Moody's rates Arch Coal notes B1

Moody's Investors Service said it assigned a B1 rating to Arch Coal Inc.'s proposed $500 million senior unsecured notes issue due 2020 and affirmed its Ba3 corporate family rating.

The company recently announced its intention to use the net proceeds from the offering and cash on hand to fund the repurchase or redemption of $500 million aggregate principal amount of Arch Western Finance's outstanding 6¾% senior notes due 2013. Moody's also affirmed the B1 senior unsecured rating of Arch Western Finance.

The outlook remains stable.

The ratings reflect high financial leverage, high ongoing capital expenditures, including spending needed to acquire reserves in the Powder River Basin, Moody's said, and the considerable dependence on one mining complex, Black Thunder.

The rating also considers the inherent volatility in coal prices and the embedded geological and operational risks of coal mining, the agency said.

Strengths include Arch's large reserves and production base, relatively stable operating profile, anticipated strong free cash generation in 2010 and its low-cost surface mining operations in the Powder River Basin, Moody's added.

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