Peabody Energy declines after company files reorganization plan; short session limits volume

By Stephanie N. Rotondo

Seattle, Dec. 23 – Peabody Energy Corp.’s 4.75% convertible notes due 2066 were being eyed on Friday in the wake of the company’s reorganization plan filing late Thursday.

Under the plan, the bankrupt coal producer will eliminate more than $5 billion in debt. Lenders holding $3.1 billion of that debt will receive a full recovery.

Shareholders, as well as convertible bondholders, will receive nothing.

One trader called the convertibles off about 5 points, trading around 18.

Another market source saw the issue ending in a 17.25 to 18 context, though the source noted that there were trades just under 17 at one point.

At another desk, the convertible bonds were pegged in the high-17 area, down about 4.5 points.

A trader said there was a 16.5 bid for the convertibles floating around at mid-morning and prints at 17.

That was down from levels around 22.5 on Thursday.

“I don’t know why they are up there,” the trader said. “It seems excessive.”

While the trader noted that convertible holders could try to negotiate a marginal recovery for themselves, “17 is extremely optimistic.” It would take over $100 million to fund such a recovery, “and it’s just not there for them.”

Even at $100 million, the recovery level would only be 13.5, the trader added.

“It would be pretty surprising if they went all the way up to that,” he said.

“They will definitely fight” for better recoveries, another trader said.

As for the stock, it declined $2.90, or 35.15%, to $5.35 in early dealings. However, the equity managed to recover some lost ground, finishing the day down 79 cents, or 9.58%, at $7.46.

Under the plan, the St. Louis-based company will hold a $750 million rights offering. It will raise another $750 million via a private placement of new convertible debt and will also issue common stock.

It is expected that a hearing on the plan will be held on Jan. 26.

Away from Peabody, traders saw little else notable in convertible debt dealings.

The bond market closed early ahead of Christmas Eve.

At mid-morning, liquidity was quite constrained, with many players away from their desks or planning early exits.

A market source placed total volume at $38 million just after 10 a.m. ET.

“I would be surprised if it goes above $100 million” for the whole day, the source remarked.

Mentioned in this article:

Peabody Energy Corp. OTCBB: BTUUQ

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