BANKRUPTCY PLAYS

[sludgehound]

ACI & BTU Bk news story

JPMorgan's John Bridges and Anant Inani see bankruptcy risk rising for Arch Coal ( ACI) and Peabody Energy ( BTU):
Alpha filed for chapter 11 protection in August and it's likely that the debt holders will not allow any loss making operations to continue to run in order to preserve value. Its initial restructuring plans suggest its coal production is expected to fall 11mt next year to 63mt which we feel is positive for the rest of the industry. Much of the CAPP coal production is uneconomic at current spot prices. We see this as the market sending a message to the miners that they have to cut more capacity. We expect this message to be acted on in early 2016 with more mine closure announcements. It's likely that the low priced CAPP coal exports were a way to harvest additional cashflows from developed reserves in mines that had to operate to service US domestic coking coal contracts and once the pressure to pay interest costs eases, we expect these exports should fall back quickly.
Chapter 11 risks rising for both Arch and Peabody After the failed debt exchange, Arch is in talks with creditors for a possible restructuring as it highlighted in its Q3 earnings release. It has $90mn in coupon payments due on 15th Dec which could trigger a chapter 11 filing in our opinion. Peabody bought itself time with its recent asset sale of three western bituminous mines for $358mn in cash but we continue to feel that with the outlook for both coal and gas uninspiring for next year, we feel, Peabody may still have to restructure. The two upcoming triggers are the large $70mn coupon payment due in March and a state review of its qualifications to self bond its Wyoming AROs in Q2'16.
Shares of Peabody Energy have has dipped 0.2% to $9.69 at 3:05 p.m. today, while Arch Coal has fallen 1.2% to $1.20 .
More at Barron's Stocks to Watch blog, http://blogs.barrons.com/stockstowatchtoday/

(END) Dow Jones Newswires
12-08-15 1509ET
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