Murray Energy Announces Temporary Debt Relief, Signaling Financial Distress
By Brad McElhinny
October 3, 2019 - Murray Energy, a force in West Virginia coal and politics, is signaling financial concern.
The company announced on Wednesday that it struck a deal with its major lenders after missing debt payments that were due at the end of September.
That gives the company some breathing room from lenders exercising their legal right to foreclose on debt.
The forbearance agreements extend until just before midnight Oct. 14. It’s possible the agreements could be extended.
Murray Energy said the agreements will buy the company time to assess its options.
“The forbearance agreements are expected to allow Murray Energy to continue discussions with its lenders about various strategic options to strengthen the Company’s business, improve its liquidity position, deleverage its balance sheet, and achieve a more sustainable capital structure that supports the Company’s long-term business plan and results in long-term value generation for the benefit of its employees, customers, vendors and other key stakeholders,” the company stated.
Murray Energy produces 76 million tons of high quality bituminous coal each year, and employing nearly 7,000 people in six states, and Colombia, South America.
The company operates 15 active mines in five regions in the United States.
Several of the company’s mines — five in West Virginia and one in Alabama — are represented by the United Mine Workers of America.
“I think it’s bad,” United MIne Workers President Cecil Roberts said today on MetroNews’ “Talkline,” citing concerns about what might happen with health insurance coverage for workers.
Roberts pointed toward lower demand in energy markets for coal.
“The market is shrinking dramatically in the United States,” Roberts said.
The forbearance agreement is a sign of financial trouble but doesn’t necessarily mean bankruptcy is imminent, said Taylor Kuykendall, energy reporter for S&P Global Market Intelligence. He said the company has other options for financial relief, including refinancing, outside bankruptcy.
“This is the third largest coal company in the U.S. and if they were to file for bankruptcy they would be among the last largest companies to do so,” he said. “If Murray can’t make it, that would be huge.”
Murray Energy, like other coal companies, has been affected by declining prices for thermal coal brought on by decreased demand from power plants that are increasingly turning toward other energy sources such as natural gas, Lucas Pipes, a coal analyst with B Riley FBR Inc., told Bloomberg.
“You can’t make payments out of thin air if the money isn’t in the bank,” Pipes told the business publication.
Eight major U.S. coal producers have filed for bankruptcy since November 2017, including five this year.
Murray Energy chief executive officer Bob Murray has been an active backer of conservative politics, both in West Virginia and nationally.
Bob Murray personally hosted a fundraiser in July for President Donald Trump in Wheeling, near the company’s St. Clairsville, Ohio, headquarters.
Some federal options to provide financial relief for coal companies — including a proposal frequently backed by Gov. Jim Justice to push coal purchases in case of national emergency to assure supply to the energy grid — have not moved forward.
Murray was critical of the Federal Energy Regulatory Commission for its rejection of a rule that would have subsidized coal and nuclear power plants.
In West Virginia, legislators passed a bill last year to lower the severance tax on steam coal from 5 percent to 3 percent over a period of years.
The change will amount to a $60 million reduction of state revenue in the third year.
But Governor Justice, signing the bill at a Harrison County mine owned by Murray Energy, said the tax cut would help coal companies and the miners they employ.
Without such a tax decrease, Justice said at the signing ceremony, there would be a risk of some companies closing their doors.
“If they decide they’re not going to do anymore, then you know what happens? 55 companies declare bankruptcy,” he said. “We can’t do without these jobs. There’s no way around it. The multiplier effect of a coal miner’s job is astronomical. At the end of the day, we need to do everything in our power to preserve it, and that’s what I’m trying to do.”