Laserfiche WebLink
annually on premium payments, while freeing up any cash that surety companies would <br />otherwise require as collateral for their bonds. Peabody's deteriorated financial condition <br />by all rights should make the company ineligible for this benefit because the company fails <br />to meet a significant threshold test for corporate solvency by a factor of three. Some states <br />have granted latitude to coal companies experiencing financial distress. The federal <br />government and some analysts have raised questions about whether the liberalization of <br />the rules is an abuse of the program and exposes state governments to environmental risk, <br />financial losses and adverse actions by the federal government. <br />Peabody Energy, like the coal industry in general, has become a wealth hazard for its <br />shareholders and is now struggling to maintain solvency. The company is also struggling to <br />maintain its role as an energy industry leader at a time of diminished demand for coal <br />worldwide. The actions it is undertaking are designed to mitigate the effects of overleveraging <br />on the company's balance sheet. But Peabody's challenges go for beyond its debt practices, <br />and are not being adequately addressed by its current cost -control measures. Current coal <br />markets and current outlooks for the company highlight the fact that the coal industry in <br />general --and perhaps Peabody in particular—must become substantially smaller to service. <br />More mines need to close. <br />Peabody's reduction plans are inadequate and do not fully responsive to the declining price <br />of coal. Further, the company is selling distressed assets into an already oversupplied market <br />such that it is taking massive value cuts relative to anything on offer even a year ago, let alone <br />five years ago, when Peabody was making what it called its "company transforming" top -of - <br />the -cycle acquisitions. Its asset sales today are an attempt to remove the largely unfunded <br />liabilities of the mines and the company's workforce from Peabody's balance sheet. The sale <br />of the mines to competitors, however, threatens to compound the downward price spiral of <br />an already oversupplied market—which is the root of the company's problem. <br />Finally, as noted in several places in this study, Peabody Energy needs to be for more <br />transparent in its disclosures to investors and the public. In a time of severe financial constraint, <br />transparent communication, rather than incomplete reporting and unsupported optimism, <br />would help chart a clearer course for the company, Further failure by Peabody to fully <br />acknowledge the dilemmas created by falling prices only tarnish the company's disclosures <br />regarding revenues, reserves and potential turnaround strategies. <br />Peabody's Strategies for Survival Ignore Market Realities and Risk Backfiring <br />