S&P Upgrades Cloud Peak Energy (CLD) to 'B-'; Outlook is Negative
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S&P Global Ratings said today it raised its corporate credit rating on Cloud Peak Energy Resources LLC (NYSE: CLD) to 'B-' from 'SD'. The outlook is negative
At the same time, we raised the issue-level rating on Cloud Peak's $300 million senior unsecured notes due 2019 and its $200 million senior unsecured notes due 2024 to 'CCC' from 'D' with recovery rating unchanged at '6', reflecting our expectation of negligible (0% to 10%) recovery in the event of a conventional default.
Our 'B-' issue-level rating on the company's $290 million second-lien notes due 2021 is unchanged with a '3' recovery rating, reflecting our expectation of meaningful (50% to 70%, lower half of the range) recovery in the event of a conventional default..
"The negative outlook reflects the weak operating performance and the uncertainty of the company's ability to generate positive operating cash flow in the next 12 months," said S&P Global Ratings credit analyst Vania Dimova. "We do not rule out the possibility of further decline in cash flows if the domestic demand continues to deteriorate due to continued volume rationalization and increased competition from stronger players emerging from bankruptcy."
We could lower the rating if the company's liquidity position becomes less than adequate (including breaching its minimum liquidity covenant) or leverage increases above 8x. This could happen if adjusted EBITDA drops below $75 million in 2017.
We consider an upgrade unlikely at this time, given lower production guidance coupled with weak thermal coal market conditions for the next 12 months. However, we could consider an upgrade if the company increases its operating diversity while consistently maintaining debt to EBITDA of less than 5x and FFO to total debt above 20%.
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