St. Louis based coal company Arch Coal Inc. announced that it will offer 9.875% senior notes worth $375 million due 2019. The interest is payable on the 15th of June and December each year. The yield-to-maturity from this issuance is set at 10.75% with the first interest scheduled for June 15, 2013.
The offering was increased to $375 million from the initially announced $350 million on strong investor demand. The offering of notes is expected to be completely guaranteed by Arch Coal and its key business wings under the company’s senior secured credit facility.
Arch Coal’s debt-to-equity ratio at the end of the third quarter 2012 was 141.1%, which rose sharply from 105.2% at year-end 2011. Interest expenses of the partnership in the third quarter 2012 were $74.3 million which could increase in the following quarters with the currently proposed issuance.
The company is often engaged in issuance activities for the purpose of financing its debt obligations and for meeting capital requirements. Previously Arch Coal’s subsidiary, Arch Western Finance, LLC, successfully redeemed all of its $450 million, 6.75% senior notes due 2013.
The partnership’s long-term debt level as of September 30, 2012, was $4.5 billion, up from $3.8 billion at the end of December 2011. Standard & Poor Rating Services and Fitch’s have assigned B+ and B ratings, respectively, to the notes implying skepticism regarding the company’s ability to meet its financial commitments depending upon the current economic environment. However, a strong liquidity profile should help the company in weathering the tough U.S. market conditions.
The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at a loss of 12 cents and 31 cents per share, respectively. Arch Coal’s closest peer, Consol Energy Inc. (CNX - Analyst Report), is expected to remain stable with its low-cost coal operations and hardened focus on expansion of its natural gas business.
Arch Coal has a short-term Zacks #3 Rank (Hold rating). It engages in the production and sale of steam and metallurgical coal from surface and underground mines located in the United States.