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
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,
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
Walter Energy Inc.
Corporate credit rating B+/Negative
Walter Energy Inc.
Senior unsecured notes due 2020 B
Recovery rating 5