New York, November 11, 2020 -- Moody's Investors Service, ("Moody's) assigned
a Caa2 rating to CONSOL Energy Inc.'s ("CONSOL")
proposed $100 million tax-exempt bond offering. The
bonds will be issued by the Pennsylvania Economic Development Financing
Authority and guaranteed by CONSOL Energy Inc. Proceeds will be
used to fund expenses related to solid waste disposal facilities at the
company's Pennsylvania Mining Complex ("PAMC").
Moody's also affirmed all long-term ratings for CONSOL,
including the B2 Corporate Family Rating. The rating outlook is
negative.
"The proposed tax-exempt offering is another step towards
strengthening CONSOL's liquidity during a very challenging period
for the thermal coal industry," said Ben Nelson, Moody's
Vice President -- Senior Credit Officer and lead analyst for CONSOL
Energy, Inc.
Assignments:
..Issuer: Pennsylvania Economic Dev. Fin.
Auth.
....Gtd Senior Unsecured Revenue Bonds,
Assigned Caa2 (LGD6)
Affirmations:
..Issuer: CONSOL Energy Inc.
.... Probability of Default Rating,
Affirmed B2-PD
.... Corporate Family Rating, Affirmed
B2
....Gtd Senior Secured 1st Lien Revolver,
Affirmed B1 (LGD3)
....Gtd Senior Secured 1st Lien Term Loan
A , Affirmed B1 (LGD3)
....Gtd Senior Secured 1st Lien Term Loan
B, Affirmed B1 (LGD3)
....Senior Secured 2nd Lien Regular Bond/Debenture,
Affirmed Caa1 (LGD5)
Outlook Actions:
..Issuer: CONSOL Energy Inc.
....Outlook, Remains Negative
RATINGS RATIONALE
The Caa2 rating assigned to the proposed tax-exempt bonds reflects
the unsecured status of the bonds and, therefore, contractual
subordination to the company's secured debt obligations.
The rating remains subject to Moody's review of the final terms
and conditions of the proposed offering.
Moody's expects that CONSOL's management-adjusted EBITDA
will fall to about $275 million in 2020, down from $406
million in 2019. Given significant uncertainty about future performance,
particularly with infection rates rising in the United States, our
baseline forecast incorporates an expected EBITDA range of $250-300
million and modest free cash flow in 2021. Moody's expects
the company will remain focused on using free cash flow to facilitate
overall debt reduction before its next debt maturities in 2023 ($73
million Term Loan A) and 2024 ($270 million Term Loan B),
including meaningful reduction of secured debt in the next 12-18
months. Taken together, Moody's expects that the company
will be able to achieve adjusted financial leverage under 4.0x
(Debt/EBITDA) and maintain adequate liquidity to support operations.
Management has undertaken numerous actions to enhance the company's
liquidity position in response to the disruption of the thermal coal industry
following the global outbreaks of Coronavirus in early 2020. These
actions include: (i) operational adjustments, including cost
control measures and temporarily idling the Enlow Fork Mine; (ii)
adjustments to the company's existing financial arrangements,
including relaxation of financial maintenance covenants under the revolving
credit facility, execution of sale leasebacks, and extension
of a securitization agreement; (iii) various completed and pending
asset sales, including land and mineral assets, gas wells,
and coal reserves; and (iv) a pending transaction to take in the
company's master-limited partnership that will eliminate
ongoing cash outflows and improve cushion under financial maintenance
covenants that currently exclude EBITDA for the proportion of the PAMC
owned by the MLP. The MLP transaction is expected to be funded
with stock and close in the first quarter of 2021.
The SGL-3 reflects adequate liquidity to support operations over
the next 12-18 months. The company reported $22 million
of cash and $301 million of availability under an undrawn $400
million revolving credit facility due 2023 at 30 September 2020.
Availability under the revolving credit facility is reduced by $99
million of letters of credit to support various obligations. The
credit agreement also contains financial maintenance covenants,
including Net Debt/EBITDA, Gross First Lien Debt/EBITDA, and
Fixed Charge Coverage ratio tests. Moody's expects that the
company will have an adequate cushion of compliance under these covenants
with the benefit of the transaction to take in the MLP and proceeds from
the proposed tax-exempt issuance.
Moody's also believes that investor concerns about the coal industry's
ESG profile are intensifying and coal producers will be increasingly challenged
by access to capital issues in the early 2020s. An increasing portion
of the global investment community is reducing or eliminating exposure
to the coal industry with greater emphasis on moving away from thermal
coal. The aggregate impact on the credit quality of the coal industry
is that debt capital will become more expensive over this horizon,
particularly in the public bond markets, and other business requirements,
such as surety bonds, which together will lead to much more focus
on individual coal producers' ability to fund their operations and articulate
clearly their approach to addressing environmental, social,
and governance considerations -- including reducing net
debt in the near-to-medium term. CONSOL reported
about $688 million of debt (down from $725 million at year-end)
and $667 million of surety bonds (up from $618 at year-end)
to support employer-related and reclamation-related items
at 30 September 2020.
CONSOL's B2 CFR is supported by a solid contract position and aggressive
efforts to preserve liquidity. CONSOL's business position is also
enhanced by its low-cost longwall mines, relatively stable
customer base, and good access to export markets for both thermal
and metallurgical coals. Despite the company's good business position,
CONSOL is fairly concentrated compared to other coal companies with reliance
on a single mining complex with three operating coal mines for the majority
of its earnings and cash flow. Four out of five longwalls are currently
operational. An additional mine is idled at present. CONSOL
also has meaningful legacy liabilities consistent with many rated coal
companies, though it has reduced this position significantly following
the sale of certain assets and managing cash servicing costs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook reflects macro- and industry-level
uncertainty that calls into question the company's ability to generate
meaningful free cash flow and reduce debt to maintain the rating.
Moody's could upgrade the rating with better visibility into the demand
for thermal coal, expectations for at least $50 million of
free cash flow sustained on an annual basis, and adjusted financial
leverage sustained below 3.0x, and good liquidity to support
operations. Moody's could downgrade the rating with expectations
for adjusted financial leverage above 3.75x, material cash
burn extending beyond the third quarter of 2020, substantive deterioration
in liquidity, or further intensification of ESG concerns that call
into question the company's ability to handle upcoming financing requirements
or access capital markets on economic terms.
Environmental, social, and governance factors have a material
impact on CONSOL's credit quality. The company is exposed to ESG
issues typical for a company in the coal mining industry, including
increasing global demand for renewable energy that is detrimental to demand
for coal, especially in the United States and Western Europe.
From an environmental perspective the coal mining sector is also viewed
as: (i) very high risk for air pollution and carbon regulations;
(ii) high risk for soil and water pollution, land use restrictions,
and natural and man-made hazards; and (iii) moderate risk
for water shortages. Social issues include factors such as community
relations, operational track record, and health and safety
issues associated with coal mining, such as black lung disease.
CONSOL is highly exposed to thermal coal. Moody's believes that
thermal coal carries greater ESG-related risks than metallurgical
coal. Specific risks for CONSOL Energy include meaningful exposure
to thermal coal and potential negative political actions in areas served
by the company. CONSOL's actions and commentary since becoming
an independent company have been more oriented toward debt reduction than
many other coal companies, including a reduction in balance sheet
debt by about 30% since late 2017.
The principal methodology used in these ratings was Mining published in
September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
CONSOL Energy Inc. is a leading global pure-play coal producer
operating the Pennsylvania Mining Complex ("PAMC") located in the Northern
Appalachia coal basin. The company generated $1.4
billion in revenues in 2019.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
