Approximately $600 million in new debt rated
New York, November 13, 2012 -- Moody's Investors Service assigned a B3 rating to the senior unsecured
guaranteed notes due in 2019 issued by Arch Coal, Inc. (Arch)
and a Ba3 rating to the new Term Loan C. At the same time,
Moody's affirmed the B2 corporate family and probability of default
ratings. Moody's also affirmed the Ba3 rating on Arch's existing
credit facilities and the B3 rating on the existing senior unsecured notes.
The speculative grade liquidity rating remains unchanged at SGL-3.
Proceeds from the new debt raisings will be used to bolster liquidity
and for general corporate purposes. The rating outlook is stable.
Assignments:
..Issuer: Arch Coal, Inc.
....Senior Secured Bank Credit Facility,
Assigned Ba3 (LGD 2, 23%)
....Senior Unsecured Regular Bond/Debenture,
Assigned B3 (LGD 4, 69%)
RATINGS RATIONALE
Arch's B2 CFR reflects its geographic and operational diversity,
low level of legacy liabilities and extensive high quality and low-cost
reserves. Factors that constrain the rating include high leverage,
high capital expenditures, weakness in the US coal markets,
volatility of met coal prices, inflationary cost pressures,
and the inherent geological and operating risk associated with mining.
Furthermore, coal mine productivity and costs have been adversely
impacted by stricter mine safety inspections and greater difficulty in
permitting mines and refuse disposal sites due to heightened environmental
concerns.
The rating also considers the company's strengthened liquidity position.
Pro forma for the transaction, Arch's cash position will be
approximately $1.2 billion. In addition, the
company intends to seek certain changes to financial covenants in its
bank credit facility to further enhance flexibility; however the
debt issuance is not predicated on such changes being implemented.
Challenges for the B2 corporate family rating include Arch's high
leverage and exposure to the Appalachian coal basin where conditions remain
particularly challenging. In addition, ongoing coal-to-gas
substitution, low natural gas prices, and expected coal plant
retirements have caused coal demand to contract, and coal prices
to collapse. At the same time, reflecting weakening global
steel demand, demand for seaborne metallurgical coal has also softened
and prices have retreated to levels that are causing further compression
to earnings and margins.
We expect Arch's metrics to deteriorate over the next 12-18 months
due to the challenging environment for coal domestically, and in
the seaborne market. The actions currently being taken by the company
in its strategic repositioning of operations, which include reductions
in coal production and workforce reductions, are expected to mitigate
the degree of deterioration anticipated and indicate an operating flexibility
necessary to weather the challenging climate facing US coal producers.
The stable outlook reflects our expectation that Arch's liquidity will
remain adequate and that over longer term Debt/ EBITDA will be sustained
below 6x.
Upward ratings momentum is limited at this time. However,
the ratings and/or outlook could come under pressure if the company's
liquidity position erodes materially from current levels or if Debt/ EBITDA
is expected to remain above 6x on a sustained basis.
The principal methodology used in rating Arch Coal, Inc.
was the Global Mining Industry Methodology published in May 2009.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
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information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
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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.
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
Moody's rates Arch's new debt issues; Affirms B2 CFR
