A U.S. bankruptcy judge yesterday denied a request by Peabody Energy Corp. shareholders to order the appointment of an official equity committee in the coal miner's chapter 11 restructuring, crushing hopes of a recovery for investors, Reuters reported. Shareholders led by hedge fund Mangrove Partners had urged the creation of an official committee, which would receive money from Peabody for lawyers and advisers and could help craft a reorganization plan. At a hearing in St. Louis, Mangrove cited several paths for a potential recovery for Peabody shareholders given a rise in coal prices. In rejecting the request, U.S. Bankruptcy Judge Barry Schermer asked why more money should be spent on legal fees when unsecured creditors such as Aurelius Capital Management and Elliott Management accept that they will not be paid in full. The two funds, among the most litigious on Wall Street, spent years battling Argentina in U.S. courts over the country's 2001 default. Peabody hopes to exit bankruptcy in April, a year after filing for bankruptcy, with a plan to cut $5 billion of debt and raise capital from creditors with a $750 million private placement and a $750 million rights offering. Peabody shares will be canceled and replaced with new stock which will be owned by creditors, the majority of which support the reorganization plan.
