|Shares Out. (in M):||19||P/E||n/m||n/m|
|Market Cap (in $M):||63||P/FCF||n/m||n/m|
|Net Debt (in $M):||6,752||EBIT||-172||-175|
|Borrow Cost:||Hard to Impossible 50%+ cost|
Peabody Energy (BTU)’s equity is worthless. In last week’s melt up in junk energy equities, BTU’s share price increased over 53% increasing the company’s market cap to over $63 million. In contrast to the bullishness in the equity market, the company’s bank debt continues to trade below 40% of par, its second lien bonds are trading around 3% of par and its senior unsecured bonds are trading below 3% of par. While the equity markets are valuing Peabody at over $8.8 billion, the bank debt market is valuing the company at $820 million (assuming the bank debt is treated senior to pension, opeb, environment, and other liabilities), and the second lien bond market is valuing the company at $2.2 billion (using the same assumptions.) With $70 million in interest payments due on March 15th and the company having already drawn all of its revolver making incremental liquidity especially scarce, we expect BTU to skip those interest payments and file for bankruptcy in the next 6 weeks. With net debt (excluding legacy liabilities) over 15x 2015 EBITDA and EBITDA expected to decline in 2016, BTU shareholders have little to no hope for any equity recovery. We recommend shorting shares to the extent borrow is available or buying April put options as the stock is likely to fall to near $0 on the bankruptcy filing.
Peabody Energy is the largest private coal company in the world. Peabody is mainly an open pit miner with both thermal and metallurgical coal production from 26 mining operations in the United States and Australia. The company has 8300 employees, 40% of which are unionized.