James River planning to raise $30 million in fourth quarter to pay down revolver

By Jennifer Lanning Drey

Portland, Ore., Nov. 2 - James River Coal Co. plans to raise about $30 million of capital through an equity security issue during the fourth quarter to improve the company's liquidity following nearly two years of margin compression, Peter T. Socha, chief executive officer of James River, said Friday during the company's third-quarter earnings call.

"We've come through that and now we can see light on the other side of the valley, but we've done that with a little more debt than we wanted and a little less cash than we wanted, and it's time to strengthen things up," Socha said.

James River had $11.0 million of available liquidity at Sept. 30. The amount consisted of $1.1 million of cash on hand and net availability under its revolving credit facility of $9.9 million.

The company's first priority for the proceeds from the equity issue will be to pay down its revolving credit facility, which Socha said has a balance of about $15 million. After paying off the revolver, James River will use the remaining proceeds to fund capital expenditures related to new safety regulations and changes to the company's mine portfolio and for general corporate purposes.

James River has not determined the type of equity security it will issue, although Socha essentially ruled out a debt-for-equity swap as not addressing the fundamental liquidity issue, during the question-and-answer portion of the call.

The company expects to close a transaction before the end of the year.

At the end of the third quarter, James River was in compliance with all of the covenants in its senior debt facility, which include a minimum liquidity requirement of $10 million. The company had total liquidity of $21 million.

James River posted $23 million of EBITDA for the nine months ended Sept. 30, above the $19 million required under the covenant. The company's leverage ratio stood at 3.7x at the end of the quarter, also meeting the required 4.5x maximum allowed under the agreement.

"Overall, we are very pleased with how some fundamental dynamics affecting our business are developing," Socha said in the company's earnings release.

During the call, Socha said the company's mines performed well during the third quarter and that coal prices have begun to rise after a prolonged slump.

Productivity continues to be the primary driver of cost trends, Socha said.

The company reported a $9.7 million third-quarter net loss, compared with an $8.4 million net loss in the 2006 period.

James River is a coal-mining and processing company based in Richmond, Va.

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