Morning Commentary: Peabody Energy declines after company files reorganization plan; volume drops

By Stephanie N. Rotondo

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

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

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

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

That was down from levels around 22.5 on Thursday.

“I don’t know why they are up there,” he 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.

As for the stock (OTCBB: BTUUQ), it declined $2.90, or 35.15%, to $5.35 in early dealings.

Overall, liquidity was quite constrained at mid-morning, 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.

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