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17 Nov 2010
Approximately $690 million debt securities affected
New York, November 17, 2010 -- Moody's Investors Service upgraded Murray Energy Corporation's
("Murray") Corporate Family Rating ("CFR") and
Probability of Default Rating to B3 from Caa1, and the rating on
the existing $540 million senior secured notes due 2015 to B2 from
Caa1. Moody's also assigned a Caa2 rating to the proposed $150
million senior unsecured notes due 2017. The rating outlook is
stable. The company intends to use the net proceeds from this offering,
together with cash on hand, to fund capital expenditures.
The rating upgrades reflect Moody's expectations that intermediate
term expansion projects at Murray's existing mines - including
a new longwall in Northern Appalachia and upgrades to existing longwall
equipment -- could improve its assets, materially reduce unit
costs, and improve longer-term ability to generate EBITDA
and cash flow. Moody's also believes that improved coal fundamentals
have afforded Murray the ability to better its overall contracted position
at relatively favorable prices. Additionally, Moody's
expects the company's Northern Appalachian mines to benefit from
longer-term secular production declines in Central Appalachia caused
by depletion, permitting issues, higher costs, and increased
sulfur scrubbing capacity at coal-powered power plants.
The B3 CFR also reflects high debt leverage, reliance on a few key
coal mines, operating and geologic risk, and the absence of
committed revolving credit. The ratings are supported by long-standing
relationships with highly rated utilities, long-term sales
contracts, low-cost longwall mining methods, freight
advantages associated with water-based transportation and proximity
to customers, and a largely union-free workforce.
In addition, Moody's expects that Murray would maintain good
short term liquidity in part because the net proceeds of roughly $145
million from the proposed notes issuance will bolster the company's
$165 million unrestricted cash balance (reported at September 30,
2010). Free cash flow generation has been very modestly positive
through the first half of 2010 but Moody's believes it would be
negative over the near-term as Murray funds its sizeable growth
capital spending. Moody's notes that a material portion of
Murray's meaningful cash generation in 2009 resulted from favorable
customer price adjustments that ended on December 31, 2009.
Moody's also upgraded to B2 from Caa1 the existing $540 million
second priority senior secured notes to reflect the advantaged position
in the capital structure in accordance with our loss-given default
methodology. We expect existing secured noteholders to benefit
from the improved asset base and increased coal production funded with
the proceeds from contractually junior proposed unsecured notes.
The stable rating outlook reflects Murray's highly contracted sales
position for the remainder of 2010 and 2011 and good liquidity to support
operations over the near-term. The outlook also anticipates
that Murray will meet production and tonnage sold targets, and make
planned progress towards completing its expansion and upgrade projects.
Moody's could consider a positive action if there is permanent reduction
of debt. In addition, the rating or outlook could be favorably
impacted should the company demonstrate sustainable improvement in production
levels and price per ton realizations while maintaining a favorable cost
However, Moody's could downgrade the rating if (i) liquidity
deteriorates meaningfully, (ii) we do not expect funds from operations
to cover maintenance capital expenditures for a sustainable period,
(iii) Murray pursues further leveraging transactions, (iv) there
are adverse developments in the thermal coal market without adequately
priced contracts for the majority of near-term coal production,
or (v) the company faces significant operational issues.
The following summarizes Moody's rating actions:
Murray Energy Corporation
..$150 million proposed senior unsecured notes due
2017 -- Caa2 (LGD5, 87%)
..Corporate family rating -- to B3 from Caa1
..Probability of default rating -- to B3 from
..10.25% $540 million second lien senior
secured notes due 2015 -- to B2 (LGD3, 35%)
Outlook remains stable.
The principal methodologies used in this rating were Global Mining Industry
published in May 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Murray Energy Corporation is a privately owned coal mining company which
produced approximately 23 million tons in 2009. The company controls
approximately 900 million tons of assigned and unassigned reserves in
the Northern Appalachia, Illinois, and Uinta basins.
Revenues for LTM period ended September 30, 2010 were $1
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises Murray Energy's CFR to B3; rates proposed senior notes
250 Greenwich Street
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