Walter Energy Inc. raised the rate on a $978 million term loan to obtain lender consent on changes to its credit agreement enabling the coal producer to refinance debt with fewer restrictions, according to a regulatory filing.
The company is increasing interest on its 2018 term loan B by 0.5 percentage point to 6.25 percentage points more than the London interbank offered rate, with a 1 percent minimum on the lending benchmark, Birmingham, Alabama-based Walter Energy said today in the filing. The amendment allows the miner to repay its $407 million term loan A without making repayments on the 2018 loan, removes minimum liquidity and interest-coverage requirements and extends the due date on a majority of its revolving credit line to October 2017.
The company, whose ratio of debt to cash flow has increased to 19 times compared with about 3 times in 2011, is seeking to improve liquidity as it waits for a rebound in coal prices to boost profitability. Walter Energy, which may run out of cash next year if operations don’t improve or if it doesn’t obtain additional financing, is required to raise at least $350 million in junior debt for the amendments to take effect.
More than 80 percent of its revolving-credit lenders have agreed to the maturity extensions, with their commitments reduced by 20 percent, the filing showed. The secured-leverage ratio is being modified to make it apply only to the commitments of the extending revolving lenders.
Walter Energy, which was required by creditors last year to reduce its stock dividend to a penny per share, is seeking additional flexibility as the price for metallurgical coal, a steelmaking ingredient, has tumbled 57 percent since the second quarter of 2011. The company has lost money for six straight quarters.
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. In a revolving line of credit, money can be borrowed again once it’s repaid; in a term loan it can’t.