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Alpha Natural Resources: How To Make Nearly $2 Billion In Liquidity Disappear

how to increase liquidity


  • Alpha Natural Resources is reportedly seeking DIP financing. I had previously thought a 2015 filing was unlikely.
  • However, Alpha may end 2015 with under $500 million in liquidity due to potential covenant issues, lower realized coal prices and spending money to buy out its JV partner.
  • If it doesn't want to sell its Rice Energy stake, then the amount of available liquidity is lowered. The self-bonding issue may threaten liquidity as well.
  • Although Alpha does retain the capacity to continue operations into 2016 without filing, the rate of cash burn plus committing to 2016 tonnage at low prices may prompt the filing.
  • Its Appalachian mine gross margins may turn negative in 2016.

There have been reports that Alpha Natural Resources (NYSE:ANR ) is in talks to receive DIP financing to see it through a potential bankruptcy filing in August. I had previously believed that Alpha Natural Resources wouldn't file until 2016 at the earliest even with weaker metallurgical coal prices, so it is worth looking at what may have changed with Alpha's situation.

It is not a foregone conclusion that Alpha will file for bankruptcy soon. However, it appears that Alpha is certainly considering it as a serious possibility .

From reviewing Alpha's financial situation again, it appears that Alpha still should have enough liquidity to operate into 2016, but with metallurgical prices falling lower

and Appalachian thermal coal prices also falling, perhaps management has given up hope on avoiding a Chapter 11 filing. Certainly some of its actions (paying cash to buy out its natural gas joint venture partner and not selling its Rice Energy stake as far as I know) appear to be that of a company that isn't intending to try everything to avoid bankruptcy.

Alpha started 2015 with approximately $2.2 billion in liquidity, but is on track to possibly end 2015 with less than $500 million in liquidity depending on what happens with its credit facility.

2015 Gross Margins

It appears that Alpha's 2015 coal gross margins are likely to be significantly reduced by the fall in Appalachian thermal coal prices and the fall in metallurgical coal prices. Alpha had 87% of its Eastern Steam coal priced and committed in April at $54.81 per ton, along with 75% of its metallurgical coal at $78.67 per ton. However, with 2015 prices for Appalachian thermal coal falling to the low to mid-40s and Alpha's metallurgical coal perhaps only fetching $60 per ton in the current market environment, realized prices could be quite a bit lower for 2015. This would reduce Alpha's coal gross margins to $86 million during 2015. That assumes that Alpha reaches the midpoint of cost guidance as well, which may be questionable given Q1 Eastern production costs and Alpha's comments on Q2 Eastern production costs.

Category: Bank

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