Superpriority settlement agreements have been reached with Wyoming, New Mexico and Indiana, where Peabody, which filed for Chapter 11 protection earlier this year, has self-bonding obligations.
These agreements, which are subject to bankruptcy court approval, puts the relevant state authorities ahead of any lender or other pre-petition creditor, up to the full amount of the Peabody’s $US200 million bonding accommodation facility.
Each state is entitled to a percentage of the company’s $200 million bonding accommodation facility based on a proportion of self-bonding relative to the company’s total obligation as of April 12.
Peabody’s $800 million debtor-in-possession financing facility, which includes the bonding accommodation facility, provides finance for up to 18 months during the Chapter 11 process.
Peabody president – Americas Kemal Williamson said the agreements provided additional security towards the company’s reclamation obligations.
As well as providing supplemental financial assurances to those states, Peabody has agreed to quarterly reclamation activity status meetings. It has also agreed to target reductions in the amount of bonds outstanding with the states.
Motions for the agreement are expected to be heard by the court in August.
Over the past decade Peabody has spent about $185 million to restore 48,000 acres.
As of June 30 the company had about $1.14 billion of self-bonding and $320 million of surety bonds supporting reclamation activities outstanding.
Due to the conservative nature of bonding estimates, the total amount of required reclamation bonding in the US for Peabody exceeds the related financial statement liability by about $1 billion.
The company finds itself in a bit of a bind though.
Self-bonding amounts are calculated based on a reclamation scenario that assumes the company’s personnel, equipment and expertise do not exist; the coal mines immediately shut down; and third parties step in to complete the reclamation without taking into account the lifespan of the coal mine.
On the other hand, accounting practices require companies to account for the estimated financial liability based on the projected lifespan of individual mine plans and future costs to complete final reclamation.
On those estimates the company’s financial statements reflect US asset retirement obligations of about $450 million, with typical annual cash outlays of about $20 million.
Besides paying for every dollar of its own coal mine restoration, Peabody has paid nearly $560 million in the past decade to the Abandoned Mine Lands program and contributed more than $45 million in 2015.
AML, which has an unappropriated balance of $2.5 billion, is intended for the restoration of lands other coal producers operated. It does not reclaim any Peabody lands and was due to sunset years ago.
