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Related Issuers
Rating Action:

Moody's rates Murray Energy's proposed refinancing debt; affirms B3 CFR

Global Credit Research - 08 May 2013

Approximately $700 million of new debt rated

New York, May 08, 2013 -- Moody's Investors Service affirmed Murray Energy Corporation's B3 Corporate Family Rating ("CFR") following the announcement of a proposed refinancing transaction. Moody's assigned a Ba3 rating to a proposed senior secured term loan and Caa1 rating to proposed senior secured notes. The rating outlook is stable.

"The debt-for-debt refinancing would reduce cash interest expense, enhance liquidity, and by introducing bank debt into the capital structure signals an intention to reduce debt. As we have stated previously, a meaningful and permanent reduction in debt could have positive rating implications," said Ben Nelson, Moody's lead analyst for Murray Energy Corporation.

Proceeds from the proposed $300 million senior secured term loan and $400 million senior secured notes, along with balance sheet cash, will be used to refinance the existing $688 million senior secured notes due 2015 and pay transaction-related fees and expenses. An undrawn $50 million asset-based revolving credit facility will replace the existing $25 million revolver. As a result of the transaction, Moody's expects cash interest to decline from about $70 million to below $60 million, and available liquidity to expand moderately due to increased revolving credit capacity.

Today's actions:

..Issuer: Murray Energy Corporation

....Corporate Family Rating, Affirmed B3

....Probability of Default Rating, Affirmed B3-PD

....$300 million Senior Secured Term Loan, Assigned Ba3 (LGD2 20%)

....$400 million Senior Secured Notes, Assigned Caa1 (LGD4 61%)

..Outlook, Stable

The assigned ratings are subject to Moody's review of final terms and conditions of the proposed refinancing transaction. The rating on the existing $688 million senior secured notes due 2015 is expected to be withdrawn following full repayment with the refinancing proceeds.

RATINGS RATIONALE

The B3 CFR is constrained primarily by the challenges of operating a moderately-size enterprise with a leveraged balance sheet in a very challenging industry. The rating also considers the operating risk associated with reliance on a few key coal mines for the majority of earnings and cash flow. Credit measures are solid for the rating with pro forma adjusted financial leverage near 4 times Debt/EBITDA and interest coverage in excess of 1 time EBIT/Interest. Solid contract positions, low-cost longwall mines, low cost barge and truck transportation to the power plants served, a flexible workforce and good liquidity also support the rating.

Moody's expects low natural gas prices and regulatory tightening will continue to challenge the domestic thermal coal industry. Murray's demonstrated ability to control costs across all basins and long-term contracts covering anticipated production in Northern Appalachia impart some predictability to future cash flow. Free cash flow has been negative due to heavy capital spending since the initial rating assignment in late 2009, but with the program tapering off Moody's expects free cash flow will turn positive in 2013 and could strengthen further in the intermediate term. The magnitude and sustainability of this improvement will depend in part on the evolving competitive dynamics in the Illinois Basin. Moody's believes that recent and anticipated capacity additions in the Illinois Basin will constrain pricing unless the industry can keep pace by developing external sources of demand, including export tonnage to overseas markets and replacement tonnage sold into more challenged domestic coal basins such as Central Appalachia. Murray has significant uncontracted tonnage in the Illinois Basin starting in 2014.

The stable outlook assumes that funds from operations will exceed maintenance capital requirements and that the company will maintain a good liquidity position. Challenging conditions in the domestic coal industry limit upward rating momentum. However, Moody's could upgrade the rating with meaningful and permanent debt reduction, interest coverage sustained above 1.5 times, and expectations for funds from operations sustained well above maintenance capital requirements. Moody's could downgrade the rating if we expect interest coverage to fall below 1 time or funds from operations to fall short of maintenance capital requirements for a sustained period. Deterioration in liquidity or an adverse operational event at a key mining operation could also have negative rating implications.

The principal methodology used in this rating was the Global Mining Industry published in May 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Benjamin Nelson
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Murray Energy's proposed refinancing debt; affirms B3 CFR
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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