NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Peabody Energy Corporation's (Peabody; NYSE: BTU) long-term Issuer Default Rating (IDR) to 'D' from 'C'. The company and its U.S. subsidiaries have filed for bankruptcy protection under chapter 11 of the bankruptcy code. Approximately $8.4 billion in face amount of obligations is affected by today's rating actions. A complete list of rating actions follows at the end of this release.
The downgrade of the senior secured first-lien term loan and revolving credit facility (RCF) reflects the super priority status of the anticipated debtor-in-possession (DIP) facilities as well as reduced assumptions for going-concern EBITDA.
The company intends to enter into super-priority DIP facilities aggregating $800 million. First-lien term loan and RCF lenders are expected to be paid interest as adequate protection payments under the DIP facility.
Distress resulted from increased demands on liquidity, continued competition in domestic markets from cheap natural gas and bankrupt coal producers, expectation of a delayed recovery in the seaborne metallurgical coal market from very low levels, and prospects for further weakness in the Asia Pacific steam coal markets.
KEY RATING DRIVERS
DIP Facilities: Peabody has obtained a $500 million term loan, a $200 million bonding accommodation facility and a cash-collateralized $100 million letter of credit facility (for new letters of credit). The facilities need to be approved by the court and are structured to have one-year terms which may be extended.
Intercompany loan: Peabody Investment Corp. through Global Center for Energy and Human Development, LLC, has made a $250 million secured RCF available to Peabody's Australian subsidiaries. The facility expires March 13, 2019. The Australian subsidiaries are not expected to seek relief from third-party creditors.
Termination of Asset Sale Agreement: The agreement to sell its New Mexico and Colorado assets to Bowie Resources for $358 million has been terminated.
KEY ASSUMPTIONS
Recovery Analysis: Fitch reduced its going concern EBITDA from $650 million to $500 million to reflect further pressures in the coal markets. Fitch notes that this figure is significantly higher than the company's projected 2017 EBITDAR (to be defined in the DIP loan documents) figure of $308 million. Fitch believes the company's figure reflects elevated costs that will be reduced post-bankruptcy. Peabody has disclosed certain projected sales and cash flow figures in its 8K filed today.
Fitch's enterprise value multiple assumption is 4.5x given how much of the industry is distressed and the need for asset valuations to incorporate asset retirement obligations. Fitch notes that its going-concern EBITDA together with its multiple assumption result in an enterprise value that is close to a liquidation value. Fitch has assumed a 5% concession allowance to be spread between the second lien and unsecured notes.
RATING SENSITIVITIES
N/A
FULL LIST OF RATING ACTIONS
Peabody Energy Corporation
--Long-term IDR downgraded to 'D' from 'C';
--Senior secured first-lien revolving credit and term loan downgraded to 'C/RR4' from 'CCC-/RR2';
--Senior second lien secured notes affirmed at 'C/RR6';
--Senior unsecured notes affirmed at 'C/RR6';
--Convertible junior subordinated debentures affirmed at 'C/RR6'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 05 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879564
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002456
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002456
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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