-- We expect U.S.-based coal producer Patriot Coal Corp.'s 2012
operating performance to be less than our previous expectations because of
weaker demand in the coal markets.
-- We are lowering our ratings on Patriot Coal, including the corporate
credit rating to 'B-' from 'B'.
-- The ratings remain on CreditWatch with negative implications, where
they were placed on Jan. 23, 2012.
-- In resolving the CreditWatch listing, we will update our performance
expectations and meet with management to discuss its proposed refinancing of
its convertible notes and near-term liquidity expectations.
On May 16, 2012, Standard & Poor's Ratings Services lowered its corporate
credit rating on St. Louis, Mo.-based Patriot Coal Corp. (Patriot) to 'B-'
from 'B'. At the same time, we lowered our issue-level rating on the company's
senior unsecured debt to 'B-' (the same as the corporate credit rating) from
'B'. The recovery rating remains '3'.
The ratings remain on CreditWatch with negative implications where they were
placed on Jan. 23, 2012.
The CreditWatch listing reflects a decline in coal production as a result of
weaker demand for metallurgical (met) coal in the export market and weaker
demand for thermal coal because of a warmer-than-normal winter and natural gas
substitution that has consequently lowered our expectations for 2012 EBITDA
and has, in our view, the company continuing to burn cash. The rating also
reflects the possibility of continued production curtailments, as in the
recent announcement that a "key customer" is potentially going to default,
leading to an adjustment of Patriot's coal-price and volume forecasts for 2012
The corporate credit rating on Patriot Coal 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 challenges posed by the inherent
risks of coal mining, including operating problems, price volatility, and
increasing costs and regulatory scrutiny.
In resolving the CreditWatch listing, we will review our performance
expectations and Patriot's liquidity position, and assess its operating
prospects to determine whether a lower rating is warranted, absent the
proposed refinancing. This will include meeting with management to discuss its
near-term operating and financial prospects, including end-market demand
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
Patriot Coal Corp.
Corporate Credit Rating B-/Watch Neg/-- B/Watch Neg/--
Senior Unsecured B-/Watch Neg B/Watch Neg
Recovery Rating 3 3