Tuesday, April 29, 2014

Walter Energy $WLT

Walter Energy produces and exports primarily metallurgical coal for the steel industry from eleven underground and surface mines located in Alabama, West Virginia, Canada (Northeast BC) and the United Kingdom (South Wales), but also produces thermal coal. It sells its metallurgical coal in Europe, Asia, and South America; and thermal coal primarily to large utilities and industrial customers located principally in the United States and the United Kingdom.

Current market capitalization is $460 million and current enterprise value is $3 billion (levered 6.5x). The ttm EBITDA was $135 million and net income was -$360 million. The interest expense for 2013 was $234 million, about half of the current market capitalization.

The company reported 2013 adjusted EBITDA of $149.2 million (on $1,860.6 million of revenue), as compared to adjusted EBITDA of $411.8 million (on $2,399.9 million of revenue) in 2012, citing low met coal prices and sales volume as the reasons for its underperformance.

In Q1 2013, Walter decided to curtail production at its Willow Creek mine in Canada (19.0 million tonnes of reserves) and shut down operations at itsNorth River mine (primarily thermal coal) in Alabama (2.4 million tonnes of reserves) nine months earlier than the previously expected end of the mine's life in 2014. In May 2013, Walter announced it would close the Swann’s Crossing mine in Alabama.

The company is overleveraged and recently did a distressed debt exchange:

We have agreed to issue an aggregate of 3,150,000 shares of our common stock, par value $0.01 per share, in exchange for $35,000,000 aggregate principal amount of our 9.875% Senior Notes due 2020 (the "Senior Notes") held by a noteholder.

We will not receive any cash proceeds as a result of the exchange of our common stock for the Senior Notes, which notes will be retired and cancelled. We executed this transaction to reduce our debt and interest cost, increase our equity, and improve our balance sheet. We may engage in additional exchanges in respect of our outstanding indebtedness if and as favorable opportunities arise.
That exchange (3.15mm shares for $35mm debt) valued the stock at $11.11. The stock is currently trading at $7.33, which is like a recovery of 66 cents on the notes. (The notes traded today at 67.)


whydibuy said...

You didn't mention the insider buys at much nigher prices. All those that followed the insiders into the stock are now deeply underwater.
In my experience, following insiders is of no use. They are wrong as often as they are right. Like Buffett said " with a million dollars and inside info, you can go broke in a year," .

Anonymous said...

You said yourself it's irrelevant - so why would he mention it?