Arch Coal improves as company narrows loss; Peabody inches up as top executives slash salaries

By Stephanie N. Rotondo

Phoenix, April 21 – Distressed debt investors were focusing on Arch Coal Inc. on Tuesday after the coal producer reported a narrower first-quarter loss.

One trader deemed the 7% notes due 2019 as “active,” seeing the issue rising over 1½ points to 23 5/8.

The trader also saw the 8% notes due 2019 at 43, which he said was off almost a point.

Another trader said Arch bonds “traded up 1½ to 2 points,” placing the 7% notes in a 23½ to 24 context.

For the recently ended quarter, Arch reported a net loss of $113.2 million, or 53 cents per share. That compared to a loss of $124.1 million, or 59 cents per share, the year before.

Revenue fell 8% to $677 million.

However, margin improvements resulted in EBITDA of $82 million, versus $28 million in the same quarter of 2014.

Negative free cash flow was $27 million – better than the $86 million posted a year ago.

The St. Louis, Mo.-based company has cut costs to weather a downturn in the coal markets. But without any relief in sight, Arch opted to lower its 2015 thermal coal production forecast to 120 million to 130 million tons, down from previous estimates of 124 million to 136 million tons.

Arch also lowered its metallurgical coal production guidance to 6 million to 6.8 million tons, which compared to previous forecasts of 6.3 million to 7 million tons.

Though there were some bright spots in the earnings release, Evan Mann, an analyst with Gimme Credit LLC, remained cautious.

“Liquidity should remain adequate over the near term, but using cash to fund free cash flow shortfalls will diminish [the company’s] ability to repay debt and reduce leverage down the road,” Mann wrote in an afternoon comment published Tuesday. “And discussions with the banks this year won’t be easy. If a meaningful coal market recovery doesn’t materialize by the end of 2016, liquidity is likely to be a significant issue by 2017.”

Peabody execs cut pay

Elsewhere in the coal market, Peabody Energy Corp.’s debt got a slight boost on news the company’s top executives are taking pay cuts to deal with the struggles within the industry.

A trader saw the 6¼% notes due 2021 closing up a quarter-point at 61½. Another market source called the 6½% notes due 2020 1¼ points better at 63¼ bid.

A third trader saw the 10% notes due 2022 in an 85 to 85½ zip code, while the 6% notes due 2018 ended at 76 bid, 76½ offered.

“The bonds were up a touch,” the third trader said.

Peabody announced that Gregory Boyce, chief executive officer, and Glenn Kellow, chief executive-elect, will reduce their annual salaries for the remainder of the year.

Boyce – who will move into an executive chairman position on May 4, when Kellow takes over the CEO spot – will see his $1.23 million per year salary reduced to $1.1 million from May 1 to June 30, and then to $810,000 from $900,000 from July 1 through the end of 2015.

Kellow’s base pay will meantime decline to $855,000 from $950,000 beginning May 1.

The St. Louis, Mo.-based company is slated to release its earnings on Thursday.

© 2015 Prospect News.
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