S&P Cuts Corp. Credit Rating on Arch Coal (ACI) to 'CC'; Reflects Unsecured Senior Debt Exchange Offer

Key Points:

• U.S.-based coal producer Arch Coal Inc. has announced a private debt exchange offer for its senior unsecured debt.
• In our view, holders of the unsecured notes will receive compensation that is substantially below the original principal amount.
• We are lowering our corporate credit rating on the company to 'CC' from 'CCC+'. At the same time, we are lowering our issue-level ratings on the company's senior unsecured notes to 'CC' from 'CCC-'.
• The negative outlook reflects the possibility that we would lower the corporate credit rating to 'SD' (selective default) and the ratings on the affected issues to 'D' after the exchange is completed.

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Arch Coal (NYSE: ACI) to 'CC' from 'CCC+'. The rating outlook is negative. At the same time, we lowered our issue-level ratings on the company's senior unsecured notes to 'CC' from 'CCC-'. The recovery rating on the notes remains '6', which continues to reflect our expectation for negligible (0% to 10%) recovery in the event of a conventional default. The issue-level ratings on the senior secured debt remain unchanged.

The rating action reflects Arch Coal's July 3, 2015 announcement of a private debt exchange offer for its senior unsecured debt. We are lowering our corporate credit rating on the company and issue-level ratings on its senior unsecured debt because we view the related transactions to be distressed, according to our criteria. This determination is based on the company's financial condition and the significant discounts associated with the exchange offer.

"We intend to lower the corporate credit rating to 'SD' and the affected issue-level ratings to 'D' on completion of the exchange offer," said Standard & Poor's credit analyst Chiza Vitta. "Subsequently, we would assign a corporate credit rating and outlook that would reflect the new capital structure."

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