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S&P downgrades Westmoreland Coal's credit rating, citing potential default

S&P Global Ratings lowered Westmoreland Coal Co.'s credit rating to CCC- from CCC, citing a potential default or restructuring within six months after the company disclosed "substantial doubt" to its ability to comply with its covenants during the year ending Sept. 30.

It also lowered its issue-level rating on Westmoreland's first-lien term loan and the senior secured notes to CCC- from CCC, while the recovery rating remained unchanged at 4.

"The rating downgrade reflects our view that [Westmoreland] could breach its fixed charge coverage in the next three to six months," the rating agency said in a March 9 research note. That would cause a cross default with its $321 million term loan that matures in December 2020, and $350 million of senior secured notes that mature in January 2022, making them due immediately.

Concurrently, it lowered the rating on Westmoreland Resource Partners LP's debt to CC from CCC, with a recovery rating unchanged at 4, after the master limited partnership announced that it is exploring a restructuring transaction that would transfer collateral to its term-loan lenders.

"We view Westmoreland Resource Partners' contemplated restructuring transaction as tantamount to default," S&P said, noting that the partnership has $311.7 million, including payment-in-kind interest, term loan debt outstanding due December 2018.

S&P believes the operating challenges that Westmoreland is facing, including the continued decline in domestic demand for coal-fired power generation and competition from low-priced natural gas, will limit its access to capital, especially as its $50 million revolving credit facility is due in December 2018.

Westmoreland recently hired advisers to assist in its "capital structure improvement process" and to improve the health of its balance sheet, while its limited partnership entered an agreement with lenders to waive any actual or potential default until May 15.

The rating agency placed all of Westmoreland Coal's ratings on CreditWatch with negative implications, to reflect its expectation that there is at least a one-in-two chance of a default within three months.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global Inc. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.