As power utilities are seen to be increasingly switching to cheaper natural gas and big-ticket clients such as China cut down on coal imports, the global coal industry is gripped by a downturn that has started to take its toll.
One of the largest producers of coal in the world, United States-based Arch Coal Inc. (ACI, Financial), reportedly, hired restructuring advisers including Blackstone Group LP’s (BX, Financial) credit advisers GSO Capital Partners, investment bank Moelis & Co (MC, Financial), hedge fund Hutchin Hill Capital LP and lawyers from Davis Polk & Wardwell LP to help deal with its $5.15 billion debt, as of March 31, 2015. The coal producers are looking for a broad restructuring of debt load, by cutting deals with bondholder groups. The company is not looking at bankruptcy for a broad restricting of its debt load.
Arch Coal is in talks with bond holders due in 2020, reported The Wall Street Journal. One option, analysts suggest, is to swap the bonds for fresh, high-ranking debt.
Black market for coal industry
Earlier in May, St. Louis, Missouri-based coal mining company Patriot Coal Corporation (PCXCQ, Financial) voluntarily filed for bankruptcy protection. This move came a little over a year after the company claimed to be in talks with a potential buyer. Another Appalachian coal mining company Xinergy Ltd. (XRG, Financial) also filed for Chapter 11 bankruptcy protection, while Walter Energy Inc. (WLT, Financial) announced recapitalisation talks with creditors, earlier this month.
This week, Murray Energy Corp. announced plans to lay off about 21% of its employed forces, while Alpha Natural Resources Inc. (ANR, Financial) laid off 439 workers, according to reports released yesterday.
These struggling companies are testimony to the long-term swoon in the coal industry.
More market trouble
Additionally, Arch Coal revealed that it has been issued a notice from the New York Stock Exchange for not meeting NYSE’s continued listing standard requirement of averaging a closing price of at least $1 per share for 30 consecutive trading days. Arch Coal’s stock fell 4.03% on Friday to close at $0.66. A slight 1.18% rise during after-hours trading didn’t help matters much as share price was still less than one dollar at $0.67.
The company will respond to the NYSE within 10 business days of receipt of the notification with its intent to resolve the deficiency. The company has six months to regain compliance with the NYSE continued listing requirements and will actively monitor its stock price and evaluate all available options in order to regain compliance within the prescribed timeframe, Arch Coal said in a release. During the six-month period the company's common stock will continue to be listed and traded on the NYSE, subject to compliance with other continued listing standards. The deficiency does not affect the company's ongoing business operations or its SEC reporting requirements, it said.
Market reactions
Arch Coal’s shares have lost nearly 82% in the last 12 months, with a high of $3.9 and low of $0.69. The earnings per share on the coal producer’s common stock is -$2.58 and current yield rate is 1.45%. The company posted a dismal earnings report in the last quarter, even though it boasts customers on five continents, "more than 5 billion tons of high-quality metallurgical and thermal coal reserves, with access to all major railroads, inland waterways and a growing number of seaborne trade channels." Arch Coal fell 45% in the Dow Jones U.S. Coal Index over the last 12 months. Analysts are not hopeful of the coal producer’s ability to regain its stock status as seven of 16 analysts, polled by Zacks Investment Research, gave it a "Sell" rating.
