## Facts

- Peabody Energy Corporation and affiliates filed for Chapter 11 in the Eastern District of Missouri in April 2016 amid declining coal demand and pricing pressures.
- To fund emergence, Peabody negotiated a restructuring support arrangement featuring (1) a discounted private placement of preferred stock in the reorganized debtor and (2) a rights offering with a backstop commitment that paid significant premiums and provided access to discounted securities.
- Participation in the private placement/backstop required creditors to make substantial new-money commitments, agree to backstop unsubscribed amounts, and support the plan.
- Senior unsecured noteholders were placed in a single class; roughly 95% of unsecured creditors entered the required agreements and participated in the financing transactions.
- The Ad Hoc Committee of Non-Consenting Creditors (primarily unsecured noteholders) opposed the structure, proposed alternatives, and declined to sign the participation agreements.
- Under the plan, all unsecured noteholders received the same pro rata recovery on their allowed unsecured claims, but only participating creditors received additional benefits from the private placement and backstop premiums.

## Issues

1. Whether a plan violates 11 U.S.C. § 1123(a)(4) by permitting only some creditors within a single class to receive private-placement rights and backstop premiums, while all class members receive the same distribution on account of their claims.
2. Whether the plan was proposed in good faith under 11 U.S.C. § 1129(a)(3) given allegations that the structure coerced holdouts and favored plan supporters.
3. Whether the appeal should be dismissed as equitably moot due to substantial consummation and reliance interests.

## Decision

- The court affirmed plan confirmation on the merits and did not decide equitable mootness.
- The plan did not violate § 1123(a)(4) because all unsecured creditors received the same pro rata treatment on their allowed claims; the additional private-placement and backstop benefits were consideration for separate new-money and backstop commitments.
- The plan satisfied § 1129(a)(3) because the bankruptcy court did not clearly err in finding the plan was proposed in good faith after extensive arms-length negotiations and served a valid reorganizational purpose.

## Legal Principles

- Section 1123(a)(4) requires equal treatment “for” claims within a class; it is not violated when differing outcomes arise from separate, bargained-for commitments (e.g., new value, backstopping) rather than from disparate distributions on account of prepetition claims.
- A creditor’s decision not to accept participation conditions for a separate financing transaction does not, by itself, convert the resulting loss of transaction benefits into unequal treatment of that creditor’s claim.
- Good faith under § 1129(a)(3) is a fact-driven inquiry; appellate review of the bankruptcy court’s finding is for clear error and will be reversed only upon a firm conviction of mistake.
- A capital-raising structure that provides incentives to participants can satisfy § 1129(a)(3) when it is negotiated at arms’ length by sophisticated parties and is oriented toward financing and effectuating reorganization rather than punishing dissenters.

## Conclusion

The Eighth Circuit upheld confirmation of Peabody’s Chapter 11 plan, holding that § 1123(a)(4) was satisfied because all unsecured creditors received the same claim-based recovery and the extra private-placement/backstop benefits were tied to new commitments, and it affirmed the bankruptcy court’s finding that the plan was proposed in good faith under § 1129(a)(3).


Ad Hoc Comm. of Non-Consenting Creditors v. Peabody Energy Corp. (In re Peabody Energy Corp.), 933 F.3d 918 (8th Cir. 2019)