Boston, MA 04/17/2014 (wallstreetpr) – The plunge in coal prices has set alarm bells ringing for the bondholders Alpha Natural Resources, Inc. (NYSE:ANR) bondholders as the second-largest U.S. coal producer consumes more cash than ever before. This is because many smaller competitors have already declared bankruptcy.
The company’s bonds have shed 9.09 percent this year, the most among metallurgical coal producers which form part of the Bloomberg USD High Yield Corporate Bond Index. Investors of these bonds are seeking 9.67 percentage points more in yield than comparable Treasuries so that they can hold the $800 million notes due in June 2019.
Bad decisions hit hard
Alpha Natural Resources, Inc. (NYSE:ANR) has been on shaky ground since the $7.1 billion deal to purchase Massey Energy, which in all possibility is the most-expensive takeover in the industry. The deal was done at a time when steelmaking coal prices peaked in 2011; Chinese demand slowed and Australian rivals jacked up supplies. The 66 percent drop in coal prices over the last three years, has sent many other firms including James River Coal Co. and Patriot Coal Corp. into bankruptcy. Analysts are predicting that Alpha’s cash consumption rate will double to a record $216.8 million this year.
Analyst also believe that it may get worse before it starts getting better as there seems to be a glut in the market.
What is also worrying, as a result is that after three straight years of losses, analysts forecast Alpha is set to lose more money in the current year and next year too. Alpha is sitting on a $3.43 billion pile of debt, which is equal to 37.9 times its EBITDA, which is the highest on record and the most among U.S. coal producers.
Spokespersons for the Bristol, Virginia-based company declined to comment on reevaluating prices of its bonds citing the necessary quite period before its next filings.
Standard & Poor’s has lowered its rating on Alpha Natural Resources, Inc. (NYSE:ANR) to B, which is five levels below investment grade, from B+, similarly Moody’s Investors Service lowered its rating of the company to B2.
