-- 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.
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.
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
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.
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
Patriot Coal Corp.
Corporate Credit Rating CCC/Watch Neg/-- B-/Watch Neg/--
Senior Unsecured CCC/Watch Neg B-/Watch Neg
Recovery Rating 3 3