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Rating Action:

Moody's assigns B1 rating to Alpha's DIP Term Loan

24 Sep 2015

New York, September 24, 2015 -- Moody's Investors Service assigned a B1 rating to the $300 million debtor-in-possession (DIP) term loan entered into by Alpha Natural Resources Inc. (DIP) (Alpha) as part of the approximately $691 million DIP facilities initiated to provide the company with the necessary liquidity as it goes through the Chapter 11 restructuring process. The rating primarily reflects the collateral coverage available to the DIP lenders under the term loan and the structural features of the DIP facilities. The term loan is secured by substantially all assets of the company, includes a super priority claim under the Bankruptcy Code, and has upstream secured guarantees from all of Alpha's material domestic subsidiaries. The bankruptcy court approved the execution of the DIP facilities in its final debtor-in-possession order on September 17, 2015. The rating also considers the size of the DIP facilities as a percentage of pre-petition debt and the nature of the bankruptcy and reorganization. The company and certain of its wholly-owned subsidiaries filed for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court for the Eastern District of Virginia in Richmond on August 3, 2015.

Today's rating on the DIP term loan is being assigned on a "point-in-time" basis and will not be monitored going forward and therefore no outlook is assigned to the rating.

Assignments:

..Issuer: Alpha Natural Resources Inc. (DIP)

....Senior Secured Bank Credit Facility (Local Currency), Assigned B1

RATINGS RATIONALE

The proceeds of the DIP term loan will be used to post approximately $110 million in cash collateral for certain letters of credit previously issued under the AR securitization facility, to pay restructuring fees and expenses and for other corporate purposes. The DIP facilities also include an up to $100 million (or as otherwise increased by the lenders) cash-collateralized DIP Bonding Accommodation Facility used to meet state bonding requirements and $191 million Roll-Up DIP facility to cover the company's pre-petition outstanding letters of credit under its first lien pre-petition corporate facility. The DIP term loan also permits the company to obtain an ABL revolver of up to $200 million, secured by certain accounts receivable, with the DIP term loan availability reduced dollar-for-dollar to the extent the revolver exceeds $100 million.

The DIP term loan has a first lien and a super-priority claim on substantially all assets of the company, with a junior lien position on cash collateralizing the Bonding Accommodation Facility and the accounts receivable securing the ABL revolver. The DIP term loan will mature on February 6, 2017, and will terminate upon the sale of all or substantially all of the assets of the Company or the effective date of a plan of reorganization.

The B1 rating assigned to the term loan predominantly reflects the collateral coverage, which consists primarily of inventory ($237 million book value at June 30, 2015) and property, plant and equipment, including 2 billion tons in assigned coal reserves and the company's investment in 25,000 net acres in Marcellus Shale natural gas properties, along with the associated infrastructure. The exact coverage on the term loan in the event of liquidation is uncertain and would depend on market conditions at the time of liquidation of the asset base, among other factors. Moody's estimates that collateral coverage on the term loan would be in excess of 100%.

The rating reflects other structural features of the term loan, including upstream guarantees from all of company's material domestic subsidiaries and certain protections afforded by restrictive covenants, including limitations on capital disbursements and minimum liquidity tests.

The rating is constrained by our expectation that in current market conditions, Alpha's mines will be generating negative EBITDA and uncertainty over the extent and nature of actions that must be taken to emerge with profitable operations. The current challenged operating environment, along with the existence of multiple classes of pre-petition creditors, can render the reorganization process lengthy and complex and make recovery more challenging. Alpha's Chapter 11 filing was precipitated by the persistently weak thermal and metallurgical coal markets which ultimately rendered the company's capital structure untenable. Pre-petition, Alpha carried $4 billion in debt and $1.7 billion in legacy liabilities including pensions, post-retirement medical and asset retirement obligations. Over the twelve months ended June 30, 2015 the company generated $3.8 billion in revenues.

The principal methodology used in this rating was Debtor-In-Possession Lending published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Alpha Natural Resources is one of the largest coal companies in the US, and the largest US producer and exporter of metallurgical coal. The company's operations are located in the Central Appalachia and Northern Appalachia regions, as well as the Powder River Basin. In 2014, Alpha generated revenues of $ 4.3 billion

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.

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

Anna Zubets-Anderson
Vice President - Senior 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

Brian Oak
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 assigns B1 rating to Alpha's DIP Term Loan
No Related Data.
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