A federal bankruptcy judge in St. Louis denied a motion Thursday to give shareholders in Peabody Energy an equity committee that would represent their interests during the coal giant’s bankruptcy.
Judge Barry Schermer delivered his ruling after the hearing, and said the cost of creating an equity committee was not justified if there was no equity to offer shareholders.
Peabody’s reorganization plan, released in December, calls for zeroing out shareholders’ equity.
Mangrove Partners, an investment group representing 5% of shareholders, filed the motion in November for the equity committee. Attorneys and their expert witness argued in court that the coal giant is undervaluing itself despite rebounding coal prices.
“Peabody’s projections have been materially below market expectations,” testified Alexander Tracy, a managing partner with Perella Weinberg Partners.
He pointed to the company’s business plans released in August and November, saying both had projections below both analysts’ estimates and historic averages.
Shareholder Fred Palmer said the company is releasing low ball numbers as part of its restructuring plan and ducking its responsibility to shareholders. Palmer was senior vice president of government relations at Peabody from 2001 to 2015. He told the court he expects coal prices will keep rising.
“The prospects for coal have never been brighter. There are 70-plus million people a year who are being urbanized,” Palmer said.
Attorneys and expert witnesses for Peabody said there is no way to accurately estimate what future coal prices will be.
Tyler Cowan, a managing director with the advisor group Lazard said Peabody expects a 600-ton decline in production in its Australian metallurgical mines over the next five years. He said two of the company’s mines are running out of coal.
“The simple reality is they won’t be further developed until the price is up for an extended period of time,” he told the court.
To dig deeper in strip mines would cost billions, Cowan said.
Judge Schermer said in his bench ruling that Peabody’s most recent business report was in line with analysts’ expectations. He said given the fact that unsecured creditors have already agreed to receiving 30 cents on the dollar, he couldn’t justify having the company spend money on an equity committee.
A hearing on Jan. 26 will address Peabody’s proposed reorganization plan.
