TEXT-S&P cuts Patriot Coal rating to 'CCC', may cut further

Wed May 23, 2012 1:36pm EDT

Overview	
     -- U.S.-based coal producer Patriot Coal Corp.'s ability to
refinance its existing convertible notes and provide additional liquidity to
operations is highly uncertain because of current market conditions.	
     -- We are lowering our ratings on Patriot Coal, including the corporate 	
credit rating, to 'CCC' from 'B-'.	
     -- The ratings remain on CreditWatch with negative implications, where we 	
placed them on Jan. 23, 2012.	
     -- In resolving the CreditWatch listing, we will update our performance 	
expectations and meet with management to discuss its progress toward achieving 	
an optimal financing package and meeting near-term liquidity expectations.	
	
Rating Action	
On May 23, 2012, Standard & Poor's Ratings Services lowered its corporate 	
credit rating on St. Louis, Mo.-based Patriot Coal Corp. (Patriot) to 'CCC' 	
from 'B-'. At the same time, we lowered our issue-level rating on the 	
company's senior unsecured debt to 'CCC' (the same as the corporate credit 	
rating) from 'B-'. The recovery rating remains '3', reflecting our expectation 	
of meaningful recovery (50% to 70%) in the event of payment default.	
	
The ratings remain on CreditWatch with negative implications, where we placed 	
them on Jan. 23, 2012.	
	
Rationale	
The CreditWatch listing reflects our expectations that Patriot's proposed 	
refinancing of its existing convertible notes and additional liquidity to 	
support operations is highly uncertain based on current market conditions. In 	
addition, Patriot announced that it has hired the Blackstone Group (unrated) 	
to assist it in achieving an optimal financing package. As of March 31, 2012, 	
the company has about $115 million of balance sheet cash after spending about 	
$80 million during the first quarter. As operating performance remains weak as 	
a result of curtailed production, we doubt Patriot's ability to meet near term 	
obligations.	
	
The corporate credit rating on Patriot reflects the combination of what we 	
consider to be the company's "weak" business risk profile and "highly 	
leveraged" financial risk profile. The company has significant exposure to the 	
high-cost Central Appalachia region and faces the inherent risks of coal 	
mining, including operating problems, price volatility, and increasing costs 	
and regulatory scrutiny.	
	
CreditWatch	
In resolving the CreditWatch listing, we will review Patriot's liquidity and 	
performance expectations and assess its progress in strengthening its 	
finances, including replacing its current credit facilities. This will include 	
meeting with management to discuss its near-term operating and financial 	
prospects, including end-market demand trends.	
	
Related Criteria And Research	
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Mining 	
Industry, June 23, 2009	
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 	
May 27, 2009	
	
Ratings List	
Downgraded	
                                        To                 From	
Patriot Coal Corp.	
 Corporate Credit Rating                CCC/Watch Neg/--   B-/Watch Neg/--	
 Senior Unsecured                       CCC/Watch Neg      B-/Watch Neg	
  Recovery Rating                       3                  3
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