Arch Coal bonds sink in secondary on weaker 4Q shipment, production levels

Arch Coal bonds dropped as much as 1.5 points this morning after the company reported that lower-than-planned shipment levels and reduced production levels will negatively impact its fourth- quarter financial results, according to filings.

The company’s 7% notes due 2019 were quoted down 1.5 points, at 78.5-79.5, while the 7.25% notes due 2020 were also off 1.5 points, at 77.5-78.5, according to sources.

Arch Coal said its fourth-quarter 2013 shipment levels decreased by more than 15% from third-quarter levels in the Powder River Basin due to rail-service issues. In addition, fourth-quarter production at the Mountain Laurel complex in Appalachia decreased by 40%, versus third-quarter levels. As a result, the company said its full-year 2013 metallurgical coal sales volumes were slightly below the low end of its previous expectations.

Fourth-quarter earnings will be released on Feb. 4.

In the loan market, Arch Coal term debt due 2018 (L+500, 1.25% LIBOR floor) is essentially unchanged on the news, at 99.5/100. The paper has been grinding higher in recent weeks due to strong market conditions after the issuer last month placed a $300 million incremental loan at 98, proceeds of which were earmarked to help fund a cash tender offer for its $600 million of 8.75% notes due 2016.

S&P downgraded Arch Coal in early December to B, from B+, on weaker-than-expected sales and EBITDA targets in 2014 and 2015. The company recently extended its debt maturities and created more flexibility by tendering for its $600 million of senior notes due 2016 and amending covenants.

As part of that effort, the company priced a $350 million second-lien offering due 2019 on Dec. 12 at 8%, issued at par. Those notes were off half a point this morning, at 99.75-100.75, according to sources. – Joy Ferguson

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