Murray Revises Coal Deal After Struggling to Raise Debt

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Murray Energy Corp., the closely held coal miner founded and run by Robert E. Murray, revised the terms of a deal to acquire a stake in rival producer Foresight Energy LP after struggling to raise the required debt.

Murray will now pay $1.37 billion for a 50 percent stake in Foresight, the St. Clairsville, Ohio-based company said Tuesday in a statement, down from $1.4 billion previously.

The new deal replaces a takeover accord announced last month. Murray will now take on about $150 million less new debt to get the deal done.

Investors were demanding more than the 10.25 percent to 11 percent yields that were being proposed on a two-part note offering by Murray last week, three people with knowledge of the situation said Monday. Those bonds would have helped Murray finance the original Foresight transaction.

Murray’s difficulties in selling the bonds may reflect a deepening pessimism about the prospects for U.S. coal, which is mired in its worst downturn in decades. Prices have slumped as cheap natural gas from shale-rock formations displaces coal at some power stations.

It’s “hard to find anyone even remotely bullish,” Lucas Pipes, an analyst for Brean Capital LLC in New York, said in an e-mail. “That makes it difficult for any coal producer to raise capital.”

The terms of the new deal mean Murray will also get a minority stake in Foresight’s general partnership unit and not 80 percent as previously envisaged.

‘Last Man’

Murray has the opportunity to take control of the unit over the next five years, but in the meantime most of the voting interest will be held by Foresight founder Christopher Cline, who will now join Murray’s board.

While Robert Murray, 75, has declared publicly that there’s little hope for a rebound in diminishing U.S. coal demand, he’s announced his intentions to be the “last man standing.”

His company is looking to expand its presence in low-cost mining regions such as the Illinois coal basin, which is where Foresight operates. He’s targeting mines and reserves that he’s betting will be cheap suppliers to coal-fired power stations that won’t be converted to gas or closed down by environmental legislation.

Murray has increased incentives this time around for investors to participate in its loan deal. Instead of the $1.83 billion of loans that the company was initially proposing, it’s now looking to raise $2 billion in a two-part offering.

Bigger Discount

One portion is a $1.7 billion term loan that will pay at least 7.5 percent -- instead of the 6.75 percent initially proposed, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. That comes with a bigger discount, with the debt being offered at 97 cents on the dollar, increasing yield for investors and reducing proceeds for the company.

There’s also a $300 million two-year portion, which will pay 7 percent to start with, the person said.

Murray is also pursuing the bond offering to refinance second-lien notes. It’s seeking new consents from bondholders to change its capital structure, including incurring the additional secured debt needed to complete the Foresight deal.

In connection with the consents, the company is offering to purchase the outstanding notes sold in 2013 and 2014 that are validly tendered by April 9, Murray said in another statement.

As part of the original deal, Foresight was also raising a $650 million term loan. Under the revised agreement with Murray, Foresight’s existing credit facility and senior notes will remain in place as no change of control will result from the new structure, according to Tuesday’s statement announcing the new terms.

The revised Foresight deal will still be the largest in the U.S. coal industry since Murray’s purchase of a unit of Consol Energy Inc. for $850 million in 2013, according to Bloomberg data.

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