S&P Global Ratings downgraded its issuer credit rating on Alliance Resource Partners LP to BB- from BB+ and lowered its issue-level rating on the coal producer's senior unsecured debt to BB- from BB, with a stable outlook, anticipating weaker credit measures in 2020 related to difficult operating conditions.
The rating agency said its 2020 forecast on the company included a 12% drop in revenue due to coal volume and price reductions, with adjusted EBITDA of $460 million and year-end leverage in the middle of the 2x to 3x range.
The miner's estimated 60% year-over-year reduction in export volumes for 2020 will be worsened by lower seaborne coal prices, according to S&P Global Ratings. Alliance Resource mined about 74% of its coal in 2019 in the Illinois Basin, which is not as well-positioned to address the export market amid declining demand, it said.
"As demand contracts and competing natural gas remains cheap, we anticipate that all but the most adaptable, and profitable mining operations will face increasing operating pressures," the rating agency wrote in a March 27 note.
Lower prices will adversely affect the company's oil and gas-based minerals segment, according to S&P Global Ratings, which also cut its natural gas price assumptions for the year to $2/MMBtu.
The stable outlook on Alliance Resource represents the possibility of a downgrade if its leverage rises above 4x and if EBITDA margins fall under 25%, particularly if free operating cash flow is negative.
S&P Global Ratings said it could raise the company's rating once it gets clearer near-term conditions, which would most likely be after all coronavirus-driven restrictions are lifted and seaborne coal markets rebalance.
Alliance Resource was recently forced to halt operations in the Illinois Basin until April 15, saying the return to production could be accelerated or delayed subjected to customer needs.
The company said it is adjusting production at its operations to match existing 2020 sales commitments of approximately 28 million tons. It also outlined total sales tons for the year coming in approximately 25% below initial expectations.
Alliance Resource booked net income of $399.4 million in 2019, increasing 8.9% year over year from $366.6 million, while EBITDA jumped 9.7% to $753.8 million from $686.9 million.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.