New York, February 21, 2017 -- Moody's Investors Service, ("Moody's") today assigned first-time
provisional ratings to Contura Energy, Inc., including
corporate family rating (CFR) of (P) B2, and a rating on secured
term loan of (P) B2. The outlook is stable.
In July 2016, Contura completed the acquisition of certain core
coal assets from Alpha Natural Resources in connection with Alpha's
restructuring. Formed by a group of Alpha's first lien lenders,
Contura was created to acquire and operate Alpha Natural Resources'
core operations in Northern Appalachia (including the Cumberland mine
complex), all of 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 41% interest in the Dominion
Terminal Associates coal export terminal in eastern Virginia.
The proceeds of the $400 million offering are expected to refinance
Contura's existing long-term debt, liabilities and
for general corporate purposes.
The ratings are assigned on provisional basis, pending receipt and
review of the audited financial information for the period from the company's
inception to December 31, 2016.
..Issuer: Contura Energy, Inc.
Assignments:
.... Corporate Family Rating, Assigned
(P)B2
....Senior Secured Bank Credit Facility,
Assigned (P)B2 (LGD3)
Outlook Actions:
....Outlook, Assigned Stable
RATINGS RATIONALE
The ratings reflect the company's position as one of the most diversified
coal producers in the United States with operations in Central Appalachia,
Northern Appalachia and the Powder River Basin. In total,
Contura has a reserve base of approximately 1.3 billion tonnes
of proven and probably coal reserves. Contura's operations in Central
Appalachia provide a variety of high quality metallurgical coal products,
destined for domestic and foreign steel producers. Cumberland,
in Northern Appalachia, is a low cost, high efficient,
long-wall operation with 548 million tonnes of proven and probable
coal reserves. The complex produces over 7 million tonnes per year
of high quality Pittsburgh 8 seam coal delivered to domestic and foreign
steel producers and utilities with transportation optionality through
river and/or dual rail access. The company's mines in Wyoming
are two large surface mines, producing over 30 million tons per
year of low-sulphur PRB coal, with approximately 640 million
tons of proven and probable reserves. Additionally, Contura
operates a trading and logistics business which typically purchases coal
from various third-party producers destined for the export market.
The ratings reflect the company's fairly low leverage post-formation,
with $400 million in debt implying Debt/EBITDA ratio of roughly
1.5x in 2017, based on Moody's expectations and assuming
average metallurgical coal benchmark settlements of $175 per tonne.
The 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 (P)B2 rating on the term loan, in line with the CFR, reflects
the preponderance of secured debt in the capital structure.
The company has adequate liquidity, including a cash balance of
roughly $128 million as of December 2016. The company will
not have a revolving credit facility and is expected not to have any financial
covenants on the term loan. 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.
Formed by a group of Alpha's first lien lenders, Contura was
created to acquire and operate selected Alpha Natural Resources'
assets including its core operations in Northern Appalachia (including
the Cumberland mine complex), all of 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 41% interest in the Dominion
Terminal Associates coal export terminal in eastern Virginia. For
the period from its inception in July 2016 to the end of 2016, Contura
generated $690 million 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
