Alpha Natural Resources ended 2014 with $2.2 billion of liquidity

By Paul Deckelman

New York, Feb. 12 – Alpha Natural Resources, Inc. ended 2014 with “strong” total liquidity of about $2.2 billion, its chairman and chief executive officer said Thursday.

The Bristol, Va.-based producer of thermal and metallurgical coal, as well as natural gas, has its sights set on the repayment of two issues of convertible debt that are to come due later this year.

However, it has not yet decided on whether it will use some of its hefty hoard of cash and unused borrowing availability to step into the marketplace and repurchase any of its outstanding bond debt that’s now trading at distressed levels, as are the notes of most other coal-mining companies.

Busy balance sheet moves

During the company’s conference call following its release of results for the 2014 fourth quarter and fiscal year ended Dec. 31, ANR’s chairman and CEO, Kevin S. Crutchfield, declared that “just as our operators are focused on safety and environmental stewardship, our financial team is focused on prudent balance sheet and liquidity management.”

Among the highlights Crutchfield noted was ANR’s reduction in its outstanding 2015 convertible debt by 20% to $154 million from $194 million a year earlier. ANR said in a Securities and Exchange Commission filing in November that during the nine months ended Sept. 30, it had repurchased $21.4 million of its outstanding 2.375% convertibles that will come due on April 15 and about $19 million of its outstanding 3.25% convertibles due this coming Aug.1. ANR funded the repurchases with a portion of the proceeds from last year’s $500 million issue of 7½% senior secured second-lien notes due 2020.

The company’s executive vice president and chief financial officer, Frank J. Wood, said that it expects to pay off the final remaining $45 million of the notes maturing in April and the $109 million of notes maturing in August.

Other financial highlights that Crutchfield mentioned in the area of balance sheet and liquidity management included the $500 million bond deal, which came to market at par this past May after being upsized from $400 million originally, and ANR and its lenders agreeing on amending and extending its senior secured revolving credit facility and establishing a new $200 million accounts receivable securitization facility.

Under the amended terms announced in September, the revolver will have total availability of $894 million, with $276 million set to expire on the facility’s original maturity date of June 30, 2016 and the other $618 million extended through Sept. 30, 2017, carrying a higher interest rate on borrowings.

The new accounts receivable securitization facility meanwhile provides for up to $200 million of standby letters of credit and working capital draws, subject to certain limitations, secured by trade receivables, with funding expected to be available until September 2018.

Wood said that as of the end of the fourth quarter, ANR’s total liquidity was about $2.2 billion. He estimated that the company had nearly $900 million available under the secured credit and accounts receivable securitization facilities, along with cash, cash equivalents and marketable securities of nearly $1.3 billion, including about 6 million shares of Rice Energy Inc. valued at $127 million.

In 2010, ANR had teamed up with Rice, a Canonsburg, Pa.-based independent oil and natural gas company, in a 50/50 joint venture to develop a portion of ANR’s Marcellus Shale natural gas holdings in southwestern Pennsylvania. In December 2013, ANR agreed to exchange its 50% interest in the joint venture, Alpha Shale Resources, for $200 million of Rice common stock and $100 million of cash. ANR subsequently sold 3.5 million of its Rice Energy shares for $91 million in cash.

Crutchfield said that his company “will have the opportunity to dispose of [the remaining Rice shares] at the appropriate time” and is in conversations with Rice on when such a disposition might occur “pretty regularly.”

He said that in 2014, ANR had realized more than $200 million of cash from asset disposals and sales of joint-venture interests, including the Rice transactions as well as ANR’s sale of its Amfire Mining Co. LLC assets – 10 mines and four preparation plants and loadouts in central Pennsylvania – to Rosebud Mining Co. for total consideration of $86 million, including $75 million of cash and the assumption of certain liabilities. That sale closed on Dec. 30.

Use cash for buyback?

During the question-and-answer portion of the conference call following the formal presentations by Crutchfield and Wood, an analyst inquired about whether there might be some room for the company to use its considerable liquidity to repurchase some of its other debt now trading at distressed levels such as its $345 million of 3.75% convertible notes due in 2017, which were seen late Thursday trading around 36¾ bid, according to Trace.

Crutchfield answered that “there’s obviously room,” although he said that the company would have to find a balance between spending its cash that way and other, perhaps more pressing priorities.

“Liquidity, I think, still is the name of the game in this environment,” he said, “but yeah, given the distressed levels that some of the debt is trading [at], it does make you wonder, given the stature of the company still having a couple of billion dollars of liquidity.”

He refused to commit outright to such a course of action, only saying that “it is something that we continue to monitor and have discussions with our board about, in trying to establish that appropriate balance in the kind of uncertain and challenging environment that we’re in.”

According to supplemental materials posted on its website that the company prepared for a recent presentation at an investor conference, as of Sept. 30, its capital structure, besides the 2.375% and 3.25% convertible notes coming due this year and the 3.75% convertibles of 2017, included another convertible issue, its $345 million of 4.875%notes due in 2020.

Apart from the aforementioned 7½% secured second-lien notes that it sold last year, the junk bond component of its capital structure included $500 million of 9¾% senior notes due 2018, $800 million of 6% senior notes due 2019 and $700 million of 6¼% senior notes due 2021.

The company had $617 million of term loan B debt due in 2020 and $61 million of capital leases and other assorted debt, for total long-term debt of just over $4 billion. There were no outstanding borrowings at that time against either the $276 million of unextended revolver availability, the $618 million of extended revolver availability or the $200 million of A/R facility availability. The company did have $178 million of letters of credit outstanding.

‘Tough but necessary measures’

Wood told an analyst on the call that the company’s credit facilities have two financial performance covenants – a $300 million minimum liquidity requirement, although he added “I think you can judge where we are in relation to that,” as well as a first-lien secured leverage ratio allowing a maximum of 2.5 times debt as a multiple of EBITDA, with the ability to credit up to a total of $700 million of cash against the outstanding first-lien debt.

He said that “obviously, it’s one that we keep our eye on as we go into the future, but we don’t anticipate an issue at this time.”

Wood further said that the company projects interest expense for 2015 to range from $290 million to $310 million, with cash interest costs expected to be in a range of $245 million to $255 million.

Crutchfield said that amid depressed prices and soft demand for product across the coal industry, ANR has tried to build “a smaller but more sustainable portfolio of mining assets across our operational footprint” and match “our overhead and SG&A to our reduced production profile. In short, management is focused on continuing to take the tough but necessary measures that enable us to maintain flexibility and rationalize our operations and cost structure to manage effectively through these challenging markets. To that end, we remain focused on prudently managing our liquidity and our balance sheet.”

© 2015 Prospect News.
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