Walter Energy bonds hit fresh lows today after the company told investors that it plans to flip the switch and pay half of the Oct. 1 interest due on its PIK toggle bonds with additional securities instead of cash. The 11% second-lien PIK toggle notes due 2020 slumped around three points to a new low of 48/50, according to sources.
The uniquely structured 11%/12% partial-PIK toggle bond issue offers the issuer the choice to pay 100% in cash; at 50/50% cash/PIK; or at 75/25% cash PIK.
The company said in a filing late yesterday that it has elected the 50/50 option, and said the same will apply for the April 1 coupon, despite assurances from CEO Walter J. Scheller III during its quarterly earnings call in July that there were “no liquidity concerns in our company at this point.”
Walter Energy – which according to Nomura analysts has been burning cash at a rate of approximately $170 million a year – will save approximately $10.5 million by exercising this option.
Elsewhere in the capital structure, the company’s covenant-lite B term loan due 2018 (L+625, 1% LIBOR floor) slipped one point, to 89.5/90.5, for a net three-point loss week over week, while first-lien 9.5% notes due 2019 followed the same tack, to 90.25/91.25, according to sources. In unsecureds, the 9.875% notes due 2020 and 8.5% notes due 2021 tumbled roughly four points, to the high-20s, for an approximate net 11-point decline on the week, sources noted.
As reported, bonds backing Walter Energy initially hit a record low last week as concerns continued to mount over the company’s significant debt load and worsening fundamentals in the U.S. thermal coal market. (See “Arch Coal, Walter Energy fall to record lows on coal demand warning,” LCD News, Sept. 18, 2014).
Standard & Poor’s, which rates Walter Energy CCC+ with negative outlook, in its most recent rating report said it believes that the company’s debt burden is “unsustainable, adding that they view Walter Energy’s liquidity as “less than adequate.”
Moody’s rates the company Caa2 with stable outlook.
NYSE-listed Walter Energy produces metallurgical coal for the global steel industry, and also provides steam coal and industrial coal, anthracite, metallurgical coke, and coal-bed methane gas. The company trades under the symbol WLT, with an approximate market capitalization of $188 million. – Rachelle Kakouris