Walter Cancels Plan to Refinance $1.55 Billion of Debt

Walter Energy Corp. (WLT), a U.S. miner of coal used in steelmaking, canceled a plan to refinance $1.55 billion of loans as yields on bonds from the riskiest to the most creditworthy borrowers in the U.S. reached a 10-month high.

Walter had explored options including a new secured term loan facility, a new revolving credit facility and unsecured debt financing, the Birmingham, Alabama-based company said in a statement today.

The company said it has no material debt principal payments due until 2015 and doesn’t need incremental funding right now. The shares earlier dropped as much as 20 percent to $11.76 in New York, the biggest intraday decline since August 2011, before being halted after Forbes reported the decision.

Walter joins Odebrecht SA, the Brazilian construction and engineering firm, and U.S. candle producer Yankee Candle Co. in terminating or delaying bond sales this week because of market conditions.

Yields on bonds from the riskiest to the most creditworthy borrowers in the U.S. reached 3.91 percent yesterday, the highest since August, and up from a record-low 3.35 percent on May 2, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index.

Metallurgical coal prices have dropped as miners haven’t cut output quickly enough to match falling demand. Prices no longer cover cash production costs, even for mining companies considered to be low-cost producers, Mitesh Thakkar, an analyst at FBR & Co. (FBRC) In Arlington, Virginia, wrote in a note yesterday.

‘Challenging’ Markets

“While met markets have been challenging for marginal assets, we now believe that spot met prices have fallen to a level where they no longer cover full cash costs (including attributable corporate expenses) even for some of the low-cost producers,” Thakkar said.

Walter investors rejected five nominees to its board proposed by activist shareholder Audley Capital Advisors LLP on April 25. Audley had called on the mining company to reduce debt and corporate expenses to boost profit. It was the second attempt by London-based Audley’s co-founder and Managing Partner Julian Treger to compel change at Walter, which has posted two consecutive quarterly losses and seen its shares drop 65 percent this year.

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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