Peabody wants to repay term loan early thanks to improving coal prices

The ticker and stock information for Peabody Energy is displayed at the post where the stock is traded on the floor of the New York Stock Exchange (NYSE) March 16, 2016. REUTERS/Brendan McDermid

CHICAGO (Reuters) - U.S. coal producer Peabody Energy Corp said it would seek court approval to repay a $500 million term loan ahead of schedule because it has enough cash to operate in bankruptcy thanks to a rise in coal prices.

Peabody obtained an $800 million debtor-in-possession or DIP financing from both secured and unsecured creditors when it joined other large U.S. coal producers in bankruptcy in April, hit by a drop in coal prices.

The financing included a $500 million term loan, which the company is planning to repay, along with a $200 million bonding accommodation facility for cleanup costs and a letter of credit worth $100 million.

Since April there has been a significant increase in the price of both the sea-borne thermal and metallurgical coal sold by Peabody, one of the world’s leading coal producers.

If Peabody repays the term loan before mid-January, its bankruptcy estate will save more than $12 million in interest payments per quarter, the company said in a filing with the U.S. Bankruptcy Court in St. Louis. The court must approve the request.

“Early repayment of the term loan would result in increased savings and flexibility as we move through the later stages of the bankruptcy,” Peabody spokesman Vic Svec said.

Peabody has said it hopes to exit bankruptcy within a year of its 2016 filing, and the recent improvement in coal prices has made a consensual bankruptcy reorganization more likely.

Peabody’s shares, which fell to a record low of $0.55 after its Chapter 11 filing in April, closed at $8.60 in over-the-counter trading on Friday.

Reporting by Tracy Rucinski; editing by Diane Craft