Banks Wary of Investing in U.S. Coal

first_imgBanks Wary of Investing in U.S. Coal FacebookTwitterLinkedInEmailPrint分享Taylor Kuykendall for SNL:Just as investors are shying away from the risks of the coal market, banks have been selective about who they lend money to in the coal space, a panel of investors said at the recent 24th Annual Coal Properties and Investment Conference hosted by Platts. In addition to tightened environmental regulations and a shale gas revolution that has crippled coal’s competitiveness in the U.S., many large coal firms are also hobbled with large debt loads from purchasing expensive metallurgical coal properties before demand shriveled in that market.“They really ignored valuation metrics during this process,” said Raymond McCormick, a managing director of Headwaters MB. “They really put on an immense amount of debt, right at the highest prices of the marketplace.”Though it is not quite so gloomy for coal in other countries, McCormick said, in the U.S. “there’s essentially little to no access to capital markets” for coal companies. The trend may be showing up in a deal between Peabody Energy Corp. and Bowie Resource Partners LP. Though an agreement to sell assets to Bowie was reached, there have been rumors Bowie was not able to secure financing and may be backing out of the deal. Peabody has suggested failureto execute the deal could trigger default.If Peabody were forced to seek bankruptcy protection, it would be the largest of the coal giants to do so in recent months. Alpha Natural Resources Inc. filed bankruptcy in 2015 and Arch Coal Inc. filed early in 2016.“Most coal companies are not generating cash these days,” McCormick said. “They’re looking to manage capital and reduce capital expenditures.”Jerrod Freund, a managing director with Deutsche Bank, said the primary thing investors are looking for is where exactly a coal asset sits on the cost curve and how sustainable that structure may be. Access to capital in the future, he said, will depend on the evolution of the coal market, something difficult to predict.“Ten quarters ago, we thought this downturn was going to last a quarter or two,” Freund said. “It just got significantly worse than anyone expected it to. Who knows how long it will bump along the bottom before there’s material uptick?”As a result, investors that do want to get involved with the coal industry are doing so after extensive research.“Equity investors that are looking at coal are looking at contracts and saying am I going to get my money back? Almost like a debt investor,” Freund said. “It’s the first time I’ve seen such a conversion of how diligence is performed and how they are viewing investment. You’ve just seen a bloodbath of billions and billions of equity and debt.”McCormick said the average investor is looking at coal companies at a granular level, going mine by mine and closely examining the company’s customers before jumping into coal investments. The panel also discussed that, in some cases, investors want to know all about the company — even down to conditions included in coal leases and utility contracts — before they will put any money into the sector.Full article: Investors examine capital options in wake of coal’s equity, debt ‘bloodbath’last_img

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