Arch May File for Bankruptcy in `Near Term' as Debt Mounts

  • Coal miner needs `significant restructuring': Chief Executive
  • Company is terminating its $250 million revolver as of Nov. 11

Arch Coal Inc. said it may file for bankruptcy in the “near term” as the company’s cash flow can’t sustain its $5.1 billion in debt.

The company is in talks with creditors over a "significant restructuring" of its balance sheet, St. Louis-based Arch said in a filing Monday with the U.S. Securities and Exchange Commission. The company may file for relief under Chapter 11 whether it strikes a deal with creditors or not.

Arch, the second-largest U.S. coal producer by volume, is running out of options after it terminated a debt-exchange offer last month that would have enabled it to cut its debt. Coal miners are reeling from the industry’s worst slump in decades as power plants use less of the fuel.

Arch’s cash flow “is not sufficient to service our debt sustainably in this operating environment,” Chief Executive Officer John Drexler said in an earnings statement earlier Monday. “Arch will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long term.”

Arch posted a third-quarter net loss that widened to $93.91 a share from $4.58 a year earlier. Adjusting for one-time items, the loss was $3.38, beating the $5.70 average of 10 analysts’ estimates compiled by Bloomberg.

Impairment Charges

Arch reported a $2.1 billion asset impairment and mine closure charge in the quarter. The charges included $1.7 billion in Appalachia, where low prices and shrinking demand mean that some of Arch’s coal mines and reserves probably can’t be profitable, the company said.

The company, which last posted a quarterly profit in 2012, has $704.4 million of liquidity, which investors are watching during a downturn that’s put other U.S. coal producers, including Walter Energy Inc. and Alpha Natural Resources Inc., into bankruptcy protection this year. The thermal coal used by power plants is facing competition from cheap natural gas and tougher emissions standards while metallurgical coal used in steelmaking is at its lowest price in a decade amid global oversupply.

Shares fell 6 percent to $1.56 in New York after dropping more than 90 percent in the past year. Arch executed a 1-for-10 reverse stock split in August to avoid being delisted from the New York Stock Exchange.

Pricing Pressure

Arch projected U.S. power plants will burn 95 million fewer tons of coal this year than in 2014. The oversupplied market for metallurgical coal probably won’t get any better until more production is shut down, the company said.

“We expect pricing for both metallurgical and thermal coal to remain under significant pressure throughout 2016," Paul Lang, Arch’s president and chief operating officer, said in the statement.

Revenue fell to $688.5 million in the third quarter from $742.2 million, which beat the $688.3 million average estimate. Arch is also terminating a $250 million credit facility as of Nov. 11 under which it has no borrowings, the company said. 

Arch may use more than $600 million of its cash to run its operations in 2015 and 2016, Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc., said in an October 14 note.

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