Alpha Natural Resources Inc. (ANR), the second-biggest U.S. coal producer, amended its $1.6 billion secured credit facility to increase the company’s financial flexibility after domestic demand for the fuel slumped.
The amendment allows Alpha to suspend the covenant restricting the ratio of its debt to earnings before interest, taxes, depreciation and amortization or Ebitda, the Bristol, Virginia-based company said in a statement distributed today by PR Newswire.
“We continue to navigate a challenging market environment,” Frank Wood, Alpha’s chief financial officer, said in the statement.
Alpha is among U.S. coal producers who have closed mines and cut spending this year after demand was curtailed by a combination of cheaper natural gas, a warm winter and regulatory moves to curb emissions from coal-fired power stations. Peabody Energy Corp. (BTU), the largest U.S. producer, said today its capital expenditure will be $1 billion to $1.2 billion in 2012, compared with an April forecast of $1.1 billion to $1.3 billion.
Alpha rose 6 percent to $8.19 at the close in New York. The shares have dropped 60 percent this year. Peabody increased 5.5 percent to $22.27.
Lenders gave Alpha a “holiday” from a “net leverage ratio” requirement to keep its total debt level at or below 3.75 times Ebitda through 2014, according to today’s statement. In exchange, the company will be required to maintain its net secured debt level at no higher than 2.5 times Ebitda during that same period.
Alpha’s net leverage ratio covenant will be restored in 2015. The company said it will have to keep it total debt level within 4.25 times Ebitda starting in the first quarter of that year, and that the requirement would be reduced to 4 times in the second quarter of 2015, and 3.75 times in the following quarter.
Lenders also agreed to lower Alpha’s interest coverage requirement, a measure of how easily a company can pay interest, by 25 basis points to 2.25 times during the fourth quarter of this year, and to 2 times in the first quarter of 2013. Alpha obtained its loan in May 2011 from Morgan Stanley and Citigroup Inc. to back its purchase of Massey Energy Corp.
The company must maintain at least $500 million of liquidity for the rest of this year and in 2013, according to the statement.
Coal’s share of U.S. power generation has fallen to 34 percent, the lowest level since at least 1973, the Energy Information Administration said in a June 5 report. U.S. coal demand will drop by 100 million to 120 million tons, Peabody said today in a statement.
“Peabody will continue to evaluate U.S. production levels as the year progresses,” the St. Louis-based company’s Chairman and Chief Executive Officer Gregory H. Boyce said in the statement.
Peabody also said that it repurchased $240 million of bonds and $100 million of shares during the second quarter.