Already operating on borrowed time, Cloud Peak Energy Corp. borrowed a little more when it was granted another seven days forbearance on a $1.8 million interest payment originally due March 15.
In a filing with the federal Securities and Exchange Commission on Wednesday afternoon, the Gillette-based thermal coal producer paints a grim picture that may be headed to Chapter 11 bankruptcy reorganization.
“We will need to restructure our balance sheet in order to improve our capital structure, adjust our business to ongoing depressed Powder River Basin thermal coal industry conditions, address our significantly reduced liquidity and continue as a going concern,” the company says in the filing.
In addition to securing a forbearance until May 7 for the $1.8 million payment on debt due in 2024, Cloud Peak said it won’t pay $17.4 million on its 2021 notes that was due Wednesday. Instead, the company is using a 30-day grace period for that debt, extending that interest payment out until May 31.
Cloud Peak says it continues to evaluate its restructuring and that “we remain actively engaged in discussions with certain of our creditor groups’ financial and legal advisors.”
Wednesday’s announcement may or may not mean the company has a deal in the works that could spare it having to file for Chapter 11 reorganization, said Robert Godby director for the Center for Energy, Economics and Public Policy at the University of Wyoming.
“It a hurry-up-and-wait kind of thing,” he said. “We’re back to the same (type of) deadline they had before. We don’t know what’s going on in the background. They’ve been able to convince their creditors that they have nothing to lose by giving them another seven days.”
By first using the 30-day grace period and getting two forbearances after that, Cloud Peak “has made it pretty clear they’re not in a position to make that payment,” Godby said. “They’re also not in a position to make that other ($17.4 million) payment.”
While another week doesn’t seem like much time, it is another chance for the company to find a solution to its sagging balance sheet, which is crumbling under a weak market for Powder River Basin coal that doesn’t generate enough revenue to keep up with debt payments, he said.
“The creditors don’t have a lot to lose by giving them a little more time,” Godby said. “If their choices are potentially something or (definitely) nothing, this is what you do in that situation.”
That this forbearance is only for a week also “signals that we’re probably coming to the end of the negotiations for Cloud Peak,” he said.
In addition to the interest payment on its debt, Cloud Peak Energy also has a May 10 deadline to pay a little more than $8 million in taxes owed to Campbell County for the last half of 2018.
Campbell County Commissioners have said they don’t anticipate the company will miss its tax payments and County Treasurer Rachael Knust said the company is current on all its tax obligations.
Cloud Peak Energy, which operates the Antelope and Cordero Rojo mines in Campbell County and the Spring Creek mine in Montana, employs nearly 1,250 people and produced nearly 50 million tons of coal in 2018.
When the company was granted its first 15-day forbearance on its interest payment, Godby said Cloud Peak’s situation was like it was treading water in the middle of the ocean waiting for a ship to come by.
After Wednesday’s move, “They’re still treading water in the middle of the ocean,” he said. “It’s just the waves are getting bigger.”