speed, natural gas prices were at a healthy $4 a thousand cubic feet, there was an international commodity boom and China’s economy was speeding ahead. Now commodity prices have slumped, China has slowed and natural gas prices hover around $2 a thousand cubic feet. (Wash Post, 4/1/2016)
