S&P rates Massey convertible B+, lowers outlook

Standard & Poor's assigned a B+ rating to Massey Energy Co.'s proposed $100 million convertible senior notes due 2023, and also revised the outlook for the coal producer's ratings to negative from developing based on refinancing concerns.

The outlook reflects concerns regarding refinancing of November 2003 debt maturities, S&P said.

Last September, Massey was unable to successfully refinance its existing bank lines because of uncertainty in the utility markets and was forced to term out its 365-day revolving credit facility.

Ratings reflect its substantial coal deposits and contracted production, tempered by high costs that have increased volatility in financial performance.

Ratings are constrained by fluctuations in productivity measures caused by limited use of the efficient longwall mining method, high mining costs, environmental regulations, high bonding costs and a weak economy.

At March 31, funds from operations to total debt for the last 12 months were 29% while last 12-months EBITDA interest coverage was 3.5x, S&P said.

The capital structure is somewhat aggressive with total debt to total capital of about 49% at March 31. Compared with other coal companies, financial leverage and performance benefit from significantly lower postretirement medical obligations and an overfunded pension plan, as most of its workforce is nonunion.

At March 31, liquidity consisted of $4.4 million in cash and $113.9 million in availability under its $400 million senior secured credit facilities.

Moody's rates Massey convertible Ba3

Moody's Investors Service assigned a Ba3 rating to Massey Energy Co.'s proposed $100 million convertible senior notes due 2023 and confirmed its existing ratings including its senior secured bank credit facilities at Ba1 and $300 million of 6.95% senior unsecured notes at Ba3. The outlook is stable.

The senior implied rating reflects continuing challenges in reducing its cost base, improving productivity and strengthening profitability and coverage ratios, Moody's said.

It also considers the still weak, although showing signs of improvement, coal markets and pending legal and regulatory issues.

The Ba3 rating for the convertible reflects structural subordination to Massey's existing secured bank credit facility, as well as to liabilities at the operating company level, including reclamation and pension obligations.

The outlook considers a strong reserve position, strong customer relationships and contractual sales commitments, plus that Massey will remain focused on cost control and cash generation.

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