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Walter Extends Notes Offering

Zacks Equity Research

Walter Energy Inc. (WLT) announced an increase in the amount of their offerings to $450 million, 8.5% senior notes due 2021 from the previous $350 million in principal amount. The notes will be guaranteed by Walter Energy’s existing and future wholly owned domestic business wings.

Walter Energy intends to use the net gains from this offering to recuperate the $250 million of outstanding debt in its credit facility and the leftover for general corporate purposes. The company will pay the interest on Apr 15 and Oct 15 annually. The first interest will be given out on Oct 15th of this year.

The company often engages in notes offering primarily to pay down its existing debts. Earlier, in Nov 2012, Walter offered $500 million, 9.875% senior notes due 2020 to finance its outstanding debt as well as for general corporate purposes.

The company’s debt-to-equity ratio at the end of 2012 was substantially higher at 237.2% from 106.2% at year-end 2011. Moreover, the current offerings could further exacerbate the company’s debt burden, going forward.

The company’s financial position does not present a pretty picture either with operating cash flow declining 53.3% year over year to $330.0 million in 2012. Cash balance also witnessed a 9.2% drop to $116.6 million as of Dec 31, 2012 from $128.4 million at year-end 2011.

We apprehend that the continued softness in the U.S. economy could limit the growth opportunities at Walter Energy. Presently, the company carries a Zacks Rank #4 (Sell).

We presently prefer Zacks Ranked #2 (Buy) stocks Atmos Energy Corporation, (ATO), Vectren Corporation (VVC), and DTE Energy Company (DTE).

Based in Birmingham, AL, Walter Energy produces and exports metallurgical coal for the steel industry. It also produces thermal and industrial coal, anthracite, metallurgical coke, coal bed methane gas and other related products.

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