The quick collapse this month of a debt-fueled deal by Murray Energy to buy out troubled Bowie Resource Partners and its Utah coal holdings comes as no surprise.
The acquisition was supposed to have been financed with $510 in junk bond debt. It took only 10 days to fall apart. The “capital raise” wasn’t getting traction, and for good reason. Investors are wary of putting money into coal.
The deal would’ve given Murray Energy and John Seigel, Bowie’s former CEO and Chairman, 30.5 percent equity each in a new company, Canyon Consolidated Resources. Bondholders would’ve been on the hook for the rest.
We’ve reacted skeptically to Bowie’s previous forays (see “Is Bowie Resource Partners the Next Bankruptcy?”) Financial trouble followed Bowie’s acquisition of Arch Coal’s Utah holdings for $435 million. Its 2015 IPO was withdrawn in 2016 because of a lack of interest. Bowie’s next shot in the dark, to buy certain Peabody Energy mines, ended in litigation after Bowie failed to find backers—that fiasco was a precipitating factor in Peabody’s bankruptcy filing.
Now, with the shoe on the other foot—Bowie is seeking to be acquired, instead acquiring— we are seeing the same result.
Murray, owned by the politically flamboyant Bob Murray, is in similar straits and perhaps only a presidential tweet itself away from bankruptcy. This was touted as Murray’s big move on Western U.S. coal assets, and the bond markets have declined to support it.
Bowie claims assets of $454 million and liabilities of $446 million, but the flop of this recent deal puts a crimp in its asset valuation and places debt repayment further out of reach.
SO WHILE THE MURRAY/BOWIE BROUHAHA PROVED TO BE a nonevent, it was an instructive moment nonetheless.
- Mainstream institutional investors are still not interested in coal mines. This goes for junk bond speculators as well.
- Bowie Resources now owns mines with a value substantially less than the $454 million it carries on its books. The mines could even be worthless.
- Galena Private Equity Resource Fund, a subsidiary of Trafigura PTE LTD and a major stakeholder in Bowie, is left holding the bag.
- Murray may gain because he may be in the position now of getting the Utah mines in some kind of fire sale.
And the State of Utah needs to pay attention. It has offered public financing for Bowie’s plans to export coal, but the rough justice of the market reaction is a red flag. No public money should invested in mines that may be worthless and in a company with such a troubled past.
Tom Sanzillo is IEEFA’s director of finance.
Is Bowie Resource Partners the Next Bankruptcy?
IEEFA Texas: The Beginning of the End for Coal-Fired Electricity Across One of the Biggest Power Markets in the U.S.
IEEFA U.S. Coal Outlook 2017: Short-Term Gains Muted by Prevailing Weaknesses in Fundamentals