Tuesday, May 5, 2015

Walter Energy Going Concern Warning in 10-Q $WLT

From the Form 10-Q for the quarterly period ended March 31, 2015:

Going Concern Matters
The accompanying unaudited Condensed Consolidated Financial Statements and related notes have been prepared assuming that the Company will continue as a going concern, although the events disclosed below raise substantial doubt about our ability to continue as a going concern. Accordingly, they do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that would be required should we be unable to continue as a going concern.

Over the course of the last three years, our results of operations, including our operating revenues and operating cash flows, have been negatively impacted by weak coal market conditions, depressed metallurgical coal prices, reduced steel production and global steel demand. Our cash flows from operations were insufficient to fund our capital expenditure needs for 2014 and 2013 and we expect this trend to continue in 2015. If market conditions do not improve, we expect our liquidity to continue to be adversely affected. On April 15, 2015, the Company elected to exercise the 30-day grace period under the terms of the indentures governing its 9.50% Senior Secured Notes due 2019 and its 8.50% Senior Notes due 2021 to extend the timeline for making the cash interest payments due on April 15, 2015. The aggregate amount of the interest payments is approximately $62.4 million. During the 30-day grace period, the Company is working with its debt holders to establish a capital structure that will position the Company to weather a highly competitive and challenging market.

The election to exercise the 30-day grace period under the terms of the indentures governing its 9.50% Senior Secured Notes due 2019 and its 8.50% Senior Notes due 2021 constitutes a default; however, it does not constitute an Event of Default under the indentures governing our senior notes or the term loan credit facility. As a result of this default, certain restrictions have been placed on the Company, including but not limited to, its ability to incur additional indebtedness, draw on the revolver and issue additional letters of credit. The Company has 30 days to cure the default by making the required interest payments that were due on April 15, 2015. Alternatively, the Company may restructure the debt with its creditors. If the Company is unable to restructure the debt, the Company may consider filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code.

On May 15, 2015, if the interest payment default is not cured, the default would be considered an Event of Default and all outstanding notes will become due and payable immediately without further action or notice. An Event of Default would also trigger cross defaults in the Company's other debt obligations. If any other Event of Default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. An Event of Default would have a material adverse effect on the Company's liquidity, financial condition and results of operations. As of March 31, 2015, the Company had approximately $3.1 billion in principal amount of term loans, senior notes, capital lease obligations and equipment financing obligations outstanding. Based on the facts and circumstances discussed above, all of this debt is classified as a current liability in the Condensed Consolidated Balance Sheet as of March 31, 2015.
The unsecured 9.875s have been trading flat for around 8 cents. Both WLT and MCP may wipe out unsecured creditors! There have been awfully many unsecured creditor wipeouts - RSH and JRCC too.

Being a bondholder ain't what it used to be. Have something of general utility (not specialized assets) that you can repossess, or don't bother lending money.

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