July 7, 2016 - 4:10 AM EDT
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Murray Energy working to avoid bankruptcy

July 07--Murray Energy Corp. and its lenders have worked out a plan to keep it solvent as the company works to avoid filing for bankruptcy in two months' time.

Last week, Murray Energy, the nation's largest privately owned coal miner, told 4,400 employees -- more than 80 percent of its workforce -- that come September, they may be out of a job.

The St. Clairsville, Ohio-based company then added that "no layoffs are contemplated or expected at this time" and told its customers they can expect Murray to continue to mine and deliver their coal without interruption.

Murray called the mass warning on potential job losses a "precautionary measure to comply with this legal requirement" -- a reference to the federal WARN Act that requires employers to notify workers, state and local governments if there's the potential that an entire plant will be shut down or at least one third of a company's workforce may be affected by cuts.

But the move indicates the company may be headed for bankruptcy in the next two months, a path that other companies such as Patriot Coal, Peabody Energy and Alpha Natural Resources have used to shed debt and reorganize.

"The cut and dry of it is we have a plan to work with our lenders, with our customers and with the union in order to remain financially solvent," said Gary Broadbent, assistant general counsel with Murray.

The company has filed WARN notices in the past for individual subsidiaries -- for example, if it planned to close or downsize operations at a particular mine. In all of those cases, "Layoffs resulted each time," Mr. Broadbent said.

"This is the first time, however, that we have been forced to send such notices companywide," he said.

Putting an entire company on notice is a rare move, but one that has preceded every recent coal company bankruptcy, said Phil Smith, director of governmental affairs with the United Mine Workers of America.

"We've seen bankruptcy after bankruptcy after bankruptcy," Mr. Smith said. "I don't know that any coal company that's operating today isn't a few steps away from being in trouble."

The layoff announcement and associated WARN notices to government agencies came two days after United Mine Workers, a union representing about 1,500 of Murray's miners, voted down a contract that union leaders negotiated with the company last month.

The current union contract doesn't expire until Dec. 31. But there have been no more negotiations since the vote rejecting the proposed deal, and Mr. Smith said he didn't want to get anyone "fired up" that there would be.

Mr. Broadbent said the contract rejection wasn't the impetus for the notices.

Pennsylvania received two WARN notices on Wednesday -- one warning of up to 267 layoffs at the former Blacksville mine, now named Monongalia County Coal Co., which mines coal under the border of Pennsylvania and West Virginia, and another of 63 layoffs at Murray Transportation Co., the barge company formerly owned by Cecil-based Consol Energy Inc.

WARN letters went out to all Murray employees except for those who are part of Foresight Energy, a St. Louis-based publicly traded coal company in which Murray bought a significant stake last year for $1.4 billion. The acquisition plunged Murray into debt, and Foresight's financial troubles -- its stock has tanked and Foresight suspended its dividend last year -- has weighed on the Ohio coal miner.

Murray's 2013 acquisition of five Consol Energy mines and its transportation division for $3.5 billion also saddled the Ohio miner with $1.8 billion in employment obligations, such as pensions, worker's compensation and disability payments.

Credit rating agencies Moody's Investors Services and Standard & Poor's have cited these expenses during recent opinions. In April, Standard & Poor's downgraded Murray Energy's credit rating and gave it a negative outlook, predicting the company's liquidity (cash) would be further weighed down by its debt.

In February, Moody's Credit Rating Service downgraded Murray Energy to the lowest possible rating before default, citing the firm's debt obligations and the bleak outlook for the coal industry.

Moody's said Murray faces particular stress in its Northern Appalachian mines that compete with cheap natural gas from the Marcellus Shale for a shrinking piece of the power generation market.

Federal regulations have put the "U.S. coal industry in secular decline," Moody's wrote.

Moody's vice president and senior credit analyst Anna Zubets-Anderson said the recent layoff notices and contract rejection aren't likely to have an impact on Murray's credit rating because "there is really not much lower to go."

"The rating is already positioned to reflect high risk of default," Ms. Zubets-Anderson said.

Anya Litvak: [email protected] or 412-263-1455.

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Source: Equities.com News (July 7, 2016 - 4:10 AM EDT)

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