Peabody’s Bankruptcy Causes Spiteful Feud Between Hedge Funds and Citigroup-Led Lenders

by San Antonio Attorney

After Peabody Energy Corp. filed for bankruptcy in 2015, a Wall Street consultant warned the management about the litigious and dominant distressed hedge funds owners of the company.  According to restructuring expert Tyler Cowan, the hedge fund firms are throwers and that should cause wariness for the management.

When the coal company filed for bankruptcy, bondholders Mark Brodsky’s Aurelius Capital Management and Paul Singer’s Elliott Management Corp. shortly became involved in a spiteful $1 billion clash as they wanted to take out a larger part of the company’s assets.

The face-off has put Aurelius and Elliot against a group of lenders led by Citigroup, and it concentrated on a mysterious change in accounting that emphasizes how the two hedge funds, after a hurtful, lengthy debt fight with Argentina, are aiming to get more in bankruptcy proceedings.

Based on court papers filed, including handwritten notes and emails by Peabody officials, Aurelius and Elliot have allegedly discreetly sought to influence the management to carry out the accounting modification that would shift collateral worth $1 billion for their own benefits and holders of unsecured bonds worth around $4 billion.

The group of lenders headed by Citigroup, a negotiator for the secured debt worth $2.8 billion, asserts that those company assets truly belong to their group.  Peabody gave in to the hedge funds’ demands because they also want to increase their own recovery even if it harms the secured creditors, according to Citibank’s court filings.  One of Peabody’s largest secured lenders is Franklin Resources Inc., which holds 21% of one portion of the debt.

Peabody denies the contentions, arguing that they are convoluted and merely a conspiracy theory.  The company says that there is no proof that they are conspiring with the two hedge funds or other unsecured bondholders.

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