X-S&PGR ASSGNS PEABODY ENERGY ‘B+’ CCR AFTER CHAP.11; OTLK STBL
Posted on
May 10, 2017
— U.S.-based coal producer Peabody Energy Corp. has emerged from Chapter 11 bankruptcy protection.
— Peabody has refinanced first-lien pre-petition claims and shed more than $5 billion in other debt.
— We are assigning our ‘B+’ corporate credit rating to Peabody.
— We are also assigning our ‘B+’ issue-level rating to the company’s senior secured debt, along with a ‘3’ recovery rating, indicating our expectation of meaningful recovery in the event of a payment default.
— The outlook is stable, reflecting our view that 2017 results will be supported by elevated coal prices, and that the company will maintain adjusted leverage in the 2x-3x range over the next year.
DALLAS (S&P Global Ratings) May 10, 2017–S&P Global Ratings said today it assigned its ‘B+’ corporate credit rating to St. Louis-based Peabody Energy Corp. The outlook is stable.
At the same time, we assigned our ‘B+’ issue-level rating to the company’s senior secured debt, including a $950 million term loan due 2022, $500 million 6% senior notes due 2022, and $500 million 6.375% senior notes due 2025. We also assigned a ‘3’ recovery rating to the senior secured debt, indicating meaningful recovery (50%-70%; rounded estimate: 65%) in the event of a default.
“The stable outlook is based on our assumption that Peabody’s adjusted leverage will be close to 3x over the next year–in line with the rating,” said S&P Global Ratings credit analyst Chiza Vitta. “The company’s new capital structure should be considerably less expensive to service, and excess cash flow sweep requirements support some debt reduction. Although met coal prices are falling from elevated levels, we assume that they will not fall far below $120/ton for 2017.”
We could lower the rating if we expected leverage to approach 4x. We view this as unlikely in the short term unless Peabody makes additional changes to its proposed capital structure.
We could raise the rating if we expected Peabody to maintain adjusted leverage below 3x, along with less variability in operating results and credit measures. This could happen as a result of a more stable coal operating environment.
