Arch Coal Inc. (ACI) raised $350 million with an offering of secured notes as the coal producer prepares to redeem shorter-maturity securities.
Arch Coal, which earlier this month said it was seeking to increase a $1.65 billion term loan by an additional $300 million, issued 8 percent, second-lien notes due 2019 that yield 647 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The note issue was initially marketed at $300 million.
Proceeds will be used to finance a tender offer to repurchase the St. Louis-based miner’s $600 million of 8.75 percent, unsecured notes maturing 2016, according to a company statement. The added term loan, which comes due in 2018, may pay the higher of 6.25 percent or 500 basis points more than the London interbank offered rate, according to a person with knowledge of the transaction who asked not to be identified because they weren’t authorized to speak publicly.
Libor, the rate at which banks say they can borrow from each other, was set at 24 basis points today. A basis point is 0.01 percentage point.
The bond sale comes three days after Arch Coal said its Leer mine in northern West Virginia had begun operating its longwall mining system and that production would ramp up in the first quarter. The transaction also follows a corporate credit rating cut by Standard & Poor’s to B on Dec. 3 that cited a weak market for thermal and metallurgical coal. S&P rated the new bonds CCC+.
The additional secured debt creates lower recovery expectations for Arch Coal’s unsecured notes amid oversupply in the global coal markets and high debt levels, Fitch Ratings said today in a report ranking the new bonds B+ while lowering its unsecured rating to CCC+. Arch Coal is ranked a step lower at B3 by Moody’s Investors Service.
The company’s 8.75 percent bonds, which are callable at 104.38 cents on the dollar next month, traded at 104.88 cents to yield 6.7 percent on Dec. 9, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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