Cloud Peak Energy has until Friday to make good on a defaulted $1.8 million interest payment after gaining a third forbearance from its creditors.
In a filing with the U.S. Securities and Exchange Commission on Wednesday morning, the company reiterates its inability to “continue as a going concern.”
Saddled with about $400 million in debt due in the next five years and the “ongoing depressed Powder River Basin thermal coal industry conditions,” Cloud Peak reports it continues, through financial advisers, to pursue any and all options. That could include Chapter 11 bankruptcy reorganization, the filing says.
The Wall Street Journal is reporting that, “according to people familiar with the matter,” Cloud Peak will file for Chapter 11 in Delaware this week.
Wednesday’s filing is another last-ditch effort that could indicate the company is on the verge of bankruptcy or could possibly reach an agreement to sell assets or attract an acquisition interest, said Robert Godby, director and associate professor for the Department of Economics and Finance at the University of Wyoming.
“It’s hard to know why they only have the three days on this (forbearance),” he said. “All we really can do is speculate.”
Wednesday’s three-day forbearance is for a payment originally due March 15. At the time, Cloud Peak exercised an option for a 30-day grace period. When that was up April 14, a 15-day forbearance was granted, then another seven-day one May 1 that expired Tuesday.
It’s notable that each extension and forbearance so far has been about half the one before, Godby said. After the initial 30-day grace period, Cloud Peak’s creditors allowed a 15-day forbearance, then seven days and now three.
“The creditors must feel they have little to lose by giving them a little more time, but it’s clear their (patience) is running out,” he said. “Each extension is shorter than the previous one, so I’d assume if there is a next one, it will not be divisible by a full day.”
In the meantime, another $17.4 million in debt obligations were due May 1, which Cloud Peak has exercised a 30-day grace period on.
The financial pressure on the Gillette-based coal producer seems to be coming to a head. The Friday deadline on Cloud Peak’s latest forbearance, May 10, also is the due date for it to pay about $8 million in taxes owed to Campbell County for the last half of 2018.
Godby said there’s no way to know if the tax deadline is significant in any way to the new deadline for its debt payment.
“What you would be worried about there is if the county could adversely affect their revenue stream or seize any assets,” he said about nonpayment of the taxes. “The real message is you kind of run out of time. It looks like the end is near, but it’s all speculation at this point.”
Cloud Peak has been mum on its attempts to keep the company solvent, and while some may wonder why it would continue to get forbearances, Godby said there are a couple of reasons.
One is that as a public company, it has a legal obligation to work in the interest of its shareholders, and although its stock is worth less than a dime a share, a bankruptcy filing would essentially devalue it completely, Godby said.
Another is that it’s still working to negotiate sale of an asset or acquisition by another company that could keep Cloud Peak out of bankruptcy, he said.
“It’s fighting to the last breath in fulfilling your obligation to maintain shareholder value and operate in the best interest of owners,” he said. “Granted, the value now is orders of magnitude lower than it was at its peak a few years ago.”
Despite the financial uncertainty, Cloud Peak said in its filing that operations will continue as usual at its three Powder River Basin mines — Antelope, Cordero Rojo in Campbell County and Spring Creek in Montana. The mines employ nearly 1,250 people and produced nearly 50 million tons of coal in 2018.
The options to avoid bankruptcy seem to be nearly exhausted at this point, Godby said, joking that the three-day forbearance allows Cloud Peak one last shot at connecting on a last-second Hail Mary pass.
“If they somehow use the 10 bucks left in the petty cash box to go out and buy lottery tickets, that could be an equally relevant outcome for the company that the Powerball hits,” he said.
Wednesday night’s drawing has an estimated jackpot of $215 million, which has a cash payout of $133 million.
While joking a little at Cloud Peak’s expense, Godby said its situation “really is not a laughing matter for those people who work there” and the Powder River Basin economy that depends on the company.
Godby said what the process so far shows is “just how powerless a creditor is to collect something from a company that has no tangible assets without undermining their ability to conduct business.”