| NEW YORK
NEW YORK Nov 18 Mining companies have been some
of the best performing credits in the US secondary loan market
this year as commodity prices recover and the outlook improves
for the coal industry as president-elect Donald Trump promises a
spending spree to upgrade the country's infrastructure.
Arch Coal is the biggest gainer in the US secondary market
overall for 2016 so far, according to Thomson Reuters LPC data,
with a 70.3 point rise from lows earlier this year of 28% of
face value to 98.5%. The company emerged from Chapter 11
bankruptcy protection in October after reducing its debt.
Fairmount Santrol is the third-biggest US gainer this year,
and shows the second-biggest gains in the mining sector of 51.5
points, rising from 44 to 95.5.
Loans for mining companies have been trading way below other
sectors this year, along with the troubled oil and gas sector,
but have rallied sharply since mid-year with a steeper
improvement since October.
Both sectors started the year at distressed levels, with
average bids of 77 for mining companies and 79 for oil and gas
companies, but are now trading at near-par or face value.
With average bids of 94.3 for mining companies on November
17, the sector is showing a gain of more than 18 points from a
multi-year nadir of 75.79 on January 6. Oil and gas loans are
showing a similar gain of more than 16 points, to 91.68 on
November 17 from 75.24 on January 25.
Average bids in the 100 most widely-held loans of 98.63 on
November 17 added only 2 points during the same time.
The mining sector is enjoying the benefits of a sharp rally
in commodity prices. Iron ore prices of US$72.42 on November 15
are up 89% from a record low of US$38.30 on December 11, due to
increased Chinese steel production and speculation, according to
data from Metal Bulletin.
Coal prices have been boosted by robust Chinese demand and
volatile weather that increased electricity consumption and
metallurgical coal prices have nearly quadrupled to US$310 a
Moody's revised the outlook for the North American coal
industry to stable on improving fundamental conditions on
"Although we do not view the recent price uptick in met coal
as ultimately sustainable, we also are not expecting prices to
return to the low levels seen in late 2015 and early 2016 -
which were themselves a function of an oversupplied market and
miners still working through production rationalizations," says
Anna Zubets-Anderson, a Moody's vice president-senior analyst.
The rally in commodity prices, which was fuelled by the
Chinese government's stimulus package to recharge the nation's
economy, caught many by surprise, but proved helpful for Arch
Coal's restructuring deal.
Arch Coal's term loan climbed to 84.5-85.5 in October from
28 after filing for Chapter 11 in February, giving a recovery of
more than 100% based on a higher market capitalization. Senior
lenders now own 94% of the equity and US$326m in a new term
"Loan investors would never have gotten the valuation they
did if the Arch Coal restructuring agreement had happened
later," said a loan investor.
Coal companies could benefit further from the presidency of
Donald Trump, who repeated his support for the coal sector
during his candidacy.
Coal miner Murray Energy's term loan gained 1 point to 90-92
and coal producer Westmoreland Coal's term loan traded 50bp
higher to 82.75 bid immediately after Trump's victory on
November 9, and have climbed further since.
Rebounding secondary prices helped Murray Energy to re-open
the sector to capital markets issue in early November, when it
priced a new US$175m term loan at 775bp over Libor with a 1%
floor. An Original Issue Discount was widened to 88.5 from
92-93 to attract sufficient investors but the deal's placement
shows improving sentiment for the sector, sources said.
Coal miner Bowie Resource Partners had to pull a proposed
US$650m term loan in February that funded the purchase of mining
assets from coal miner Peabody Energy amid a sustained slump in
coal prices. The sale collapsed and Peabody filed for bankruptcy
protection in April.
Many mining companies have curtailed capacity and cut costs
severely which means that higher commodity prices are going
straight to the bottom line, Monica Bonar, senior director of US
Corporates at Fitch Ratings said.
"That's all profit at this point," said Bonar, regarding the
impact of rising commodity prices.
Although loan investors are worried about the sustainability
of prices at these levels as speculation may have contributed to
the rise, they are appeased by the smaller debt burden at mining
companies and their ability to weather another downturn.
Iron ore producer Fortescue Metals Group, the world's fourth
largest iron ore producer, has paid down US$1.2bn of its term
loan since June, in addition to generating strong free-cash-flow
to cover increased dividends and improving production costs in
the first half of the year, according to research firm
The company's term loan B has risen 34 points to trade near
par at 99.88 from 65.67 earlier this year as hope grows of a
(Reporting by Lisa Lee; Editing By Tessa Walsh)