New York, December 12, 2017 -- Moody's Investors Service, ("Moody's") today
downgraded the ratings of Contura Energy, Inc., including
the Corporate Family Rating (CFR) to B3 from B2, probability of
default rating (PDR) to B3-PD from B2-PD, and senior
secured rating to Caa1 from B2. The outlook is stable.
The following rating actions were taken:
Downgrades:
..Issuer: Contura Energy, Inc.
.... Probability of Default Rating,
Downgraded to B3-PD from B2-PD
.... Corporate Family Rating, Downgraded
to B3 from B2
....Senior Secured Bank Credit Facility,
Downgraded to Caa1 (LGD4) from B2 (LGD4)
Outlook Actions:
..Issuer: Contura Energy, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
The rating action follows the company's announcement on December
11, 2017 that it has completed a transaction with Blackjewel L.L.C.
to sell the Eagle Butte and Belle Ayr mines located in the Powder River
Basin (PRB) in Wyoming, along with related 600 million tons of proven
and probable reserves and approximately $200 million in undiscounted
reclamation obligations. The two mines shipped 24.5 million
tons through the first three quarters of 2017 and will generate roughly
$30 million of EBITDA in 2017. Under the terms of the transaction,
Contura will receive deferred consideration of up to $50 million
through royalty payments.
The downgrade reflects our view that the transaction will further limit
the diversity of the company's business, and increase its
concentration in the volatile metallurgical coal markets. The ratings
continue to reflect our expectation of continued secular decline of the
US thermal coal industry, while acknowledging the company's position
as one of the key producers of metallurgical coal in the United States
and its competitive cost position in Northern Appalachia.
We view the company's liquidity position as adequate, which reflects
the company's cash balance of over $100 million as of September
30, 2017 and almost full availability under the $125 million
ABL facility. The ABL facility has a minimum fixed charge coverage
ratio of 1.0x that is only tested when excess availability falls
below certain thresholds. The senior secured term loan does not
have any financial covenants. We expect positive free cash flows
over the next twelve months at current prices. We note, however,
that free cash flows could turn negative at some of the pricing levels
observed over the past two years while the industry was in distress.
The Caa1 rating on the senior secured term loan reflects its weaker collateral
position relative to the ABL, as well as expected recovery in the
event of bankruptcy.
The stable outlook reflects our expectation of positive free cash flows
and solid contracted position in thermal coal.
The ratings could be upgraded if the rate of secular decline in the US
thermal coal industry were to slow or reverse, and if metallurgical
coal markets were to show more stability and predictability, allowing
the company to consistently generate EBIT margin above 8%.
The ratings could also be upgraded in the event of material growth in
scale and diversity.
The ratings could be downgraded if Debt/ EBITDA, as adjusted,
were to increase above 5x, if free cash flows were to turn negative,
or if liquidity were to deteriorate.
Formed by a group of former first lien lenders of Alpha Natural Resources,
Contura was created to acquire and operate Alpha's core operations
in Northern Appalachia (including the Cumberland mine complex),
all Alpha's operations in the Powder River Basin and certain assets
in Central Appalachia (the Nicholas mine complex in Nicholas County,
West Virginia, and the McClure and Toms Creek mine complexes in
Dickenson and Wise Counties, Virginia). Contura also purchased
Alpha's interest in the Dominion Terminal Associates coal export
terminal in eastern Virginia. For the first three quarters of 2017,
Contura generated $1.6 billion in revenues.
The principal methodology used in these ratings was Global Mining Industry
published in August 2014. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
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: 1 212 553 0376
Client Service: 1 212 553 1653
Brian Oak
MD - Corporate Finance
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