Premier coal operator
Peabody Energy Corporation
) has extended and expanded its existing credit facility. The new
credit facility comprises a $1.65 billion revolver due in 2018
and a seven-year $1.2 billion term loan due in 2020. These
replace a $1.5 billion revolver due in 2015 and a $1.2 billion
term loan due in 2016.
Peabody has thus made good use of the favorable market conditions
to extend its credit facility. The extension of the maturity
period will allow the company to use the capital more prudently
once the coal market recovers from its present slump.
Incidentally, the current softness in coal demand has prompted
Peabody to lower its capital expenditure guidance by 20% from the
year-ago level to a band of $350 million to $450 million.
Peabody is one of the leading coal operators having a strong
presence in Australia and the U.S. As per a study conducted by
the company, annual global coal demand is expected to increase by
1.2 billion tonnes between 2012 and 2017. This is primarily due
to the additions of nearly 425 gigawatts (GW) of new coal-fired
units over the said period. It is quite evident that the current
coal production level has to increase to meet the target.
Peabody's move to expand its credit facility is perfectly timed
and will provide the company ample liquidity to expand its
existing operations as and when required. A $150 million increase
in Peabody's credit facility will help it to develop its existing
facilities and fund future acquisitions.
The domestic coal business is expected to turn more competitive
due to strong competition from natural gas and renewable sources.
Moreover, President Obama's Climate Action Plan and the U.S.
Environmental Protection Agency's (EPA) announcement to lower
carbon emission from newer coal-based power plants could increase
the cost of power generation. In such a scenario, Peabody
will try to capitalize on the export market, leveraging its
strength in both Australia and the U.S.
Peabody Energy currently has a Zacks Rank #3 (Hold). Coal
operators worth considering with a favorable Zacks Rank are
Alliance Holdings GP, L.P.
Alliance Resource Partners LP
James River Coal Co.
). Alliance Holdings has a Zacks Rank #1 (Strong Buy) while
Alliance Resource and James River Coal carry a Zacks Rank #2
ALLIANCE HLDGS (AHGP): Free Stock Analysis
ALLIANCE RES (ARLP): Free Stock Analysis
PEABODY ENERGY (BTU): Free Stock Analysis
JAMES RIVER CL (JRCC): Free Stock Analysis
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