When Peabody Energy Corp. emerges from bankruptcy next month, a group of seven investment funds could reap hundreds of millions of dollars in gains from an unusual sale of discounted company stock.
Six hedge funds and a state investment fund together own about half of the St. Louis-based company’s unsecured bonds, according to a January disclosure statement from Peabody. They used that leverage to gain access to a private placement of company stock, which has become surprisingly valuable amid an unexpected coal resurgence.
The exclusive offering for institutional investors will be challenged in bankruptcy hearings starting Thursday by a group of individual investors who were shut out.
Those investors — who said in court filings that they owned between 5 and 7 percent of the unsecured bonds — will argue in U.S. Bankruptcy Court in St. Louis that Peabody’s reorganization plan should be rejected because it violated a bankruptcy statute requiring equal treatment for owners of the same securities.
Peabody declined to comment but has argued in court that its Chapter 11 restructuring plan maximizes value for all investors and creditors. Extra benefits for major investors reflect their outsized role in negotiating and financing the company’s bankruptcy exit, the company has said in court filings.
Read more: St. Louis Post-Dispatch