New York, April 03, 2017 -- Moody's Investors Service, ("Moody's") today
assigned first-time ratings to Alliance Resource Operating Partners,
L.P., including a corporate family rating (CFR) of
Ba3, a rating on proposed senior unsecured notes of B1, and
a Speculative Grade Liquidity rating of SGL-2. The outlook
is stable.
The following rating actions were taken:
Assignments:
..Issuer: Alliance Resource Operating Partners,
L.P.
.... Probability of Default Rating,
Assigned Ba3-PD
.... Speculative Grade Liquidity Rating,
Assigned SGL-2
.... Corporate Family Rating, Assigned
Ba3
....Senior Unsecured Regular Bond/Debenture,
Assigned B1 (LGD 4)
Outlook Actions:
..Issuer: Alliance Resource Operating Partners,
L.P.
....Outlook, Assigned Stable
RATINGS RATIONALE
The ratings reflect the company's position as one of the key US
thermal coal producers operating eight underground mining complexes in
Illinois Basin and Appalachia, as well as a coal loading terminal
on the Ohio River at Mt. Vernon, Indiana. The company
produces almost 40 million tons of coal per year, with roughly 28
million tons of it from the Illinois Basin. The company enjoys
a competitive cost structure and an advantageous contracted position over
the next two years. We expect the company to maintain Debt/ EBITDA,
as adjusted, of below 2x over the ratings horizon.
The ratings are further supported by our view that the Illinois Basin
remains the better positioned coal region in the US due to its low cost
structure. The ratings incorporate our stable outlook on US coal
industry. Although the industry continues to face challenges,
coal producers have received much needed relief with natural gas prices
hovering below $3.00/ million British thermal units (MMBtu).
Although the new US administration appears more supportive of the industry,
we believe domestic coal consumption will remain under pressure over the
long term. Natural gas and renewables will capture an increasing
share of the nation's fuel mix, smaller and less efficient coal
plants will continue to be retired and coal's share of the nation's overall
energy consumption will likely drop to the mid-20% range
within a decade, from about 30% now.
Domestically, we view the Illinois Basin (ILB) as the better positioned
coal region in the US. The higher sulfur content of ILB coal requires
it to be burned in power plants with scrubbers or blended with other coals
with lower sulfur content. We expect ILB coal to continue displacing
Central Appalachian coal, which is in secular decline due to the
high cost of production. Meanwhile, high transportation cost
will limit the reach of the Powder River Basin coal into ILB's markets.
That said, the company will not be immune from the challenges typically
facing US coal producers, including rising costs of mining,
ongoing technological developments in shale and competition from low-cost
natural gas, regulatory pressures aimed at disadvantaging the use
of coal, and enhanced scrutiny over safety in underground mining.
In particular, we view the company's Appalachian mines as
susceptible to the downward pressure in demand.
The Speculative Grade Liquidity rating of SGL-2 reflects our expectations
of good liquidity, which includes cash balance of $40 million
at December 31, 2016 and expected full availability under the proposed
$460 million revolver due May 2021. While we expect the
company's operating cash flows to be more than sufficient to cover
capital requirements, the company's structure as a Master
Limited Partnership (MLP) means that most of the company's available
cash flows will be distributed to unit holders.
The B1 rating on senior unsecured notes, one notch below the CFR,
reflects their position behind the secured revolver with respect to claim
on collateral.
The stable outlook reflects the company's solid contracted position
and stable outlook on the industry.
While unlikley, the ratings could be upgraded if the rate of secular
decline in the US thermal coal industry were to slow or reverse,
or in the event of material growth in scale and diversity, while
comparable metrics are maintained.
A downgrade could be considered if Debt/ EBITDA, as adjusted,
were expected to increase above 3x, or if liquidity were to deteriorate.
Alliance Resource Operating Partners LP is a subsidiary of Alliance Resource
Partners LP, which is a publically traded master limited partnership.
At December 31, 2016, the company had approximately 1.76
billion tons of coal reserves in Illinois, Indiana, Kentucky,
Maryland, Pennsylvania and West Virginia. In 2016,
the company sold 36.7 million tons of coal and generated $1.9
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: 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
