Peabody Declares Bankruptcy, Could Leave Clean-Up Costs to Taxpayers

Peabody Declares Bankruptcy, Could Leave Clean-Up Costs to Taxpayers

Energy & Natural Resources  | Research & Analysis
Apr 14, 2016  | 2 min read

Read TCS’ official statement on Peabody’s Bankruptcy here.

On Wednesday, April 13th, the largest U.S. coal producer, Peabody Energy, finally filed for chapter 11 bankruptcy after years of losses, including $2 billion in 2015 alone.

In its filing, Peabody listed $10.1 billion in debt and $11 billion in assets. The company has a total of $2 billion in outstanding mine clean-up or reclamation liabilities, $1.4 billion of which is held in unsecured “self-bonds.” Self-bonds are similar to self-insuring, where future costs of mine cleanup are insured only by the company’s overall financial health instead of a surety bond or letter of credit, in which case these funds would come from a third party.

Peabody’s bankruptcy comes after a string of other high-profile bankruptcy filings by companies such as Arch Coal and Alpha Natural Resources. In Arch’s bankruptcy proceedings, only $75 million of its $485 million in self-bonded reclamation liabilities were secured. Alpha Natural Resources was similarly approved to guarantee only $61 million of its $411 million in self-bonding obligations in bankruptcy proceedings. Both companies’ remaining unsecured self-bonding liabilities, combined with Peabody’s $1.4 billion in unsecured self-bonds add up to a whopping total of more than $2 billion that taxpayers could be forced to pay.

None of these companies’ bankruptcies were a surprise, and it is obvious that these companies should not have qualified to self-bond their reclamation costs in the first place. With Peabody now bankrupt, there is no doubt that self-bonding practices need to be reformed to protect taxpayers from covering these costs.