Arch Coal to delay bond interest payment as bankruptcy looms

(Reuters) - Arch Coal Inc, the second-largest coal miner in the United States, delayed a $90 million interest payment that was due Tuesday, pushing back a widely expected bankruptcy filing.

The company’s shares shot up nearly 35 percent to $1.20.

“It tells you how bad things have become when hanging on becomes a victory,” analysts at BB&T Capital Markets wrote in a note. “This year, an ACI filing looks like a near certainty.”

The company was widely expected to file for bankruptcy by Tuesday.

If Arch Coal files a Chapter 11 petition, it will become the fourth coal miner to declare bankruptcy this year, joining Walter Energy Inc, Alpha Natural Resources Inc and Patriot Coal.

“Shareholders in this troubled sector are likely relieved that (Arch Coal’s) management is exploring options to maximize value to the benefit of all stakeholders,” said David Johnson, a founding partner at restructuring firm ACM Partners.

Short covering also contributed to the spike in Arch Coal’s shares, analysts said. Nearly 48 percent of the company’s outstanding shares are shorted, according to Thomson Reuters data.

Arch Coal, which ended a proposed debt swap in October, said it had 30 days to continue talks with creditors to restructure its balance sheet.

Companies typically undertake debt exchanges to cut interest expenses, said Odeon Capital Group analyst Anup Goswami. However, Arch Coal ended its debt exchange in October after failing to strike a deal with creditors.

Debt swaps have become common in the wider energy industry, with companies such as Chesapeake Energy Corp exchanging unsecured debt for secured debt.

Arch Coal, burdened by strict regulations and plummeting coal prices, said last month it could file for bankruptcy, even if it struck a restructuring agreement.

The company had about $694.5 million of liquidity as of September-end and about $5 billion in long-term debt, stemming mainly from its purchase of International Coal Group in 2011.

“You are seeing coal companies that are filing (for bankruptcy) with a lot of cash on the balance sheet,” said Reorg Research analyst Zach Bader. “One reason is that they have over-leveraged capital structures ... it doesn’t make economic sense to pay interest to debt holders that have claims that are essentially worthless.”

Arch Coal’s market value has been nearly wiped out this year. The company, whose market capitalization was $3.78 billion at the end of last year, was valued at about $19 million as of Monday’s close.

Reporting by Amrutha Gayathri and Sneha Banerjee in Bengaluru; Editing by Shounak Dasgupta