"Alpha Natural Resources in Talks to Obtain Bankruptcy Financing" $ANR

Story:

"Alpha Natural Resources Inc. is in talks to obtain financing for a potential bankruptcy filing early next month as it grapples with a severe downturn in coal prices, according to people familiar with the matter."

Big year for coal restructuring.

Thermal Coal Prices Keep Falling

• Powder River Basin (PRB) Coal price chart
• Central Appalachian Coal price chart

"Alpha Natural Resources Creditors Ready for Possible Restructuring Talks" $ANR

In the WSJ:

"Creditors expect restructuring talks to heat up ahead of the Aug. 1 repayment deadline for some of Alpha’s convertible bonds, according to people familiar with the investors’ thinking. The company has been buying back the notes, but $109 million worth remained outstanding as of March 31, according to a regulatory filing."

Those bonds due Aug 1 were trading at 35 today! The market is saying that it's very likely the company defaults on August 1.

WSJ: "Alpha Natural Resources Creditors Ready for Possible Restructuring Talks" $ANR

"Creditors expect restructuring talks to heat up ahead of the Aug. 1 repayment deadline for some of Alpha’s convertible bonds"

Distressed Company Watch

Molycorp

• Molycorp 3.25s 2016; million+ bonds traded at 15.5 yesterday; yield to maturity of over 200%!
• Molycorp 10% (secured); million traded at 56.5 today; ytm 25%
• Molycorp 6s 2017; fair amount traded today at ~15 cents; ytm over 100%

Interesting that the 3.25s and 6s trade at the same dollar price even though there's a difference in coupon. That implies people think that the company won't be paying unsecured coupons much longer. And note that the 6s are a current yield of 40%! Yet, the company has a $245 million market cap.

Walter Energy

• The 9.875s of 2020 traded over a million today at around 16 cents; ytm over 70%. Note that's a 62% current yield!
• The 8.5s of 2021 traded a million bonds a week ago for about 14 cents; ytm of 70%. Again, a 60% current yield.

Those current yields are gigantic! Walter market cap is down to $75 million.

Energy XXI Ltd.

•  The 3s of 2018 traded 500k today at 33.25; ytm of 37%.

The stock was up 10% today though and the market cap is $380 million. (Enterprise value is $4.26 billion.) Their slogan is "Acquire. Exploit. Deliver" and they are mostly offshore GOM.Their current investor presentation [pdf] is a lot better about their plans to get out of the low oil price jam than most companies': less capex and use cash flow to pay down debt; sell pipeline assets to pay down debt; sell non-core assets.

Goodrich Petroleum

• The 8.875s of 2019 traded a good amount today at around 41 cents; ytm of 38%. 

That particular Goodrich bond is ~$275 million outstanding. At the current price, the debt has a market value of $110 million, which is about what the company plans to spend on capex this year. I would be surprised if their rate of return on capex would beat buying back these bonds. The company still has a market cap of $159 million.

Alpha Natural Resources

•  The 6s of 2019 traded multiple million at around 29; ytm of 44%. 

Company has a $280 million market cap and $3 billion enterprise value.

"Jeffries on coal M&A"

A correspondent sent in,

"Jefferies LLC, however, in a note released March 25, said it has long been skeptical of mining acquisitions because merging two mining companies typically offers 'very little' in the way of synergies. Jefferies was particularly critical of Alpha Natural Resources Inc.'s acquisition of Massey Energy Co.

'In our opinion, the problem for U.S. coal did not start with the weak natural gas prices of 2012. Rather, we'd argue the problems started with a wave of M&A during the previous year,' Jefferies analyst Peter Ward said. 'In two decades covering the mining industry, these were some of the most regrettable transactions we had ever seen. And, we said so at the time. Sadly, we have seen too much of a desire to get bigger simply for the sake of getting bigger throughout the mining industry.'"

Partial List of Met Coal Miners in U.S.

• Alpha Natural Resources - earnings August 6
• Arch Coal - Q2 report: "'Recently, we’ve announced the idling of our Cumberland River complex in response to weak global metallurgical coal prices,' said Eaves. 'Although idling higher-cost coking coal capacity lowers our metallurgical coal volume expectations for 2014, it also shifts our mine portfolio toward higher-margin metallurgical coal operations and enhances our competitive cost position in that region.'"
• Consol Energy - Q2 report
• Cliffs Natural Resources - Q2 report: "During the three months ended June 30, 2014, our North American Coal business segment market pricing has continued to be affected by various supply and demand pressures in the metallurgical coal markets, which has impacted negatively revenue by $65.3 million and decreased our realized revenue rate by 30.6 percent."
• James River Coal
• Patriot Coal
• Teck Resources - Q2 report: "Coal prices in U.S. dollar terms were lower by 29% in the second quarter of 2014 compared with a year ago and 15% lower than the first quarter of 2014."
• Walter Energy