TEXT - S&P rates Walter Energy proposed notes

Wed Nov 14, 2012 1:24pm EST

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Nov 14 - Standard & Poor's Ratings Services said today that it assigned its
'B' issue-level rating to Walter Energy Inc.'s proposed senior unsecured
notes due 2020. The recovery rating on the notes is '5', indicating our
expectation for modest (10%-30%) recovery in the event of a payment default. The
company is issuing the notes under Rule 144A with 
registration rights.

Certain subsidiaries of Walter Energy will guarantee the notes on an unsecured 
basis. The notes will be senior unsecured obligations and will rank equally 
with all of Walter Energy's existing and future senior unsecured indebtedness. 
The company intends to use the proceeds from this offering to repay a portion 
of its existing indebtedness, as well as for transaction-related fees and 
expenses. Currently, about $975 million of the company's term loan A and $1.4 
billion of its term loan B are outstanding.

The 'B+' corporate credit rating and negative outlook on Walter Energy reflect 
the combination of what we consider to be the company's "weak" business risk 
and "aggressive" financial risk profiles. Key risks to the company's business 
include a cyclical slowdown in steel production that is suppressing demand for 
metallurgical (met) coal and a high reliance on a single Southern Appalachian 
mining complex for most of its operating income. Still, we maintain our view 
that Walter Energy's coal reserves are of a very high quality and that its 
mining costs are comparably low. 

We expect that full-year 2012 and 2013 EBITDA should be about $550 million and 
$600 million, respectively. We expect debt-to-EBITDA to remain at or above 5x, 
and we expect funds from operations (FFO)-to-debt to be near the lower end of 
the 12%-20% range through 2013. Both ranges are consistent with an aggressive 
financial risk profile. Still, the negative outlook reflects the risk that met 
coal prices could continue to deteriorate if steel manufacturing slows due to 
weaker-than-expected global economic conditions. (For the complete corporate 
credit rating rationale, see our research update on Walter published Nov. 6, 
2012.)

RELATED CRITERIA AND RESEARCH
     -- Walter Energy Inc. Downgraded To 'B+' As Low Coal Prices Drive 
Leverage Higher; Outlook Negative, Nov. 6, 2012
     -- Liquidity Descriptors for Global Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Mining 
Industry, June 23, 2009
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
 
RATING LIST

Walter Energy Inc.
 Corporate credit rating           B+/Negative

Walter Energy Inc.
 Senior unsecured notes due 2020   B
  Recovery rating                  5
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