Fitch Dwngrs Arch Coal's IDR to 'B'; Assigns 'B/RR4' to Prospective Sr Unsec Notes; Outlook Negative

  Fitch Dwngrs Arch Coal's IDR to 'B'; Assigns 'B/RR4' to Prospective Sr Unsec
  Notes; Outlook Negative

Business Wire

NEW YORK -- November 13, 2012

Fitch Ratings has downgraded the Issuer Default Rating (IDR) and senior
unsecured notes to 'B' from 'B+' for Arch Coal, Inc. (Arch Coal; NYSE: ACI).
In addition, Fitch assigns a 'B/RR4' rating to the prospective $350 million,
seven year senior unsecured notes. A complete list of rating actions is at the
end of this release.

The Rating Outlook is Negative.

Arch Coal announced plans for a new $250 million term loan and a reduction in
its revolver to $350 million from $600 million. Together with the $350 million
new notes, the net proceeds estimated at $570 million will enhance liquidity.

Arch Coal benefits from large, well diversified operations and good control of
low-cost production. The credit ratings also reflect oversupply in the
domestic steam coal market which is expected to result in substantially lower
earnings through at least 2013. Visibility is constrained given lower than
historic levels of committed tonnage. Weak earnings and high debt levels post
the acquisition of International Coal Group in 2011 will result in high
leverage metrics over the period offset by strong liquidity.

At Sept. 30, 2012, pro forma liquidity remains solid, with cash on hand
estimated at $1.2 billion and $350 million of availability estimated under the
company's credit facilities. The $250 million accounts receivable facility
matures Dec. 11, 2012, and is renewable annually. The $600 million (reducing
at transaction close to $350 million) revolving credit facility matures in
June 2016. Fitch expects Arch Coal to manage within the amended covenants.

Fitch expects slight negative free cash flows (operating cash flow less
capital expenditures less dividends) for 2012. Negative free cash flows could
be between $300 million and $500 million for 2013 depending on actual volumes
and pricing. Pro forma current maturities are quite modest reflecting $16.5
million in term loan amortization per year and amounts due under the annually
renewable accounts receivable facility ($100 million as of Sept. 30, 2012).

Total debt/EBITDA for the latest 12 months ended Sept. 30, 2012 was 5.2x.
Fitch expects leverage could be above 6.5x until the domestic steam coal
market achieves balance which could stretch into 2014.

The recovery rating on the senior secured bank facility of 'RR1' reflects
outstanding recovery prospects given default. Fitch's methodology counts
undrawn revolver balances as senior secured debt so that the only change from
the transaction is the additional $350 million senior unsecured debt which
dilutes coverage at that level slightly. Recovery of the senior unsecured debt
remains average.

The Negative Outlook reflects the possibility that weak market conditions
could drag into 2014 and that Arch has sufficient liquidity to manage through
the downturn.

WHAT COULD TRIGGER A RATING ACTION?

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:

--Should anticipated cash burn be greater than $400 million in 2013.

--Constrained liquidity.

Positive: Not anticipated over the next 12 months given over supply in the
domestic steam coal market but future developments that may lead to a positive
rating action include:

--Debt levels material reduced and positive free cash flow on average.

Fitch has taken the following rating actions:

Arch Coal, Inc.

--IDR downgraded to 'B' from 'B+';

--Senior unsecured notes downgraded to 'B/RR4' from 'B+RR4';

--Senior secured revolving credit facility affirmed at 'BB/RR1'; and

--Senior secured term loan affirmed at 'BB/RR1'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria & Related Research:

--'Corporate Rating Methodology' dated Aug. 8, 2012.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contact:

Fitch Ratings
Primary Analyst:
Monica M. Bonar, +1-212-908-0579
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Christopher M. Collins, CFA, +1-312-368-3196
Director
or
Committee Chairperson:
Sean T. Sexton, CFA, +1-312-368-3130
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com