Fitch Downgrades Arch Coal's Sr. Secured Credit Facilities to 'B-/RR2', 2nd Lien Notes to 'C/RR6'
CHICAGO, Sep 30, 2015 (BUSINESS WIRE) -- Fitch Ratings has taken the following rating actions on Arch Coal, Inc. (Arch Coal; NYSE: ACI):
--Issuer Default Rating (IDR) affirmed at 'C'; --Senior secured revolving credit facility downgraded to 'B-/RR2' from 'B/RR1'; --Senior secured term loan downgraded to 'B-/RR2'from 'B/RR1'; --Second lien secured notes downgraded to 'C/RR6' from 'B-/RR2'; --Senior unsecured notes affirmed at 'C/RR6' from 'C/RR5'.
Roughly $5.4 billion in principal amount of debt and commitments are affected by this action.
The downgrade follows Fitch's assessment of lower recovery values for coal assets in light of recent transactions and prospects for prolonged weakness.
Fitch downgraded Arch Coal's IDR on July 6, 2015 to 'C' following announcements of exchange offers which Fitch considers Distressed Debt Exchanges (DDE) in accordance with Fitch's DDE criteria.
My ACI puts were bought some weeks back, are OTM, but will give me 5x the price if ACI files by January. I agree - ATM options make no sense (except for those puts I bought when ACI hit $10 - true!)
ACI could easily file for BK in the next few weeks. It's a matter of survival.
BTU will likely stay in business, but with share dilution from debt swaps. It's a matter of valuation.
If ACI is not able to pull off its debt exchange, it will tank and take BTU with it for a while. Buying Opportunity.
If ACI does pull it off, it will spike and BTU will also do better as it has less serious liquidity concerns.
I am long ACI puts and BTU calls.
Obviously there's a lot of traders who expect BK after the current deadline expires. Today October $0.50 strike puts traded at $0.05. I bought January $1 strike puts at $0.20-25 about ten days ago. Tried to get more today at $0.30 - no luck. Game on!
There is a gap to fill down to about $1.50. Should not take too long once BK or huge dilution are recognized as the only options.
ACI debt holders will get most of the equity upside if they agree to revise terms. Look for converts in volumes that will overwhelm the current share count. No way they give up debt positions and allow existing shareholders to reap the benefits.
If you want to buy January puts at a strike of $1, i.e. DOWN $7 from here, you have to pay at least $0.20. What does that tell you about confidence in the recent run up?
My point is that it seems inconceivable that a number of shorts would not have been covered since the last SI report. But I get your point with the bondholders. Fun, isn't it?
Today was an exceptionally slow day, but if you look back a year ago the average daily volume was around 7 or 8 million. The recent months have been huge as "coal panic" took hold. IMO the real bonus for longs is that any remaining shorts will find it more difficult to cover their positions. At a daily volume of 6 million shares (3 million buys, and 3 million sells), it would take almost five weeks to cover 100 million shorted shares - ASSUMING EVERY BUY WAS TO COVER! I am not saying there are still 100 million shares short, but whatever the number, those "piggish" remaining shorts have to be worried.
I cannot find a solvent issuer whose bonds are trading at a lower price than Arch Coal. At $0.10 on the dollar, they are trading at a much higher yield than Peabody, Sandridge and others who are widely considered as candidates for bankruptcy. The market cap (common shares) is only $30million - down 98% from the peak. Alpha Natural has a market cap of $7million - and it's already in bankruptcy!
Would one of you optimists out there please explain how the market could have things so wrong? How is it that the market has oversold the debt and shares to the point of leaving $100s of millions on the table? There are thousands of investors who could buy all the shares at 2x the current price. But nobody is stepping up.
If you say you are bullish,but can't answer this question sensibly, then IMO you have some unseen agenda.
I would have thought we'd get a PR this morning. A report on the exchange offer and Fridays deadline is due. Whatever is going on, it appears no resolution has been reached.
If you want to get a preview, go to the whalewisdom website and you can get to a table of 13/f filers for BTU which shows big buyers. Monday we should have all the numbers.
Example: Steadfast Capital Management - new position - 8.94mn shares, Maybe they bought a block from Balyasny.
balyasny asset management 13f
and click on whalewisdom (no kidding)
Go to 13f holdings summary / see all holdings
Did you ask why their bonds trade at under $10, and why the market cap is only $27million?
That report was put together by a group of Portuguese business students for a competition run by The Economist. They were sponsored by a US hedge fund known to be a major short-seller. The conclusion was that BTU would go bankrupt in a few years if it did not do something different. The paper was written before the successful debt exchange, and progress on cost-cutting.
Nice try, shortie.