The deal cuts debt and gives Murray Energy more time to repay obligations, in return for a higher interest rate and more collateral, the company said in a statement. It comes as the U.S. Energy Department makes plans to exercise emergency authority to force grid operators to buy electricity from struggling coal and nuclear power plants.
Murray Energy bonds rose on the Trump news Friday and again on news of the debt swap on Monday. CEO Murray hailed the approach being considered by the administration as an “essential” effort in an email on Friday. The company, the largest closely held U.S. coal producer, has beseeched Trump to help keep alive a series of power plants that used its fuel, and whose operator is now bankrupt.
But credit analysts said the Trump administration’s efforts aren’t solid or detailed enough to determine whether they will help Murray Energy.
“It will be beneficial for the companies involved in the government action,” said Vania Dimova, a metals and mining analyst at S&P Global Ratings. But to tell whether Murray Energy will benefit, analysts would need to know which utilities are affected, whether those utilities are Murray Energy clients and how many tons of coal are included, she said.
“We can’t just say this is great for coal companies, we have to quantify it,” Dimova said.
Most industry watchers forecast that U.S. coal demand will fall in coming years as more coal-fired power plants close. CreditSights predicts a drop in demand of about 70 million tons, or about 9 percent of total 2017 production, between 2018 and 2026.
That long-term drop in demand should be a key consideration for coal bond investors now, said Spencer Cutter of Bloomberg Intelligence.
“Anything the Trump administration wants to do to support coal will likely be temporary, contradict the forces of a free market, and raise prices for the end consumer,” Cutter said. “As a creditor, I’m not sure I would want to bet on that strategy to get me repaid.”
Bondholders have agreed to exchange about 71 percent of the 2021 notes and term loan lenders have agreed to exchange about 61 percent of that principal, according to the statement.
The company has just over $1 billion of bonds maturing in 2021, so the more than 70 percent of the bondholders that have signed on could drop the looming maturity to around $300 million, ignoring deferred interest on the new securities. Similarly, the company’s term loan of about $1.8 billion due 2020 would drop to less than $900 million if around 60 percent of the term loan holders go through with the deal.
Under the exchange, current holders of 11.25 percent notes due 2021 will get 12 percent notes due 2024, according to the press release. The new debt will be supported by additional assets beyond those securing the prior borrowings, including Murray Kentucky Energy and Murray South America along with equity in Colombian operations and a marketing and trading firm called Javelin Global Commodities Holdings, according to the company’s statement. A company representative declined to comment beyond the press release.
(Written by Josh Saul and Molly Smith)