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Rating Action:

Moody's Upgrades James River Coal Company's CFR to Caa2

27 May 2010

Approximately $150 million of rated securities affected

New York, May 27, 2010 -- Moody's Investors Service upgraded James River Coal Company's ("JRCC") ratings, including the Corporate Family Rating ("CFR") which was raised to Caa2 from Caa3. This action concludes the review initiated on December 7, 2009. The rating outlook is stable. The speculative grade liquidity rating remains SGL-2.

The upgrade of the CFR and the affirmation of the SGL-2 rating reflect JRCC's improved liquidity profile and Moody's expectation for the company to maintain good performance over the near-term. JRCC reported $153 million of unrestricted cash and approximately $32 million of restricted cash at March 31 - most of which results from the $172.5 million issuance of convertible notes in November 2009. In addition to the large cash balance, the ratings benefit from Moody's expectation that JRCC should generate sufficient positive funds from operations over the next twelve months to cover its working capital and capital expenditure needs. Given cash costs in the mid-$60 per ton range for its Central Appalachian (CAPP) mining operations, Moody's believes JRCC's CAPP production may not be economical in the current market environment where spot prices are in the low to mid $60 per ton range. However, JRCC has contracted over 5.9 million CAPP tons for delivery in 2010 at an average price of $94.80 per ton and 2.4 million tons at a price of $121.21 per ton for delivery in 2011. This should help drive positive free cash flow despite our expectation that some uncontracted production may be sold at prices well below existing contracts in order to preserve the company's overall economics.

The Caa2 CFR incorporates Moody's concerns about the potential for significant operating and financial risk over the intermediate term. In Moody's opinion, the company's asset base of small, thin-seam coal mines presents an ongoing challenge to meet production targets due to difficult geologic conditions. This results in the company's high cash cost per ton cost structure and its dependence on high priced contracts. As contracts roll off beginning in 2011, Moody's remains concerned about whether pricing will be sufficient to support operations without additional capital. JRCC funded operating losses throughout 2007 and 2008 with new capital from the debt and equity markets without which the company would likely have been challenged to maintain its operations.

The stable rating outlook assumes that JRCC will maintain a good liquidity position over the next twelve to eighteen months. Absent an improvement to the cost structure, the outlook is predicated on JRCC maintaining at least $75 million of unrestricted cash.

As a consequence of a change in the capital structure including the introduction of senior convertible notes, JRCC's senior unsecured notes are being raised to Caa1 from Ca. This is a function of the Loss Given Default Methodology and the structural subordination of the new convertible notes relative to the senior unsecured notes due to the lack of guarantees from the operating companies.

Ratings affected by today's actions include:

-Corporate Family Rating raised to Caa2 from Caa3

-Probability of Default Rating raised to Caa2 from Caa3

-$150 million 9.375% Sr Unsecured Notes due 2012 raised to Caa1 (LGD 3; 42%) from Ca (LGD 4; 68%)

-Outlook Stable

-Speculative Grade Liquidity rating remains SGL-2

For more information, please refer to the credit opinion to be posted on Moodys.com.

The last rating action was on December 7, 2009 when the ratings of James River Coal Company were placed under review for upgrade.

The principal methodology used in rating JRCC was Moody's Global Mining Industry rating methodology, published on May 4, 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Richmond, Virginia, James River Coal Company is engaged in the mining and marketing of steam and industrial coal. The company operates six mining complexes in Central Appalachia and the Illinois Basin. Revenue was approximately $670 million for the twelve month period ending March 31, 2010.

New York
Kendra M. Smith
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Dhruv Khanna
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Upgrades James River Coal Company's CFR to Caa2
No Related Data.
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