BUZ INVESTORS big stock bonuses A year ago, Peabody Energy Corp’s BTUUQ.PK chief executive was presiding over $2 billion of losses as the world’s largest private sector coal miner spiraled into bankruptcy.
Now, CEO Glenn Kellow and other top executives stand to reap tens of millions of dollars in stock bonuses under Peabody’s bankruptcy exit plan, which sets aside 10 percent of newly minted shares for employees.
The executives would collect a big portion of that stock when the company exits bankruptcy, expected in April. The shares would be worth about $15 million for Kellow and between $3 million and $5 million for each of five other executives, according to a company estimate.
But some shareholders and creditors who are challenging Peabody in bankruptcy court say the executives could reap a much bigger windfall. That’s because Peabody’s estimate severely undervalues the stock, they argue.
The company’s valuation, they contend, fails to properly reflect the impact of President Donald Trump’s unexpected election victory and regulatory changes in Beijing that have stoked demand for coal in China.
The critics include hold-out creditors who complain they are getting shorted by a deal hammered out by Peabody executives and hedge funds that hold the bulk of the company’s debt, which totals about $8 billion. The funds – led by Elliott Management, Discovery Capital Management and Aurelius Capital Management – would benefit from a lower valuation because it would give them more shares of the newly created Peabody stock, which will be used to pay off their bonds.
“You’d think this was one of the hottest IPOs in the world,” said Fredrick Palmer, who retired from Peabody in 2014 as a senior vice president and will be left with Peabody’s old and essentially worthless stock.
Some shareholders and creditors are expected to oppose Peabody’s Chapter 11 exit plan when the company seeks approval from the U.S. Bankruptcy Court in St. Louis in March.
By any estimate, the stock in Peabody’s management incentive plan is unusually valuable for a bankrupt company.
Peabody predicts it will be worth $310 million based on a $3.1 billion market capitalization, a figure the company said is appropriate given the volatile nature of global commodity markets.
Critics contend the stock could be worth up to three times that amount. Palmer estimates the initial stock award to Kellow could be worth as much as $43.5 million. That would top all restricted stock grants in 2015 by U.S. public companies with at least $1 billion in revenue, according to a survey by the Equilar consulting firm.
Peabody spokesman Vic Svec disputed Palmer’s estimate and said that one-time bankruptcy exit awards should not be compared with other companies’ annual stock grants. Peabody followed widely accepted pay practices for companies in Chapter 11, Svec said, and offers stock grants to all 7,000 of its employees.
Companies emerging from bankruptcy generally give stock to executives to align the interests of management with new shareholders, who are usually former creditors. The percentage of stock being granted to Peabody executives is standard for a company exiting Chapter 11, according to John Dempsey, a partner at the Mercer consulting firm.
|ARLP||Alliance Resource Partners||22.9||0.2||0.88%||43.39%||1.69B||May/05|
|CLD||Cloud Peak Energy||3.55||0.12||3.49%||66.66%||217M||May/05|
|YZC||Yanzhou Coal Mining||8.12||0.12||1.5%||91.96%||1.24B||Feb/16|
|BHP||Bhp Billiton Bhp||34.49||0.67||1.98%||23.48%||55.3B||May/05|
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