Jan. 11--Updated at 3 p.m.
Arch Coal, the nation's second-largest coal miner, filed for bankruptcy protection on Monday, becoming the latest company to succumb to cheap natural gas and federal regulations.
Falling demand for coal and lower prices have already sent several major coal companies to bankruptcy court. But
Creve Coeur
-based Arch was also buckling under a heavy debt load taken on before coal prices fell, and many expected a bankruptcy filing after it failed to reach an agreement with creditors to restructure debt outside of the courts.
Still, the move sent ripples through an industry with a large corporate presence in the region.
St. Louis
-based Peabody Energy's shares fell by 20 percent as investors worried the country's largest coal miner, also saddled with large debts, might be next to fall. Shares of
St. Louis
-based
Foresight Energy, a leading miner in the Illinois Basin, slid 21 percent.
The hard line taken by some of Arch's creditors to a negotiated restructuring outside of bankruptcy could indicate other coal creditors may be unwilling to negotiate, said Kris Inton, a Morningstar financial analyst. Peabody last month disclosed it was in talks to restructure some of its $6.3 billion in debt.
"Arch tried really hard to find a way to restructure outside of bankruptcy," Inton said. "And ultimately, they couldn't find a way to do it. And that's what would be a concern for me for Peabody. If their financial situation continues to deteriorate because of challenging coal markets, will they find themselves in the same shoes as Arch?"
Arch Coal listed assets of $5.85 billion and debts of $6.45 billion in its Chapter 11 petition filed in bankruptcy court in
St. Louis
. It faced a large interest payment due this week that Inton said would have been a "waste" to pay without a sustainable balance sheet or signs of improvement in the coal market.
Key to the restructuring is an agreement with senior secured creditors who hold $1.9 billion of Arch's debt. While they fought a restructuring outside of bankruptcy court supported by some unsecured creditors last year, Arch says its agreement with them will allow it to eliminate about $4.5 billion in debt. In exchange, they would be given control of most of the company.
"After carefully evaluating our options, we determined that implementing these agreements through a court-supervised process represents the best way to solidify our financial position and strengthen our balance sheet," John W. Eaves, Arch's chairman and CEO, said in a statement.
The good news for the region is that Arch says it has enough cash and short term investments on hand -- about $600 million -- to continue operating normally through bankruptcy. And even if the company makes job cuts as a result, most of its roughly 5,000 employees work in mines far from
St. Louis
. Arch already cut jobs at its
Creve Coeur
headquarters by about 20 percent last year, to 175 people.
The industry's slide has been stark in recent years. Walter Energy, Alpha Natural Resources and Patriot Coal all filed for Chapter 11 last year. For Patriot, which used to be based in
Creve Coeur
, it was its second trip to bankruptcy court.
Coal production fell 10 percent last year from 2014 levels and reached the lowest level since 1986, according to the U.S. Energy Information Administration. Average coal prices fell 22 percent in 2015 after falling 13 percent the year before.
For nearly a century, coal dominated electricity production, powering industrialization and serving as the fuel of choice for utilities around the country. Hydraulic fracturing, however, opened up vast new domestic reserves of the fuel, allowing it to challenge coal's pricing advantage. Meanwhile, technology improvements have allowed wind and solar energy to eat away at coal's market share.
Environmental regulations, have also added to the industry's woes, forcing expensive power plant upgrades to limit toxins like mercury and emissions that cause acid rain. Some have opted to close coal plants instead.
Now, concern has turned to global warming and coal's high carbon emissions. President Barack Obama's Clean Power Plan would further push utilities toward other energy sources in an effort to cut heat-trapping carbon dioxide.
In April, natural gas surpassed coal as the largest source of electricity generation for the first time since the EIA began keeping statistics. Natural gas's share of electricity production grew from 25 percent in October 2010 to 35 in October 2015, the EIA said, while coal's share of
U.S.
electricity generation has fallen from around 43 percent to 31 percent in that time.
With natural gas prices also at longtime lows, a rebound in pricing or demand for coal looks unlikely anytime soon. New coal plants aren't being built and more are expected to close as utilities switch to natural gas and renewable energy.
Even in emerging economies, which the coal industry has hoped might be its salvation, prospects for growth have dimmed. In December, the
Paris
-based
International Energy Agency slashed its outlook for global coal demand after preliminary data showed a decline in Chinese consumption for the second consecutive year.
"The coal industry is facing huge pressures, and the main reason is
China
-- but it is not the only reason," IEA Executive Director
Fatih Birol said in a statement last month. "The economic transformation in
China
and environmental policies worldwide -- including the recent climate agreement in
Paris
-- will likely continue to constrain global coal demand."
Yet coal still commands a large share of electricity production and likely will for decades to come. Arch still has "decent assets" that Morningstar's Inton said should allow the company to remain in business once it exits bankruptcy.
"You're just not going to need the same amount of coal that you did in the past," he said. "The industry needs to get down to the size where they're more appropriately serving (the market)."
Jacob Barker -- 314-340-8291
@jacobbarker on Twitter
jbarker@post-dispatch.com
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