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Rating Action:

Moody's upgrades International Coal CFR to B2; outlook stable

18 Feb 2011

Approximately $325 million of rated debt affected

New York, February 18, 2011 -- Moody's Investors Service upgraded International Coal Group, Inc.'s ("ICG") Corporate Family Rating ("CFR") and Probability of Default Rating to B2 from Caa1, respectively. In addition, the ratings on the $125 million ABL revolver due 2014 and $200 million second lien notes due 2018 were raised to Ba2 and B2, respectively. The short-term liquidity assessment was raised to SGL-2 from SGL-3. The rating outlook is stable.

RATINGS RATIONALE

The upgrades and B2 CFR favorably reflect prospects for strong cash flow from operations (before capital spending) over the intermediate-term, a substantial reserve position, and an ongoing shift towards the production of higher margin metallurgical coal used by the steel industry. A low level of legacy liabilities, material increase in met coal production, and the shift towards underground mining that somewhat mitigates uncertainties surrounding surface mining permits provide additional support to the ratings. However, the B2 CFR is constrained by relatively low production levels, significant reliance on Central Appalachian mines, and reliance on certain key mines. The ratings also consider inherent operating and geologic risk associated with coal mining, increased regulatory pressure, and the likelihood that cash costs will continue to rise moderately over the intermediate term.

ICG controls 1.1 billion tons of coal reserves of which 320 tons are met coal reserves, roughly three-fourths of which are owned by the company. ICG derives the majority of its revenue from coal produced in Central Appalachia, which has been subject to intense regulatory scrutiny. Coal production has been historically weighted heavily towards lower-margin thermal coal sold to utility customers for coal-fired electric generation.

The SGL-2 Speculative Grade Liquidity Rating ("SGL") denotes Moody's expectation that ICG will maintain good liquidity to support operations over the near-term. Moody's expects ICG will be able to cover basic cash obligations through internally generated cash flow, but could rely on its $215 cash balance (reported 12/31/10) to fund expansionary capital expenditures. External liquidity is provided by a $125 million asset-based revolving credit facility, which Moody's expects will be utilized only to collateralize letters of credit over the next twelve months. The revolver is subject to a springing fixed charge coverage ratio test if availability falls to below $40 million, but Moody's expects availability to remain above this threshold over the near-term.

The stable rating outlook incorporates Moody's expectation that over the next twelve to eighteen months ICG will be able to maintain its cash margins, finance its capital spending program through a combination of operating cash flow and balance sheet cash, and maintain good liquidity. The outlook also incorporates the expectation that any court ruling concerning ICG's lawsuit with Allegheny Energy Supply will not have a material negative impact on ICG's financial health. The outlook assumes that free cash flow could be modestly negative over the near-term as ICG brings on production at the Tygart mining complex.

There is limited ratings upside currently. However, positive ratings pressure could develop overtime if ICG substantially meets and/or exceeds its mine development, production and EBITDA targets, improves its asset base to support higher cash margins, and maintains good liquidity, and if the outlook for met coal continues to be favorable.

Negative ratings pressure could develop if we expect significant and sustained deterioration in business conditions, cash margins, or liquidity, or if there is materially adverse ruling in the Allegheny suit. We could also consider a negative outlook or rating downgrade if we expect ICG to use debt to finance its expansionary capital spending plans or any potential acquisitions.

The following summarizes today's actions:

Ratings Upgraded --

..Corporate Family Rating B2 from Caa1

..Probability of Default Rating B2 from Caa1

$125 million asset based loan facility due 2014 Ba2 (LGD 2, 15%) from Ba3 (LGD 2; 18%)

$200 million second lien senior secured notes due 2018 B2 (LGD 4, 50%) from Caa1 (LGD 4; 57%)

Speculative grade liquidity assessment SGL-2 from SGL-3.

- 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.

International Coal Group, Inc. operates 13 coal mining complexes (8 in Central Appalachia, 4 in Northern Appalachia, and 1 in the Illinois Basin). ICG owns approximately two-thirds of its 1.1 billion tons of coal reserves. The company produced over 16 million tons of coal in 2010.

REGULATORY DISCLOSURES

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 Analytics information.

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 is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Arvinder Saluja
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades International Coal CFR to B2; outlook stable
No Related Data.
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