Pure coal play,
Arch Coal Inc
) finalized its 9.875% senior unsecured notes issuance worth $375
million due 2019 and its incremental loan of $250 million valued
at 99% of par, to fund general corporate purposes. The term loan
will initially have an interest yield of London Interbank Offered
Rate (LIBOR) plus 4.50%, subject to a LIBOR floor of 1.25%.
However, the interest rate can slip to LIBOR 4.25% after one
year from the original date of loan offered, subject to certain
conditions. The annual interest return is expected to be 6% from
the secured term loan. With its incremental loan, Arch Coal will
witness a reduction in its revolving credit facility to $350
million from $600 million.
It seems that the company periodically engages in issuance
activities for the purpose of financing its debt obligations and
for meeting other financial requirements. Earlier Arch Coal's
business arm, Arch Western Finance, LLC, effectively redeemed all
of its $450 million, 6.75% senior notes due 2013.
Arch Coal's long-term debt as of September 30, 2012, was $4.5
billion, up from $3.8 billion at the end of December 2011. The
company's debt-to-capital ratio at the end of the third quarter
2012 was 58.5% versus 44.2% ratio of its industry peers. Interest
expenses of the company in the third quarter 2012 were $74.3
million which could increase in the following quarters with the
Arch Coal's cash investments and total available liquidity as
of September 30, 2012 stand at $1.2 billion and $1.4 billion,
respectively. Besides, Arch Coal has secured the means of
deleveraging its debt in the event of a turnaround in the coal
Moreover, the company has no debt maturities until 2016 with
45% of its outstanding debt being payable beforehand by 2013.
However, Arch Coal's present leverage is higher than the
long-term target level.
The Zacks Consensus Estimates for the fourth quarter and full
year 2012 are currently pegged at a loss of 12 cents and 31 cents
per share, respectively. We expect the winter months to provide
some relief from the strong industry headwinds. Considering the
pros and cons, Arch Coal for the short term has a Zacks #3 Rank
Another coal major,
CONSOL Energy Inc.
), however holds a short-term Zacks#4 Rank (Sell rating) in view
of the continued softness in the metallurgical coal market
worldwide which will weigh down on CONSOL's profitability.
Based in St. Louis, Missouri, Arch Coal engages in the
production and sale of steam and metallurgical coal from surface
and underground mines located in the United States.
ARCH COAL INC (ACI): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
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