Arch Coal debt was mixed today after the company posted a wider-than-expected loss, but better-than-expected revenue for the third quarter as it continues to face depressed pricing amid challenging conditions in the sector.
Arch Coal’s senior notes have sold off considerably over the past several weeks and remain close to record-low levels. The 7.25% notes due 2020 are down five points from before the earnings release, at 46/47, and are significantly lower than where the notes were trading in the mid-70s when it reported its second-quarter earnings in July. The 7.25% due 2021 bonds meanwhile are down a point, at 38.5, versus the high 60s in July.
In contrast, Arch Coal’s covenant-lite B term loan due 2018 (L+500, 1.25% LIBOR floor) edged up a quarter of a point, to 87.75/88.75. The loan traded in the 98 context around the time of the company’s second-quarter earnings release.
The St. Louis-based company said that net loss narrowed to $97 million, or $0.46 per share, from $128.4 million, or $0.61 a share in the prior-year quarter. According to analysts surveyed by Zacks, the results did not meet Wall Street consensus estimate of a net loss of $0.41 per share.
Quarterly revenue, meanwhile, came in at $742 million, above street forecasts of $711.1 million, according to Zacks.
The company expects to end the year with approximately $1 billion in cash and short-term investments, which coupled with the fact that it has no meaningful debt maturities until mid-2018, “provides Arch with the financial flexibility needed to navigate current coal market conditions,” said Arch’s CFO John Drexler in a statement.
This improved liquidity position and the fact that its senior notes are now trading in the sub-50 level prompted increased speculation on its earnings call that Arch Coal may look to deleverage and take out its most covenant-restrictive 2020 bonds.
Arch Coal’s representatives did not categorically dismiss the idea should the opportunity present itself, but emphasized its current plan to preserve liquidity to ride out the current conditions in the commodity sector.
Company representatives however said that they believe the current coal market conditions are “in the process of bottoming out,” but they remain conscious on prices.
“We are adequately prepared in case coal recovery is delayed,” said chief operating officer Paul Lang.
Arch’s cash margin per ton increased quarter-over-quarter by 24% in the Powder River Basin and 7% in the Bituminous Thermal segment. That margin expansion helped offset lower cash margin per ton in Appalachia in the third quarter, which stemmed the previously announced idling of Cumberland River as metallurgical coal prices headed toward a six-year low.
For the first nine months of 2014, Arch generated adjusted EBITDA from continuing operations of $164 million, versus $218 million in the prior-year period. – Rachelle Kakouris
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