WASHINGTON Coal states must decide within days whether Peabody Energy Corp, the largest U.S. coal company, can continue to tap a taxpayer subsidy that has lowered its mine cleanup insurance costs for years, federal regulators said this week.
If regulators revoke Peabody Energy's right to the subsidy, known as "self bonding," the cash-strapped company may need private financing to underwrite roughly $1.38 billion in liabilities that do not now have concrete backing.
Coal companies have used cash, surety bonds and other financing to assure that spent mines will be restored, but self-bonds allow some large coal companies to use their balance sheets as collateral.
Coal companies are struggling with two of Peabody's peers, Alpha Natural Resources and Arch Coal, having filed for bankruptcy in recent months.
Interior Secretary Sally Jewell has said that shielding taxpayers from roughly $3.6 billion in self-bond liabilities was "a huge priority" but regulators have only recently taken concrete action.
The Office of Surface Mining Reclamation and Enforcement this week called on Colorado, New Mexico, Wyoming, Illinois and Indiana regulators to rule on Peabody's use of the self-bonding program by early March.
Peabody has booked roughly $107 million in self-bond liabilities in Illinois and the state has a right to "respond to the allegations that the self-bond requirements... are violated," OSMRE wrote in a letter released on Friday.
In a statement, Peabody said state regulators have in the past endorsed its self bonding and an "excellent record of land restoration."
Global demand for coal is weak. Natural gas is abundant and pollution controls are hurting the industry, but large companies like Peabody are also burdened by debt.
Peabody reported a roughly $2 billion loss last year and has struggled to raise cash as its share price has tumbled to $2 from over $100 at this time last year.
Peabody has hoped a $358 million sale of mines in New Mexico and Colorado to privately held Bowie Resource Partners would buy time for a coal recovery, but that deal has not closed.
Without the Bowie deal and if Peabody cannot restructure its existing debt, the company may have little choice but to join its peers in bankruptcy, analysts and lawyers said.
"They've been trying to live another day on the hope that prices recover and it just hasn't happened," said Monica Bonar, a senior director for corporate finance at Fitch Ratings.
(Editing by Leslie Adler)