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S&P upgrades Natural Resource Partners, expects steady coal royalty income

S&P Global Ratings on May 18 raised Natural Resource Partners LP's corporate credit rating to B from B-, with a stable outlook, citing the company's reduced debt and stable operating cash flows.

Concurrently, it raised the issue-level rating on the company's $346 million senior unsecured notes to B from B-, with a recovery rating unchanged at 4.

"The company repaid $317 million reported debt over the past 12 months, which lowered adjusted leverage to 4.8x in 2017 from 5x in the previous year," the rating agency wrote, and is scheduled to pay $81 million of amortized debt this year and build up cash that S&P anticipates will approach $30 million by the end of the year.

Even with a moderate decline in met coal prices this year, S&P analysts expect Natural Resource Partners, or NRP, to generate stable operating cash flows due in large part to its long-term leases subject to minimum royalty payments.

"NRP's coal royalty segment, which accounts for 61% of 2017 revenues, continues to benefit from strength in the international met coal markets in the first quarter of 2018, as royalty payments are tied to production volumes and sales price of the tons produced," the analysts wrote.

The stable outlook reflects its view that NRP will generate steady cash flows and roughly $208 million in adjusted EBITDA.

NRP, a master limited partnership headquartered in Houston, is a diversified natural resource company that owns interests in coal, aggregates and industrial minerals across the U.S. A large percentage of its revenues is generated from royalties and other passive income. During the most recent quarter, it reported net income of $26.1 million, or $1.15 per unit, compared with $5.9 million, or 28 cents per unit, a year earlier.

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. 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.