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Activist investor bumps stake in Westmoreland Coal as shares flounder

Distressed asset investor Mangrove Partners scooped up low-cost shares of Westmoreland Coal Co. in the recent quarter, bringing its position to a 5.3% stake in the company's outstanding shares.

Data from S&P Global Market Intelligence shows Mangrove bought a net 158,906 shares of Westmoreland stock, raising its total position in the company to 992,251 shares. The $1.2 million market value of the holding makes Mangrove the third-largest institutional investor in Westmoreland as of the third quarter, behind only Tontine Capital Management LLC and BlackRock Inc. with ownership of 7.0% and 6.4% of Westmoreland's common stock, respectively.

A Westmoreland securities filing shows Mangrove reduced its shares at some point early in the year as it once held 1.6 million shares, or about 8.7% of outstanding Westmoreland shares, as recently as March 10.

According to Mangrove's website, the company specializes in finding situations where market participants are overlooking and undervaluing industries for various reasons including perceived risks of companies "that are in distress, experiencing setbacks, stagnating, or declining." Westmoreland's share price opened Dec. 26 at $1.32 per share. As recently as April, the company's stock traded over $15 per share, but the price has rapidly deflated.

The company reported a net loss of $19.2 million in the third quarter. Analysts soon slashed their estimates for the company, though at least one assured that a bankruptcy over the company's issues was unlikely even though its share price was reacting as though a filing was imminent. An S&P Global Ratings report on the company dropped Westmoreland's credit rating in mid-November based on a potential default in 2018.

Since then, Westmoreland's share price has drifted lower as the company's CEO stepped down and Westmoreland hired a chief investment officer with extensive experience in financial restructuring and "emergence from bankruptcy." Westmoreland did not respond to requests for comment on its financial health or the new stake by Mangrove, though Seaport Global Securities LLC said in a Nov. 28 note that Westmoreland had remained "adamant" on a call that they have no reason to file for bankruptcy anytime soon.

In October 2016, Mangrove took up a 5.2% stake in Peabody Energy Corp. while the coal miner was in the middle of bankruptcy proceedings despite warnings those equities could be canceled and extinguished in the bankruptcy. Mangrove later filed motions insisting equity holders of Peabody were entitled to a recovery in the bankruptcy proceedings.

This is not the hedge fund's first large buy of Westmoreland. In November 2016, the company disclosed that it had paid $14.0 million to acquire a total of 10.2% of Westmoreland. At that time, Mangrove reported it was believed Westmoreland's securities were undervalued and represented an attractive investment opportunity. In the filing, Mangrove said it had "initiated dialogue" with Westmoreland about "an effort to maximize value for all shareholders" in regard to Westmoreland's Coal Valley Resources Inc. assets, which Westmoreland has recently said is nearly ready to sell.

Mangrove did not respond to a request for comment on its most recent acquisition of Westmoreland shares.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.