Declining demand for U.S. coal continued to drag on producers last week, as evidenced by a missed debt payment by the largest private coal producer that may foreshadow a difficult path forward.
Murray Energy Corp. has entered into forbearance agreements to delay the consequences of missing a debt payment, and Murray-controlled Foresight Energy LP deferred an interest payment on its senior secured notes. S&P Global Ratings and Moody's Investors Service downgraded both companies as a result.
"In addition, we now think that the business risk of the company is vulnerable because of lower domestic demand and persistently low international thermal coal prices," according to Ratings' report on Murray Energy.
An S&P Global Market Intelligence analysis revealed that Murray-controlled coal operations produced about 11% of the nation's coal in the first half of the year. Weaker export and increased debt loads are weighing on both companies, and missed debt payments have indicated a path toward bankruptcy court restructuring the last few years.
Murray Energy said in an Oct. 2 release that the forbearance period would provide an opportunity to discuss options with lenders and "strengthen the company's business, improve its liquidity position, deleverage its balance sheet, and achieve a more sustainable capital structure."
Further evidence of the weakened coal market was seen last week when Kentucky coal producer Rockhampton Energy Llc filed for Chapter 7 bankruptcy protection on Oct. 1, marking at least the eighth coal company to do so since President Donald Trump took office. While Rockhampton's filing follows at least four others this year, those entities filed for Chapter 11, suggesting an intent to restructure their balance sheets rather than liquidate.
Several of those debtors were active in the courts last week as well. A federal bankruptcy judge approved Cloud Peak Energy Inc.'s plan to sell substantially all of its assets to Navajo Transitional Energy Co. LLC, the final approval needed for the latter to take over Cloud Peak's Powder River Basin mines.
Blackhawk Mining LLC, which is advancing through its restructuring proceedings, reached an agreement with its lenders to increase funding in its debtor in possession financing package to avoid a cash shortfall. The producer expects to increase its financing by $35 million.
A bankruptcy judge approved Blackjewel LLC's plan to sell its Powder River Basin mines to Eagle Specialty Materials LLC, an affiliate of FM Coal LLC. The deal intends to relieve Contura Energy Inc. of its obligations on those assets as well.
The debtor also told the court that it has settled the "hot goods" issue pertaining to unpaid wages at its eastern assets with the U.S. Department of Labor, and the two parties are finalizing the amount Blackjewel owes.
On a more positive note for the broader mining sector, the new president and CEO of the National Mining Association told S&P Global Market Intelligence that the organization plans to help mitigate some of the costs affecting coal use, noting the stressors affecting the sector.
"We're also looking at opportunities in the export markets as well because global demand in all the forecasts worldwide show that coal's prominence continues to be extremely essential for developing economies across the globe," Rich Nolan said.
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