Walter Energy Inc., the coal producer that has lost money for six straight quarters, is negotiating an amendment to its credit agreement to refinance debt, according to a regulatory filing today.
The company, whose ratio of debt to cash flow has increased to 19 times compared with about 3 times in 2011, is seeking lender permission to repay its $407 million loan and refinance the debt with looser restrictions, the filing said. The Birmingham, Alabama-based company is pushing to carry out the transaction without making repayments on the $978 million term loan B as mandated by the current agreement.
Walter Energy, which was required by creditors last year to reduce its stock dividend to a penny per share, is seeking to improve liquidity as it waits for a rebound in coal prices to boost profitability. The company may run out of cash next year if operations don’t improve or it doesn’t obtain additional financing, Bloomberg data show.
“The amendment will largely be viewed as a positive in the short-term as it would give Walter some much needed runway,” UBS AG credit analysts Srihari Rajagopalan and Shiv Prakash wrote in a research note. “Despite the positive event, met coal fundamentals remain weak. We may be heading towards the lowest quarterly benchmark settlement on record.”
The price for metallurgical coal, a steelmaking ingredient, has tumbled 57 percent since the second quarter of 2011 as global steel output growth has slowed while miners continue to boost production.
A term loan A is sold mainly to banks. A term loan B is sold mainly to non-bank lenders such as collateralized loan obligations, mutual funds and hedge funds.
Walter Energy has more than $305 million due next year on the 2016 loan it is seeking to refinance based on its amortization schedule, Bloomberg data show. The amendment is subject to the company being able to partially refinance the term loan with lower ranking debt such as second-liens or convertible debt, according to the filing.