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James River shares continue to rise on debt deals

NEW YORK (AP) -- James River Coal Co. shares extended their rally Monday on news that the company reached deals to exchange about $243.4 million of existing debt for $123.3 million in new debt, pushing back the maturity of some of it by three years.

THE SPARK: The coal company said Friday that the notes to be exchanged include $90 million in 4.5 percent senior convertible notes due 2015 and $153.4 million of 3.125 percent senior convertible notes due 2018.

Those notes will be exchanged for $123.3 million of new 10 percent senior convertible notes due 2018. Once the deals take place, $51.2 million of the 2015 notes and $51.6 million of the 2018 notes will remain outstanding, the company said.

THE BIG PICTURE: The three-year delay in the maturity of some of the notes will help the Richmond, Va.-based company ride out tough market conditions for the coal industry.

Coal companies have struggled amid continued soft demand that has driven down prices, as many utilities turned to cheaper natural gas to run generators. Economic slowdowns overseas also have slowed the appetite for coal to make steel.

THE ANALYSIS: Sterne Agee analyst Michael Dudas backed his "Buy" rating for James River stock, saying that the move will reduce the amount of debt outstanding, give the company more time to pay off some of the debt and increase its financial flexibility.

But the deals also increase the company's annual cash interest expense by nearly $3.5 million, which Dudas said he thinks is manageable.

THE SHARES: Up 33 cents, or 14 percent, to $2.77 in afternoon trading, after jumping as high as $2.81 earlier in the day. Since announcing the debt exchange deal Friday, James River shares have gained about 24 percent. The stock is still down about 14 percent in the past year.