Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The condensed consolidated financial statements include the accounts of Peabody Energy Corporation (PEC) and its consolidated subsidiaries and affiliates (along with PEC, the Company or Peabody). Interests in subsidiaries controlled by the Company are consolidated with any outside stockholder interests reflected as noncontrolling interests, except when the Company has an undivided interest in a joint venture. In those cases, the Company includes its proportionate share in the assets, liabilities, revenues and expenses of the jointly controlled entities within each applicable line item of the unaudited condensed consolidated financial statements. All intercompany transactions, profits and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, these financial statements reflect all normal, recurring adjustments necessary for a fair presentation. Balance sheet information presented herein as of December 31, 2019 has been derived from the Company’s audited consolidated balance sheet at that date. The Company’s results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2020.

Coronavirus (COVID-19) Pandemic

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The global impact on economic activity has severely curtailed demand for numerous commodities. Within the global coal industry, supply and demand disruptions have been widespread as the COVID-19 pandemic has forced country-wide lockdowns and regional restrictions. The global economy is showing improvement in industrial production, even as the timing of a recovery varies across countries and sectors. However, in the seaborne metallurgical and thermal markets, demand remains below pre-pandemic levels. In the U.S., the impacts of COVID-19 have accelerated a multi-year decline in coal demand. During the nine months ended September 30, 2020, coal-fueled generation declined 24% compared to the prior year period and now represents 19% of the overall generation mix. Additionally, the Company has faced disruption to supply chain and distribution channels and adverse effects to the Company’s workforce.

While the ultimate impacts of the COVID-19 pandemic on the Company’s business are unknown, the Company expects continued interference with general commercial activity, which may negatively affect both demand and prices for the Company’s products. Given the uncertainties with respect to future COVID-19 developments, including the duration, severity and scope, as well as the necessary government actions to limit the spread, the Company is unable to estimate the full impact of the pandemic on its financial condition, results of operations or cash flows at this time.

In response to the COVID-19 pandemic, on March 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief and Economic Security Act (the CARES Act). Pursuant to the CARES Act, the Company has received accelerated refunds of previously generated alternative minimum tax (AMT) credits from the Internal Revenue Service (IRS) as further described in Note 11. “Income Taxes” and will defer 2020 employer payroll taxes incurred after the date of enactment to future years.

Liquidity, Going Concern, and Management's Plan

The Company experienced negative cash flows from operations during the nine months ended September 30, 2020. Results from continuing operations, net of income taxes and Adjusted EBITDA for the nine months ended September 30, 2020 declined by $1,841.3 million and $487.7 million, respectively, compared to the corresponding prior year period.

The Company’s available liquidity as of October 31, 2020, September 30, 2020 and December 31, 2019 consisted of the following:


	October 31, 2020		September 30, 2020		December 31, 2019
	(Dollars in millions)
Cash and cash equivalents	$	770.7	$	814.6	$	732.2
Revolving credit facility availability	11.5		5.1		498.6
Accounts receivable securitization program availability	45.8		40.4		45.0
Total liquidity	$	828.0	$	860.1	$	1,275.8

During the nine months ended September 30, 2020, the combined availability under the Company’s revolving credit facility and accounts receivable securitization program decreased as a result of $360.0 million of borrowings, $70.0 million of which was subsequently repaid, an additional $134.2 million of letters of credit issuances, and a $73.9 million reduction in available receivable balances under the accounts receivable securitization program.

As further described in Note 17. “Financial Instruments and Other Guarantees,” the Company is a party to various guarantees and financial instruments to provide support for the Company’s reclamation bonding requirements, lease obligations, insurance policies and various other performance guarantees. At September 30, 2020, such instruments included $1,628.7 million face amount of surety bonds and $334.8 million of outstanding letters of credit. Since filing the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 with the Securities and Exchange Commission on August 7, 2020, the Company’s counterparties have made various additional demands for collateral amounting to approximately $800 million. As further described below, the Company has reached an agreement with the majority of its surety bond providers to resolve these demands and limit future collateral requests.

While the Company was compliant with the restrictions and covenants under its debt agreements at September 30, 2020, noncompliance with the first lien leverage ratio covenant under the Company’s Credit Agreement (as defined in Note 12. “Long-term Debt”) is probable as of December 31, 2020, if the Company does not successfully take mitigating actions. Absent waivers from the lenders under the Credit Agreement or other successful mitigating actions, noncompliance with the ratio covenant would constitute a default under the Credit Agreement, and the revolving lenders could elect to accelerate the maturity of the related indebtedness, or could potentially choose to exercise other rights and remedies under the agreement. Further, the Company’s senior secured notes, accounts receivable securitization program and certain lease agreements contain cross-default or termination provisions that would be triggered by an Event of Default as defined under the Credit Agreement, which could result in similar accelerations of those obligations. Accordingly, the Company has classified all such debt obligations and relevant lease liabilities as current in the accompanying condensed consolidated balance sheet as of September 30, 2020. The combined risks associated with the Company’s recent financial results, market conditions, additional collateral demands and potential Credit Agreement noncompliance raise substantial doubt about whether the Company will meet its obligations as they become due within one year from the date of issuance of these unaudited condensed consolidated financial statements and its ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern.

The Company is seeking to address the issues identified above by taking certain mitigating actions. As part of this process, the Company entered into a transaction support agreement (TSA) in November 2020 with the providers of 99% of the Company’s surety bond portfolio (Participating Sureties) to define their commitments to implementing a transaction resolving approximately $800 million in additional collateral demands made by the Participating Sureties. Among other things, the TSA includes the following terms and conditions:

•Under the terms of the TSA, the Company will post $75.0 million of collateral, a minimum of $40.0 million of which will be in the form of letters of credit, and provide second liens on $200.0 million of certain mining equipment for the benefit of the Participating Sureties.

•In addition, the Company will post an additional $25.0 million of collateral per year through 2025 for the benefit of the Participating Sureties. The collateral postings will also further increase to the extent the Company generates more than $100.0 million of free cash flow (as defined in the TSA) in any twelve-month period or has asset sales in excess of $10.0 million.

•The Participating Sureties have agreed to a standstill through the earlier of December 2025 or the maturity date of the Credit Agreement (as amended or refinanced). During which time, the Participating Sureties agree not to demand any additional collateral, draw on letters of credit posted for the benefit of themselves, or cancel, or attempt to cancel, any existing surety bond.

In addition, the Company has been engaged in discussions with its revolving credit lenders and the holders of the 2022 Notes (as defined in Note 12. “Long-term Debt”) (the 2022 Noteholders) with the primary objectives of covenant relief and the extension of maturity dates, while maintaining financial flexibility. The TSA described above is contingent upon an agreement between the Company, its revolving credit lenders, and the 2022 Noteholders accomplishing those objectives by December 31, 2020, which can be extended at the Company’s discretion to January 29, 2021 for purposes of increasing participation.

Further, the Company is working to improve its liquidity and financial position through other means such as the sale of nonstrategic surplus land, coal reserves, and other assets, and driving cost improvements across the Company.

However, there can be no assurance that the Company will be able to obtain a waiver of noncompliance or otherwise amend the Credit Agreement to address covenant issues, reach agreement on the comprehensive approach to address its combined liquidity risks described above, or improve the Company’s overall liquidity and financial position through other means. As a result, the Company’s ability to timely meet its obligations when due or satisfy additional collateral demands could be adversely affected. If the Company is not able to timely, successfully, or efficiently implement the strategies that it is pursuing to address those risks and improve its liquidity and financial position, or otherwise meet its liquidity needs, the Company may need to voluntarily pursue an in-court restructuring.