2016-02-29_ENFORCEMENT - C1982056

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Peabody Energy has issued mortgages to its creditors securing the assets of 90% of its annual U.S. domestic coal production. It also has outstanding self -bonding pledges in several states of $1.3 billion. These double pledges appear to be in direct conflict with one another. If regulators were to look to the actual value of the assets, along with how the company has pledged its assets and how it has attributed full assets and liabilities to Peabody Energy Corporation (the corporate parent in SEC filings), none of the self -bonding mining applications could be deemed as acceptable. The judgments made by this type of clear-eyed regulatory assessment would be the same as that rendered by the market: Peabody Energy Corporation is nearly bankrupt. While perhaps legal, these arrangements are an abuse of SMCRA. The current financial climate for the coal industry raises numerous issues concerning the ongoing management of the companies that comprise it.68 On the issue of self -bonding, the historically valid net worth tests offered by coal companies, including Peabody, are now worthless. In the current spate of very real, and increasingly likely instances of bankruptcy, coal companies will seek to reduce or eliminate the bonding requirements and eviscerate this environmental protection for the public and fiscal protection for the state and federal government. The State of Wyoming recently granted substantial financial relief to Alpha Natural Resources on its $400 million reclamation obligation allowing it to post a minimum cash offering driven in part by the company's declaration of bankruptcy.69 Arch Coal has similar relief from its obligation after it filed for bankruptcy. Several recent developments indicate that Peabody's self -bonding mechanisms may be in jeopardy: • In June 2015 Thomson Reuters reported that federal officials were examining Peabody Energy and other coal companies to determine if the companies were still eligible for self- bonding.70 Since then federal officials have issued follow up notices to the State of Wyoming. Environmental protection administrators in the state approved Alpha Natural Resources and Arch's self -bonding applications despite obvious severe financial distress and Chapter 11 bankruptcy filings.71 • The State of Colorado has announced that it is moving away from self -bonding because the practice is too risky.72 The decision came in response to questions being raised concerning Peabody Energy's sale of the Twentymile mine to Bowie Resources (discussed above). Bowie has applied to the State of Colorado for self -bonding. • Recently the Environmental Law and Policy Center (ELPC), an Illinois based organization, has raised questions with Illinois environmental regulators responsible for Peabody's self - bonding applications in the state.73 Questions have also been raised by IEEFA about Peabody's mine sales to Bowie Resources in New Mexico 74 be For a concise treatment of the financial problems of the coal industry see: McKinsey and Company, Downsizing the U S coal industry, Can a slow motion train wreck be avoided, November 2015 69 http-//www_pI ads. com/latest-news/coal/houston/aIpha-wyommg-reach-deal-to-resolve-prb-coal-21102521 70 http./Iwww.reuters.com/article/us-usa-coal-bonding-idUSKBN0OK26F20150604 71 http/lwww.houstonchronicle.com/business/energy/article/Feds-give-Wyoming-more-time-on-coal-mine-bonding- 6804764.php 72 http://wyomingpublicmedia.org/post/co-moves-away-self-bonding 73 http://www.chicagobusiness.com/article/20160130/ISSUE01/301309995/peabody-energy-failure-could-leave-state-without- coal-mine-cleanup 74 http //www.santafenewmexican.com/opinion/my_view/reader-view-n-m-taxpayers-at-risk-in-peabody- bowie/article cce75802-93c0-5b52-874c-129842daec98.html Peabody's Strategies for Survival Ignore Market Realities and Risk Backfiring 19