Walter Energy fighting to stay afloat financially

Company must make major deadline by Friday

Walter Energy Inc., which owns this and several other mines near Brookwood, faces an uncertain future as it struggles to meet critical financial deadlines this week.
File | The Tuscaloosa News

By Patrick Rupinski
Business Editor

Published: Sunday, May 10, 2015 at 3:00 p.m.

Last Modified: Sunday, May 10, 2015 at 3:27 p.m.

This week could be pivotal to the future of one of West Alabama's largest employers, Walter Energy Inc., as it moves to meet a Friday deadline to make a major debt payment. But even if the payment is made — as the company said it would do last week — Walter Energy's still faces an uphill battle.

The Hoover-based company owns Jim Walter Resources, which operates underground coals mines near Brookwood and employs more than 1,000 people in Tuscaloosa County. Walter Energy also has and other coal mines, coal-related facilities and methane gas operations in the state with most of that concentrated in central West Alabama and Jefferson County. Most of its operations and employees are in Alabama but the company also has coal mines in West Virginia Canada and the United Kingdom.

So why is this week crucial to the company?

On April 15, Walter Energy missed interest payments on on its 9.5 percent senior secured notes due 2019 and its 8.5 percent senior notes due 2021. Under the terms of the notes, the company has a 30-day grace period, which it invoked. During that time, it could renegotiate a payment plan with the creditors or come up with other means to make the payment.

The 30-day grace period ends this Friday.

On Thursday, Walter Energy issued a statement saying "that on May 15, it will be making interest payments under its indenture agreements with the holders" of the two affected senior notes.

It said it invoked the 30-day grace period "as it worked with its debt holders to explore alternatives to recapitalize its balance sheet in light of what has been a challenging met (metallurgical) coal pricing environment. The company will continue to engage in such discussions said.

The statement also said Walter Energy "does not have a current liquidity issue, as it had approximately $435 million of cash and investments as of March 31, 2015."

A Walter Energy spokesman said Friday that the company had no comment beyond the released statement.

Walter Energy is a major producer of metallurgical coal, which is used in steel making. The global demand for such coal now is down as is the price paid such coal, which has hurt the company's bottom line.

Wall Street speculation on whether Walter Energy would make the required interest payment by the end of this week increased after Walter Energy released its first quarter results on Tuesday.

The quarterly financial report noted continuing losses. The filing with the U.S. Securities and Exchange Commission also said that recent events "raise substantial doubt about our ability to continue as a going concern."

In the 43-page quarterly filing, the company said:

"On May 15, 2015, if the interest payment default is not cured, the default would be considered an event of default and all outstanding notes will become due and payable immediately without further action or notice. An event of default would also trigger cross defaults in the company's other debt obligations."

That could result in the debt holders demanding immediate payment and result in a bankruptcy reorganization filing, it said.

At the end of its first quarter on March 31, Walter Energy said it "had approximately $3.1 billion in principal amount of term loans, senior notes, capital lease obligations and equipment financing obligations outstanding." 

Stock market analysts who follow publicly traded company, have warned for months that Walter Energy could file for bankruptcy reorganization this year.

Walter Energy acknowledged that possibility in its first quarter filing.

"Over the course of the last three years, our results of operations, including our operating revenues and operating cash flows, have been negatively impacted by weak coal market conditions, depressed metallurgical coal prices, reduced steel production and global steel demand. Our cash flows from operations were insufficient to fund our capital expenditure needs for 2014 and 2013, and we expect this trend to continue in 2015. If market conditions do not improve, we expect our liquidity to continue to be adversely affected," it said.

For the short-term, the global demand for coal — particularly the metallurgical coal used in steelmaking and primary coal coming from the company's West Alabama mines — is expected to remain depressed during 2015, with a modest recovery expected in early 2016, Walter Energy said, citing a global report on coal demand.

It said "demand for our premium metallurgical coal products in core markets has remained steady, and we believe that the long-term demand for our metallurgical coal within all of our markets to be strong as industry projections indicate that global steel making will continue to require increasing amounts of high quality metallurgical coal. 

"As such, we are focused on the long-term metallurgical coal market. We remain committed to aggressively controlling costs, improving operating performance and productivity, reducing expenses and increasing liquidity. Although we have responded to the deterioration in market conditions by curtailing, and in some cases idling, higher-cost and lower-quality coal mines, which include our Canadian operations, we have the capability to increase our metallurgical coal production when the market rebounds to take advantage of potential opportunities in this highly volatile market."

Walter Energy's stock closed Friday at 46 cents per share. Its 52-week high was $7.08 per share and its 52-week low of 30 cents occurred last week.