Peabody debt dispute fizzles as coal prices rise

A view of mining operations is seen during a tour of Peabody Energy's Rawhide coal mine near Gillette, Wyoming, U.S. June 1, 2016. REUTERS/Kristina Barker/File Photo

CHICAGO (Reuters) - U.S. coal producer Peabody Energy Corp BTUUQ.PK said on Wednesday it is closer to exiting bankruptcy, with a debt dispute between creditors fizzling as a recent increase in coal prices boosts their chances for recovery.

Peabody filed for Chapter 11 protection in April, after a sharp decline in coal prices left it unable to service $10 billion of debt. A creditor fight launched by some of Wall Street’s most litigious investment funds, Aurelius Capital Management and Elliott Management, put the reorganization on hold.

Seven months later, prices for coal used to generate power and make steel have surged, particularly in Australia, where Peabody expanded with the $5.1 billion acquisition of Australia’s Macarthur Coal in 2011.

The surge means that secured lenders such as Citibank are now likely to recoup their investment, making a legal battle over how to treat long-term debt in calculating Peabody’s assets largely irrelevant.

This brings Peabody one step closer to reaching a consensual bankruptcy reorganization.

On Wednesday, Peabody said the company was working to resolve the dispute that pitted its secured lenders against unsecured creditors, including distressed debt hedge funds Aurelius and Elliott, who were seeking a larger share of Peabody’s assets in the reorganization.

“The parties are working to settle the (debt) issue as part of broader negotiations regarding the plan of reorganization,” Peabody spokesman Vic Svec said in an emailed statement.

Peabody expects to file its reorganization plan by mid-December and hopes to exit bankruptcy within a year of its April 2016 filing, Svec said.

Peabody’s shares, which fell to a record low of $0.55 after its Chapter 11 filing in April, reached $10.70 in over-the-counter trading on Wednesday.

Reporting by Tracy Rucinski; Editing by Steve Orlofsky