Peabody Coal, Two Other Fuel Firms Declare Bankruptcy; U.S. Power Sector Sinks, Junk Energy Debt Soars
April 14, 2016 (EIRNS)—Yesterday, Peabody Energy, the largest U.S. coal mining company, declared Chapter 11 bankruptcy. The immediate circumstances are part of Obama’s "Clean Power," anti-fossil fuel version of London’s global warming genocide schemes. Peabody could not meet a debt service deadline this month, because cash from a pending sale of certain coalfield assets fell through, after Wall Street kiboshed financing for the buyers, under its policy of no funding for fossil fuels.
Peabody, major supplier to electric utilities, has at stake operations in 26 mines in the United States and Australia, and some 8,000 jobs. Nationwide, mine sector jobs have plunged 33% from 89,000 in 2012, to 59,000 now. U.S. coal output has plummeted.
Peabody Coal was by far the largest, but only one of three U.S. energy/mining companies which declared bankruptcy April 13. The other two were Energy XXI Ltd., which went into bankruptcy and wrote off $2.8 billion in debt; and Gulf Keystone Petroleum, although its default has only been on $26 million so far.
These events are the latest in the ongoing disintegration in the U.S. energy system. For example, the Obama shale oil boom—a disaster in itself—has now busted to the point that U.S. shale oil production has dropped significantly, by about 25%, and it is half of U.S. total oil production. The United States is the only world producer actually producing much less, going into the Doha oil-producing countries meeting.
The U.S. "energy junk debt" is a lit fuse on the entire bankrupt Wall Street system. For Energy XXI, Ltd. and Gulf Keystone Petroleum, the debt of both was substantially held by Wells Fargo Bank and Citibank, the two SIFIs (systemically important financial institutions) with the most exposure to energy junk debt. Wells Fargo just acknowledged in its quarterly financial report that of its $40 billion in loans and bond debt in the U.S. shale sector, $32 billion is junk debt. Just as important was the leap in the "classified loans" portion of that $40 billion, from 38% at the end of 2015 to 57% through the first quarter of 2016. "Classified" means in danger of default.
Against this dramatic deterioration in debt, Wells Fargo’s combined debt write-offs and increased bad loan provisions were only about $400 million. Classified loans should have a loss reserve provision of 25-50% of the total of the endangered loans, according to sound banking practice; but none of the SIFIs are making anything like such provisions as the "junk energy debt" collapses.
Citibank has $57 billion in U.S. shale debt exposure, but does not provide information on how much of that is junk; it clearly could be $40-50 billion.
In the Peabody Energy Chapter 11, the largest lender for the $6.3 billion in debt that Peabody is likely to write off, is Franklin Templeton Investments, one of the world’s biggest mutual fund operators. It also had the largest holdings of Ukraine debt, even larger than Russia; and is a substantial creditor of Puerto Rico’s municipal bonds. Franklin Templeton demanded the Peabody bankruptcy in order to avoid a complete loss of the entire debt.