S&P rates Foundation Coal

Standard & Poor's assigned its BB- bank loan rating and recovery rating of 4 to Foundation PA Coal Co.'s proposed $785 million secured credit facility and its BB- corporate credit rating to Foundation Coal Corp.

The outlook is stable.

S&P also assigned its B rating to Foundation PA Coal's proposed $335 million senior unsecured notes.

"The ratings on Foundation Coal reflect its aggressive financial leverage, limited operating diversity, inherent operating risks and exposure to expiring western coal supply contracts that are currently above spot prices," said S&P credit analyst Dominick D'Ascoli.

Partially offsetting these risks are its competitive cost position and favorable coal industry conditions, S&P said.

Foundation Coal will use the proceeds from the term loan and the senior unsecured notes in conjunction with $196 million of private equity to finance the $966 million acquisition of RAG American Coal Holding Inc. from RAG Coal International AG.

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