WSJ: "Hedge Funds Bet on Coal-Mining Failures" $WLT

Funds are trading the capital structure by shorting the unsecured debt! (link)

Walter Energy is a particular favorite of distressed-debt investors, including Apollo Global Management LLC, Brigade Capital Management LP, Caspian Capital Management and Knighthead Capital Management LLC...

Walter owns some low-cost mines that produce metallurgical coal, the type used to make steel and the hardest hit in the recent downturn. Those mines could be profitable immediately if they aren’t saddled with Walter’s debt, analysts said.

The funds have been buying up much of a $1 billion bond secured by Walter’s assets for 85 to 90 cents on the dollar, people familiar with the matter said. The holders would have first claim to Walter’s assets in a bankruptcy. Meanwhile, the bonds yield as much as 14% at current prices.

Several of the funds had also sold short the company’s unsecured bonds, a wager that their value will fall. The bonds have lost 58% since June 30 and trade for 27 cents on the dollar.