Read our recent article on the Murray Energy Corp. bankruptcy filing.
Murray Energy Corp. is facing imminent bankruptcy without federal intervention to save one of its key customers, its founder and CEO says.
In a letter obtained and published by The Associated Press, Murray Energy CEO Robert Murray warned that the merchant generation arm of FirstEnergy Corp. is "on the verge of bankruptcy," which would force them to immediately shutter their coal plants. Closing those plants would create a domino effect that would push Murray into bankruptcy, according to the letter. The AP reported Aug. 22 that the Department of Energy rejected Murray's request to help FirstEnergy.
Alongside Murray's letter to the White House, the AP published financial details from Murray Energy that pinpoint October as a potential filing date for its bankruptcy if the FirstEnergy unit goes under. Murray CFO Robert Moore, in a letter to Energy Secretary Rick Perry, said Murray Energy has debt payments of $44.4 million due Sept. 29, $59.4 million due Oct. 17 and $44.3 million due Dec. 29.
Two analysts contacted by S&P Global Market Intelligence expressed doubts about Murray Energy’s need to declare bankruptcy even if the FirstEnergy subsidiary were to shut its doors.
Murray this summer has repeatedly lobbied the Trump administration and U.S. Department of Energy to declare an emergency on the electric power grid under Section 202(c) of the Federal Power Act for FirstEnergy Solutions Corp.'s merchant power plants, which would keep them operating and therefore running on coal produced by Murray's mines. The DOE said the Trump administration is "unified" in its mission to undo the economic damage done to coal, but ruled against Murray’s plea saying "the evidence does not warrant the use of this emergency authority."
Prices of Murray Energy's bonds plummeted on the news. Murray Energy's $1.3 billion of 11.25% senior secured notes due April 2021 are down 20% for the month and 14% for the week, to trade at 60.25 cents on the dollar, according to S&P Capital IQ data. On Aug. 1, those same bonds traded for 77.1 cents on the dollar.
The letter addressed to a White House aide said a Murray bankruptcy would result in "promptly terminating our 6,500 coal mining jobs." That is more jobs than Murray Energy touts on its website, possibly implying all or most its workforce would be subject to termination. Other coal companies that have filed for bankruptcy have announced some layoffs after filing to reorganize, but since bankruptcy law allows a company to continue to operate as it reorganizes its debts, they have not generally shuttered all operations.
A Murray Energy spokesman said the company was unable to comment on communications with Trump or the administration. He added that Murray Energy's financial information is "strictly confidential."
Chiza Vitta, director of natural resources for S&P Global Ratings, said Murray Energy's letters should be taken with a "grain of salt." He noted that as a private company Murray Energy has more leeway than public companies to talk about a potential bankruptcy or predict other dire consequences. He said in the past, Murray Energy has been "a lot more alarmist" than one would expect from a public company or even many other private companies.
"I think what happened here, more recently, when the rubber meets the road and when it actually came time to make policy changes, they seem to be falling short" of the coal industry's hopes, Vitta said, noting that early on, Murray had even tried to temper expectations when it came to Trump job promises.
Vania Dimova, a natural resources associate in S&P Global Ratings' metals and mining division, said losing FirstEnergy as a customer would likely only affect Murray Energy in such a significant way if the company did not take action to mitigate the loss.
"The company is not going to do that," Dimova said. "They are most likely going to take actions to place these tons elsewhere so they can mitigate the losses. That's why we don't think it's realistic they are going to go under in that scenario."
Some of those options include shifting tonnage from any plants that would retire to international markets or other domestic utilities.
Murray, a staunch supporter of Trump, has also expressed disdain for what he has called the "bankruptcy sewer." As many of his peers fell into bankruptcy, Murray noted in a 2016 interview, the producers who did not were left to shoulder large debts while their competitors received a "judge's blessing" for freshly cleansed balance sheets.
FirstEnergy has been working to sell or shut down its unregulated assets. The letter from Murray Energy states that the coal producer is "desperate" for the president to order Energy Secretary Rick Perry to issue the emergency declaration, specifically for FirstEnergy's merchant power plants. An attachment to the letter says Murray Energy's lawyers believe the authority would hold up to legal scrutiny while White House lawyers have concerns about the move, including a risk of losing in court.
"Please fight for us," the attachment states. "Even if we are wrong and this fails, at least we can tell our people you did everything possible and that you left no stone unturned. We will be forced to file for bankruptcy in October of this year if no action is taken."
On the other hand, the attachment suggests, Trump could save "thousands of jobs" in West Virginia, Pennsylvania, Ohio, Illinois, Kentucky and Utah and "they will all be forever in your debt."
Murray Energy CFO Robert Moore's letter to the DOE stated that the company will be unable to make its upcoming debt payments if FirstEnergy or "another of our major customers" filed for bankruptcy. That would leave Murray Energy in material default of various credit agreements and prompt acceleration of nearly $2.7 billion of secured debt, which Moore said has priority over nearly $7 billion of UMWA pension and retiree medical obligations owed by the company.
In total, Murray Energy cites total obligations of $11.79 billion, including debt, pension and post-retiree medical obligations, in the letters to the White House.
An attachment marked "confidential" shows Murray Energy's total debt obligations to be $4.01 billion. It estimated its taxes and benefits paid to employees totaled $523.1 million per year. In April 2015, Murray Energy and Foresight Energy LP said Murray was taking a "significant economic interest" in Foresight's general partner for approximately $1.37 billion. In March, Foresight disclosed that Murray intended to inject another $60.6 million in cash into Foresight as the latter refinanced, in a move that increased Murray Energy's stake in Foresight to 80%.
Murray Energy holds a majority stake in Foresight, a large publicly held Illinois Basin coal producer. Foresight recently completed a $1.25 billion refinancing of its credit facility and second-lien debt that had prompted the company to warn of a potential bankruptcy if the deal fell through, but negotiations throughout much of 2016 averted that outcome.
Prior to its Foresight purchase, in 2013, Murray Energy struck a $3.5 billion deal to acquire five of CONSOL Energy Inc.'s longwall mining complexes in West Virginia. That deal included $850 million in cash at closing. The acquisition came with $2.4 billion of CONSOL balance sheet liabilities in addition to about $941 million in UMWA 1974 Pension Trust obligations.
Several of Murray Energy's coal customers according to S&P Global Market Intelligence data — including Southern Co., PPL Corp. or American Electric Power Co. Inc. — did not immediately respond to questions about potential concerns around a major supplier and its claims about potential bankruptcy and terminating a large amount of its workforce.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
Read our recent article on the Murray Energy Corp. bankruptcy filing.