Peabody Energy Corp. (BTU) has priced its public offer of two series of senior notes aggregating $3.1 billion–$1.6 billion of 6% senior notes due 2018 and $1.5 billion of 6.25% senior notes due 2021.
Peabody expects net proceeds of $3.1 billion before any expenses relating to this offering. The company intends to deploy the proceeds to fund, in part, the Macarthur Coal acquisition and for related fees and expenses. Should there be any balance remaining, the proceeds will be used to repay part or all of any revolver borrowings associated with the acquisition or for general corporate purposes.
Peabody ended the third quarter of 2011 with long-term debt balance of $2.46 billion, a decrease of 9.2% from 2010 end balance. The debt-to-capital ratio was 32% at third-quarter 2011 end, a 500-basis point decrease. The issuance of $3.1 billion of debt will further increase the debt-to-capital ratio by 1430 basis points.
Interest expense incurred by Peabody in the third quarter also decreased 4.8% year over year. However, with the new issuance the company will have to dish out approximately $190 million annually.
Peabody’s third quarter earnings missed the Zacks Consensus Estimate by two cents. The company’s profits for the quarter also dipped 12% from last year’s earnings of 99 cents, reflecting expenses related to the purchase of Macarthur Coal.
However, Peabody expects the fourth quarter to benefit from higher volumes in the U.S. and Australia, partly offset by effects related to the resumption of production and recovery of shipments at the North Goonyella Mine as well as any industry-wide impacts due to weather and transportation challenges.
Thus, the company guided 2011 sales within the 245 – 255 million tons range. Peabody also expects adjusted earnings per share of $3.70 to $4.15 in 2011.
The Zacks Consensus Estimate for fourth-quarter 2011 is $1.33 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.00 per share and $5.30 per share.
We retain our Neutral recommendation on Peabody Energy. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
St. Louis, Missouri based Peabody Energy Corporation is the world’s largest private sector coal mining company. The company competes with Arch Coal Inc. (ACI), BHP Billiton Ltd. (BHP) and CONSOL Energy Inc. (CNX).
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