Moody's downgraded all of its ratings for Murray Energy Corp. and placed the miner on review for further downgrade after it missed an interest payment earlier in the week.
The service reduced its Corporate Family Rating on the coal producer from Caa1 to Ca, according to an Oct. 4 report. The downgrade follows Murray Energy's Oct. 2 announcement that it had entered into forbearance agreements. These agreements aim to buy time to discuss various options with lenders and delay consequences from an event of default stemming from failing to make amortization and interest payments due Sept. 30.
"Murray Energy's capital structure is not sustainable amid a sharp reduction in pricing for export thermal coal in 2019 and intensifying competition for declining domestic demand," said Ben Nelson, Moody's senior credit officer and lead coal analyst, in the report. "While the company has pursued series of distressed debt exchanges dating back to early 2018, deemed tantamount to default by Moody's, the erosion in market conditions clearly will increase financial distress in the second half of 2019."
Moody's will adjoin an "/LD" designation to Murray's Ca-PD Probability of Default Rating if it does not remedy the situation within the grace period of five days.
The firm noted that Murray Energy has "responded aggressively" to the secular decline of domestic thermal coal demand, including purchasing two metallurgical coal assets earlier this year.
Moody's wrote: "While the company has developed a track record for acquiring and improving the operating performance of coal mines, a substantive deterioration in export prices and increasing domestic competition is a major challenge for the company, which is operating with a highly-leveraged balance sheet that reduces financial flexibility and competing with better-capitalized companies, many of whom recapitalized through bankruptcy protection earlier in the decade and have substantially lower debt service costs today."
Murray Energy's ratings could be downgraded further if there is a distressed debt exchange or bankruptcy filing, according to the report. It could also be upgraded if there is a negotiated solution that better positions the company in terms of liquidity, such as an expectation of free cash flow.
S&P Global Ratings downgraded its rating on the company as well.
