Four bondholders sue Peabody Energy, hedge funds over stock sale

CHICAGO (Reuters) - Four individual investors of Peabody Energy Corp are accusing the company, certain hedge funds and other parties involved in the coal producer’s Chapter 11 bankruptcy of breaching their fiduciary duties, according to a lawsuit filed on Thursday.

FILE PHOTO - 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) in New York, U.S. on March 16, 2016. REUTERS/Brendan McDermid/File Photo

The four investors, who hold senior unsecured bonds of Peabody, the largest U.S. coal miner, have alleged during the Chapter 11 proceedings that they have been unfairly treated under the reorganization plan.

Peabody spokesman Vic Svec said on Thursday that the company stands by its reorganization plan.

In the lawsuit, filed with the U.S. Bankruptcy Court in St. Louis, the investors also named as defendants the trustees of their bonds and the Chapter 11 committee that represents their interests.

At the heart of their complaint is a plan to raise $1.5 billion by selling stock in a reorganized Peabody. The refinancing forms a key part of the company’s plan to slash $5 billion of debt and exit Chapter 11 protection.

The stock is being offered to holders of the company’s unsecured bonds, except individual investors, denying them potentially lucrative returns.

This violates the basic promise of bankruptcy that creditors of equal standing receive equal treatment, they argue.

Peabody has about $4.5 billion of bonds outstanding, and the lawsuit says individual investors hold up to 7 percent of those securities.

The four investors, who filed their lawsuit strictly on their own behalf, requested a jury trial to address their complaints.

Peabody will ask U.S. Bankruptcy Judge Barry Schermer of St. Louis to approve its plan to exit bankruptcy, which has wide support from other creditors, on March 16.

Among objections to the reorganization plan filed on Thursday, the U.S. government - on behalf of certain states and tribes with claims - and a group of dissenting creditors also opposed the plan on grounds of unfair treatment.

Meanwhile, shareholder and former senior vice president Fredrick Palmer asked the court to reject the plan because he said it undervalues Peabody and overcompensates certain hedge funds while wiping out shareholders’ stock.

Environmental group Sierra Club questioned in a limited objection whether Peabody will be able to meet sales and profitability targets in its five-year business plan, which the Sierra Club said could put certain environmental obligations at risk.

Peabody also received objections from the Internal Revenue Service and from four former employees, including Palmer and former chief executive officer Gregory Boyce, over their retirement packages.

Reporting by Tracy Rucinski; Editing by Leslie Adler