Peabody, Arch take a beating on possible increases in liability rates; market ends week lower

By Stephanie N. Rotondo

Phoenix, June 12 – As the week came to a close, distressed debt investors were keeping an eye on the coal sector as “there was coal news going around again,” a trader said Friday.

The news specifically involved Peabody Energy Corp. and Arch Coal Inc. and whether or not the companies will have to pay more for mine liability insurance.

Peabody’s debt was “getting bamboozled again,” the trader said.

He saw the 6¼% notes due 2021 falling 2¼ point to 39¾, while the 6½% notes due 2020 dropped 2 points to 41. The 6% notes due 2018 declined 4½ points to 51½ and the 10% notes due 2022 lost nearly 3 points, ending at 62.

Another market source pegged the 6½% notes at 41 bid, down 2½ points.

As for Arch Coal bonds, the first trader said the name wasn’t as active, but still weakened.

He placed the 7% notes due 2019 at 16, off a point.

The news – first reported by Bloomberg – was also putting significant pressure on the companies’ stock.

Peabody’s equity (NYSE: BTU) ended down a quarter, or 8.99%, at $2.53 Arch Coal’s stock (NYSE: ACI) declined 5.28 cents, or 12.03%, to 38.61 cents.

The Wyoming Department of Environmental Quality’s Land Quality Division is taking a look at 2014 financial data from both Peabody and Arch in order to see if the companies continue to qualify for a so-called self-bonding program that allows coal producers to insure cleanup costs in the event of a bankruptcy at cheaper rates. Should the companies fail to meet financial requirements, they will be forced to buy certain debt instruments or hold enough cash to cover any reclamation liabilities.

In May, Alpha Natural resources Inc. was informed that it could no longer self-bond and was given until Aug. 24 to either post collateral or cash against $411 million of reclamation liabilities.

Market closes weaker

Elsewhere in the distressed space, bonds were ending the week mostly in negative territory.

Verso Paper Corp.’s 11¾% notes due 2019, for instance, were seen falling 3½ points to 66. There was no fresh news to act as a catalyst.

Swift Energy Co.’s 7 1/8% notes due 2017 meantime drifted down over 2 points to 69¼, according to a trader.

In the retail arena, Chino’s Intermediate Holdings A Inc. – the indirect parent of J. Crew Group Inc. – saw its 7¾% senior PIK toggle notes due 2019 coming in a touch to 81¾.

Claire’s Stores Inc.’s 9% notes due 2019 finished off over a point at 86½.

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