Fitch: Peabody Pushes US Metals/Mining Loan Default Rate to 29%

NEW YORK--(BUSINESS WIRE)-- Today's bankruptcy filing by coal producer Peabody Energy boosts the trailing 12-month (TTM) US institutional leveraged loan default rate in the trouble metals/ mining sector to 29% from 25% and the overall loan market TTM default rate to 1.9%, Fitch Ratings says. Approximately $8.4 billion of loan and bond debt is affected.

The high yield bond April TTM metals/mining rate will climb to 20% from 14.6% while the overall rate will hit 3.9%. In addition, the coal subsector TTM default rate will approach 70%.

Recovery prospects for unsecured notes are poor, based on market bid prices of about $0.05 as a proxy for ultimate recovery rates. Peabody fully drew down on its $1.65 billion revolving credit facility on Feb. 9, 2016, which further subordinated the unsecured notes within the capital structure. The $1.2 billion term loan was bid at $0.38375 and the second lien notes were trading a $0.06625. The below average loan bid and poor bond trading price are indicative of the low current valuations in the adverse operating environment.

Peabody filed for bankruptcy in the face of a wide range of challenges including: high debt balances following the 2011 acquisition of Macarthur Coal; competition from cheap natural gas and high coal and natural gas stocks in the United States; weak seaborne coal markets in the Asia Pacific markets; and sticky capital expenditures that led to cash burn and reduced liquidity. The debt-laden capital structure became unsustainable as cash flows worsened and access to capital markets evaporated.

A planned asset sale to privately held Bowie Resource Partners fell through in February 2016 when the buyer was unable to complete financing and Peabody did not realize the expected boost to liquidity. Asset sales in the beleaguered mining sector are difficult given the coal market imbalance of supply, secular decline and a lack of financially sound strategic buyers.

Recent Chapter 11 filings by other US coal companies alleviated their debt burden while reducing interest expense and other costs, and it made increasing sense for Peabody to follow in their footsteps. Bankruptcy filings by leveraged coal miners included: Arch Coal (January 2016), Alpha Natural Resources (August 2015), Walter Energy (July 2015) and Patriot Coal (May 2015).

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160413006085/en/

Fitch Ratings
Sharon Bonelli
Senior Director
Leveraged Finance
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Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
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Eric Rosenthal
Senior Director
Leveraged Finance
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Source: Fitch Ratings

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