Seeking Alpha
Long/short equity, contrarian, research analyst, portfolio strategy
Profile| Send Message|
( followers)  

Shares of the major coal companies, Alpha Natural Resources (NYSE:ANR), Peabody Energy (NYSE:BTU), Arch Coal (NYSE:ACI), Patriot Coal (PCX), James River Coal (JRCC), and Consol Energy (NYSE:CNX) all moved higher Wednesday following news that Alpha Natural Resources has amended its credit facility.

(click to enlarge)ANR ChartANR data by YCharts

Broad Market Rally

It should be noted that the broad market indices are all higher and are likely helping coal stocks higher.

Why Alpha Natural Deal Is Bullish

The deal by ANR is bullish for the sector because it indicates that other names in need of debt restructuring might be able to get it without entering bankruptcy. This is especially true James River Coal and Patriot Coal as they are probably most in need of a debt deal. It should be noted that JRCC and PCX moved up most on the news.

Short Interest

The short interest across the coal sector is very high as market players have been betting that weak market conditions coupled with high debt would lead to bankruptcy for some companies.

ANR: 9%

JRCC: 50%

PCX: 26%

ACI: 24%

CNX: 14.5%

BTU: 3%

If banks continue to show a willingness to work with coal companies to restructure debt, the stocks could move higher as the threat of bankruptcy abates.

My Take

Wednesday's news on ANR is certainly a good sign for other coal companies with a debt problem. However, it does not guarantee that other companies will be able to reach such deals as each deal is done on an individual basis. Additionally, troubled dry bulk shipper Eagle Bulk Shipping (NASDAQ:EGLE) recently reached a deal to extend the maturity of its debt. The ANR news along with the EGLE news might be the beginning of a trend for financially troubled companies getting debt amendments. However, I would not speculate on such companies as the risk is simply too high relative to the reward. It should also be noted that a debt deal is not a panacea for troubled companies. An example of this is the fact that EGLE was unable to maintain gains following its debt deal.

Source: Coal Sector Moves Higher After Alpha Natural Resources Amends Credit Facilities