January 19, 2017 / 3:26 PM / 2 years ago

Bankruptcy judge denies request for Peabody equity committee

ST. LOUIS (Reuters) - A U.S. bankruptcy judge denied on Thursday a request by Peabody Energy Corp BTUUQ.PK shareholders to order the appointment of an official equity committee in the coal miner’s Chapter 11 restructuring, crushing hopes of a recovery for investors.

Traders work at the post where Peabody Energy is traded on the floor of the New York Stock Exchange (NYSE) March 16, 2016. REUTERS/Brendan McDermid

Shareholders led by hedge fund Mangrove Partners had urged the creation of an official committee, which would receive money from Peabody for lawyers and advisers and could help craft a reorganization plan.

At a hearing in St. Louis, Mangrove cited several paths for a potential recovery for Peabody shareholders given a rise in coal prices.

In rejecting the request, U.S. Bankruptcy Judge Barry Schermer asked why more money should be spent on legal fees when unsecured creditors such as Aurelius Capital Management and Elliott Management accept that they will not be paid in full.

The two funds, among the most litigious on Wall Street, spent years battling Argentina in U.S. courts over the country’s 2001 default.

“Aurelius and Elliot are not used to leaving money on the table,” Schermer said. “Look at Argentina.”

In a bankruptcy, unsecured creditors are the last on the totem pole for recovery. They would have to be repaid in full for anything to be left for shareholders, who generally lose their entire investment.

In the case of Peabody, unsecured creditors will recover about 30 cents on the dollar.

The coal industry has been recovering from weak prices that pushed three of the four largest U.S. producers into bankruptcy over the past two years.

Many of the dozens of bankruptcies filed by energy companies in the past year have involved similar campaigns by shareholders who have pointed to rising commodity prices to justify the appointment of an official equity committee.

Few, however, have won court approval.

Peabody hopes to exit bankruptcy in April, a year after filing for bankruptcy, with a plan to cut $5 billion of debt and raise capital from creditors with a $750 million private placement and a $750 million rights offering.

Peabody shares will be canceled and replaced with new stock which will be owned by creditors, the majority of which support the reorganization plan.

The shares closed up 2.8 percent at $3.98 in over-the-counter trading on Thursday, well off session highs.

Reporting by Tracy Rucinski; Editing by Lisa Von Ahn and Richard Chang

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