| NEW YORK, March 3
NEW YORK, March 3 Rising coal prices and a more
favorable outlook for the industry under President Donald
Trump’s administration are allowing U.S. coal companies to sign
new leveraged loans after being shut out of the market since
mid-2015, despite a declining long-term outlook for the
Massive investor demand for floating rate assets helped St
Louis, Missouri-based coal mining and processing company Arch
Coal to increase the size of a refinancing loan to US$300m from
US$250m on February 23, less than six months after emerging from
“This is probably the strongest leveraged loan market since
before the credit crisis,” a banker said.
Coal has fallen out of favor as a fuel source in the United
States in the last few years due to environmental concerns and
the sector was hit by multiple bankruptcies amid the commodities
and energy slump of 2015 and 2016.
“The coal world has gone through some challenging times,” a
syndicator said. “However, met coal prices have been in a rally
for a number of months now, which is helping to portray that
industry in a more positive light,”
Metallurgical coal prices climbed more than 50% from March
to October in 2016 and have held on to these gains as the U.S.
gets ready to increase coal production. Coal carload traffic was
up 19.2% in February compared to a year earlier, according to
the Association of American Railroads.
President Trump has been promising to help strengthen the
coal industry since the campaign trail, and a White House
official told Reuters Wednesday the president plans to remove a
federal coal leasing moratorium as soon as next week.
“The regulatory scrutiny of coal has eased since the new
administration has taken over, and that has relaxed some of the
negative bias as well,” the syndicator said.
Although coal companies are anticipating regulatory relief
and are getting a better reception in the capital markets,
production is continuing to decline and the rise in the price of
thermal and coking or ‘met’ coal is failing to increase enough
to benefit shareholders or stimulate new investment.
Coal companies, which until recently were viewed as
difficult credits, are taking advantage of seemingly insatiable
investor appetite and an issuer-friendly market to complete
deals, helped by investors’ preference for floating rate debt as
U.S. interest rates start to rise.
Arch Coal’s new US$300m term loan will refinance existing
debt. The company emerged from bankruptcy in October 2016 after
eliminating about US$4.8bn in debt. In addition to increasing
the loan, Arch Coal was also able to cut the pricing to 400bp
over Libor from initial guidance of 450bp.
Coal plant owner Homer City Generation was not able to
achieve similar pricing for a loan after it filed for bankruptcy
on January 11. The company launched a US$150m term loan to
collateralize its obligation and fund its debt service reserve
account, which priced in line with guidance at 825bp over Libor
on February 8.
Blackhawk Mining had to increase pricing on a US$66m term
loan that refinanced existing debt to 950bp over Libor from
guidance in the 800bp-850bp range in early February, but
completed the deal.
Other coal companies were encouraged by these syndications
and headed to the market, including U.S. coal supplier Contura
Energy and Alabama coal miner Warrior Met Coal, which both set
deadlines of March 9.
Contura is arranging a US$400m term loan to refinance debt
with proposed pricing of 500bp over Libor and Warrior Met, which
is made up of assets from bankrupt Walter Energy, is also lining
up a US$350m term loan with guidance of 550bp-575bp to back a
Coal companies have not tapped the market since mid-2015.
The metals and mining sector ended 2016 with a default rate of
23.6%, according to Fitch Ratings, led by the coal sector.
However, a recovery in secondary loan prices and strong investor
demand has created the current wave of coal loans.
Investors’ hunt for paper and yield as billions of dollars
of cash flows into the U.S. leveraged loan market has led them
to reconsider deals that would previously have been off limits,
despite the coal industry’s negative long-term outlook.
“The leveraged loan market has been overrun by such massive
inflows of capital that you could probably get a loan to buy a
fleet of zeppelins at this point in time,” said Jim Tisch,
president and CEO of Loews Corp during his February earnings
(Additional reporting by Lynn Adler.)
(Reporting by Jonathan Schwarzberg; Editing By Tessa Walsh)