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Must-know: Walter Energy extended lifeline by refinancing debt

Mayur Sontakke

Being a pure play met coal producer isn't good for Walter Energy (Part 7 of 9)

(Continued from Part 6)

Walter Energy extended it’s lifeline

With mounting losses, Walter Energy (WLT) has adopted refinancing of restrictive debt as a strategy to build liquidity and stay afloat. However, it ‘s doing so at a higher rate which will result in higher interest payout and in turn, lower net income or higher net loss.

The company issued $200 million 9.5% add-on senior secured notes and $350 million in senior secured payment-in-kind notes to replace $407 million outstanding term loan carrying interest of London Interbank Offer Rate (or LIBOR)+550bps in March, 2014. A one month LIBOR denominated in the U.S. currently stands at 0.16% making the retired loan much cheaper at less than 6%.

While the majority of the debt proceeds were used to repay existing term loan and paying issuance costs, the remainder was used to boost liquidity. The debt now stands at $2.9 billion—the same as of December 31, 2014.

Other major coal producers (KOL) like Alpha Natural Resources (ANR), Peabody Energy (BTU), and Arch Coal (ACI) also got entangled in debt after leveraging themselves by acquiring mining assets at much higher price in 2011 when the times were good. However, other players are in better position to survive because they produce mix of thermal and metallurgical coal and have higher liquidity.

We have decoded the performance and the financial position of the company so far. We’ll look at the Wall-Street’s reaction to Walter Energy’s earnings in the next part of the series.

Continue to Part 8

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