As of February 29, 2016, Peabody Energy (BTUUQ) has about $940 million in liquid assets. The company has exhausted its borrowing capacity under revolving credits. Moreover, Peabody is also scheduled to complete its last committed annual PRB reserve installment of $250 million in late 2016. These payments will have a major impact on liquidity going forward.
Expected cash inflows
Apart from cash generated from the normal course of business, Peabody expects to generate cash through the sale of its non-core assets. As a part of this, in January 2016, the company entered into a definitive agreement to sell its 5.1% participation interest in the Prairie State Energy Campus to the Wabash Valley Power Association for approximately $57 million. The deal is expected to be closed in the second quarter of 2016.
On April 12, 2016, Peabody Energy terminated its proposed sale agreement of its El Segundo and Lee Ranch mines in New Mexico and its Twentymile Mine in Colorado to Bowie Resource Partners. As part of this agreement, the company will receive $20 million in cash as a termination fee.
Peabody Energy’s off balance sheet risk
With three out of the top four coal mining companies being bankrupt, reclamation obligations are a major concern. Peabody Energy has the highest self-bonding obligation among its peers such as Arch Coal (ACIIQ), Cloud Peak Energy (CLD), and Alpha Natural Resources (ANRZQ).
As of February 29, 2016, Peabody Energy had about $1.4 billion as self-bonding obligations and $0.3 billion as surety bond obligations. Moving ahead, the company may require the posting of additional collateral to secure its obligations. According to company filings, in fiscal 2015, Peabody was required to increase the total posted letters of credit by $429.2 million to secure its surety bond obligations. Failure to secure its obligation in the future could have an adverse impact on its operations.
Considering the above factors and uncertainty in the recovery of coal (KOL) prices, it may be difficult for Peabody Energy to regain its top spot even with the debtor-in-possession financing of $800 million.