New York, January 19, 2017 -- Moody's Investors Service, ("Moody's") today
assigned new ratings to Arch Coal, Inc., including
corporate family rating (CFR) of B1, probability of default rating
(PDR) of B1-PD, a rating on secured term loan of B1,
and speculative grade liquidity rating of SGL-2. The outlook
is stable. In October 2016 the company announced that it has successfully
completed its financial restructuring and emerged from court protection.
The following rating actions were taken:
Assignments:
..Issuer: Arch Coal, Inc.
....Senior Secured Bank Credit Facility,
Assigned B1 (LGD 4)
Reinstatements:
..Issuer: Arch Coal, Inc.
.... Probability of Default Rating,
Reinstated to B1-PD
.... Speculative Grade Liquidity Rating,
Reinstated to SGL-2
.... Corporate Family Rating, Reinstated
to B1
Outlook Actions:
..Issuer: Arch Coal, Inc.
....Outlook, Changed To Stable From
Rating Withdrawn
RATINGS RATIONALE
The ratings reflect the company's position as the leading producer
of metallurgical coal and second largest producer of thermal coal in the
United States. Subsequent to restructuring, the company is
left with a portfolio of ten large, well-capitalized and
low-cost mines well positioned to compete in the US coal markets.
The company's key contributors to EBITDA are the Black Thunder mine
in the Powder River Basin, expected to produce approximately 75
million tons of coal per year, and Leer metallurgical coal mine
in Appalachia expected to produce roughly 3.5 million tons per
year.
The ratings reflect the company's very modest leverage post-emergence,
with $360 million in debt implying Debt/ EBITDA ratio of roughly
1x in 2017, assuming average metallurgical coal benchmark settlements
of $175 per tonne. Ratings further reflect, however,
potential volatility in margin and increase in leverage should coal prices
retreat to the low levels observed in 2015 and 2016.
The B1 rating on the term loan, in line with the CFR, reflects
the preponderance of secured debt in the capital structure.
The Speculative Grade Liquidity rating of SGL-2 reflects the company's
ample cash balance of roughly $400 million and the absence of financial
covenants on the term loan, coupled with the absence of revolving
credit facility. 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 stable outlook reflects our expectation of positive free cash flows
and solid contracted position.
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. 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.
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