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S&P: ‘No Positive Outlooks’ Across U.S. Coal Sector

March 23, 2016

Taylor Kuykendall for SNL:

Chiza Vitta, an analyst with Standard & Poor’s Ratings Services, noted that six companies are currently rated a “D,” indicating a fairly high level of stress. The companies — Patriot Coal Corp., Walter Energy Inc., Alpha Natural Resources Inc., Arch Coal Inc., Foresight Energy LP and Peabody Energy Corp. — represent about 40% of the industry.

Even though the coal industry is a relatively small sector of his coverage universe, it takes up much of his time as they are “continually reassessing” the distressed sector, Vitta said. Much of the decline in ratings, he said at the 24th Annual Platts Coal Properties and Investment Conference in Fort Lauderdale, Fla., on March 22, has occurred since 2015. Since then, liquidity has suffered as other financial metrics have been squeezed as well.

With “no positive outlooks” in the coal sector, one of the challenges Vitta faces in rating the coal sector is trying to predict when a company may file for bankruptcy. He pointed out that many bankruptcies have come as the result of an overleveraging of balance sheets associated with large bets on the metallurgical coal market.

“They didn’t have very much in the way of space as things got more and more difficult,” Vitta said.

Now the industry is facing a “supply-side stickiness,” with producers adverse to taking production offline and facing idling or commissioning costs. Meanwhile, he said, due to restructurings, the coal industry’s relationship to customers is “unraveling” as observers discover the companies’ “true liabilities and securities.”

Coal companies, he said, are at times similarly perplexed by their situation. Vitta said when looking at one company’s restructuring exit plan, he found little idea of what markets could do in the future. “They really didn’t know what things were going to look like at all,” Vitta said.

Full article ($): Coal ratings low as sector struggles with current market, future sentiment

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