James River buys back debt, shares plunge on liquidity concerns

Wed Nov 7, 2012 10:20am EST

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(Reuters) - James River Coal Co JRCC.O reported a bigger-than-expected quarterly loss on weak coal prices and said it repurchased debt at lower prices, but the stock slumped on liquidity concerns and fears of tighter regulation in President Obama's second term.

James River shares fell as much as 25 percent in early trade on the Nasdaq, but soon recovered to $3.79, though they were still down 20 percent. Other coal stocks too fell on fears of stricter environmental regulations during President Barack Obama's second term.

James River Chief Executive Peter Socha said the uncertainty associated with the election had caused a temporary slowdown in economic growth and he hoped the weakness in thermal and metallurgical coal markets would be corrected shortly.

In a surprise announcement, the company said it bought back $61.4 million principal amount of its debt for $23.9 million through mid October. Standard & Poor's had cut its corporate credit rating on James River in June on liquidity concerns, pushing its debt further into junk territory.

Analysts viewed the debt-repurchase with favor, though some were unhappy that the move dented cash reserves.

"Surprise $61 million debt repurchase (is a) great deal at 39 cents per $1 face value, but erodes the $170 million liquidity cushion," analysts at Tudor Pickering Holt said in a note to clients.

The company, which had debts of $589.5 million as of June 30, said available liquidity fell to $172 million at the end of the quarter from the $191.9 million at the end of the second quarter.

"Opportunistic purchases like these help the company's balance sheet and James River Coal still has $151.4 million in cash," analysts at Simmons & Co said in a note to clients.

Like Patriot Coal Corp PCXCQ.PK, which filed for bankruptcy protection in July, James River has been struggling with high costs and reduced cashflow due to weak demand for coal from steelmakers and power producers.

To cut costs, the company is considering a new term loan or flexed revolver loan plan, it said in a presentation on its website.

James River also said it had signed agreements to ship 1.3 million tons of Central Appalachian coal at an average price of $70.63 per ton in 2013.

"This is slightly above the current curve for 2013, but still below James River's average cash cost of production," analysts at Simmons & Co said in a note to clients.

The analysts also said it would take "a large improvement" in the met or thermal markets for the company's results to improve.

James River's third-quarter adjusted loss was $1.23 per share, exceeding the $1.04 per-share loss analysts had estimated, according to Thomson Reuters I/B/E/S.

Net loss widened to $20.6 million, or 59 cents per share, from $3.7 million, or 11 cents per share, a year earlier.

Revenue fell 5 percent to $288.1 million, but was higher than the average estimate of $261.7 million.

(Reporting by Swetha Gopinath in Bangalore; Editing by Sreejiraj Eluvangal)

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