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Drummond credit outlook raised to 'stable' amid rising seaborne coal prices

Drummond Co.Inc.'s credit outlook has been raised to stable due to rises inseaborne coal prices in the second half of 2016, according to S&P GlobalRatings analysts.

"Market increases have been supported by higher naturalgas prices, which increased by more than 50% since the first quarter of 2016,and diminishing European thermal coal stockpiles, which declined by about 25%since the end of 2015," said analysts Vania Dimova and Chiza Vitta in thereport. They increased the outlook to stable from negative for Drummond.

"The stable outlook reflects our view that the companywill maintain stable operating performance in the next 12 months, with adjusteddebt to EBITDA decreasing below 2.5x during 2017."

The Alabama-based coal producer is expected to improve itsadjusted debt-to-EBITDA ratio by 0.5x to 1x from last year's levels, theanalysts said. They also noted that Drummond had resolved a nighttime railrestriction at its operations in Colombia in December 2015.

Dimova and Vitta also expected Drummond to improve itsperformance in the U.S. metallurgical coal operations as prices for thecommodity recovered from early-year lows.

The analysts did not see Drummond's liquidity as positively,however, revising their assessment to adequate from strong based on theexpiration of the revolver in the next 12 months.

S&P maintained its BB corporate credit rating forDrummond.

Mike Tracy was appointed the new CEO of Drummond. MikeDrummond became chairman of the board after CEO and Chairman Garry NeilDrummond died inJuly.

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