I understand most companies carry a decently proportionate amount of debt. For example, a company like Microsoft has $58.35 billion in total cash and only $13.15 billion in debt. That equates to a debt-to-total-cash ratio of 0.225.
That said, several coal companies have been piling up significant debt through bonds and other types of senior securities, and as a result one of the names below has already filed for bankruptcy protection. For this screen I have compiled a list of four coal companies, all of which have very troubling amounts of debt -- especially when compared to their total cash.
Symbol | Price | Mkt Cap | Total Debt | Total Cash | Ratio |
0.61 | 56.12 M | 114.99 M | 3.85 | ||
JRCC | 2.87 | 99.61 M | 169.38 M | 3.46 | |
6.67 | 1.42 B | 117.77 M | 34.55 | ||
8.02 | 1.76 B | 588.90 M | 5.04 |
Patriot Coal (PCX), which trades in a 52-week range of $0.52/share (52-week low) to $24.99/share (52-week high), has a market cap of $56.12 million. PCX currently has $114.99 million in total cash on its books (it should be noted that the company currently has $101.93 million in operating cash flow and -$94.96 million in free cash flow) and actually has $443.58 million in total debt. That equates to a debt-to-total-cash ratio of 3.85, which, in my opinion, is a very negative catalyst moving forward. Recently trading at an 89.3% discount to its 200-day moving average, PCX has filed the appropriate paperwork for bankruptcy protection.
James River Coal (JRCC), which trades in a 52-week range of $1.90/share (52-week low) to $22.00/share (52-week high), has a market cap of $99.61 million. JRCC currently has $169.38 million in total cash on its books (the company currently has $145.73 million in operating cash flow and -$51.66 million in free cash flow) and has $585.80 million in total debt. That equates to a debt-to-total-cash ratio of 3.46, which, in my opinion, is a very negative catalyst moving forward. Recently trading at a 42.6% discount to its 200-day moving average, JRCC has been rumored to be the next coal company facing bankruptcy. As noted by Adam Gefvert is his recent article, financing may become non-existent by mid-2013 for JRCC.
Arch Coal (ACI), which trades in a 52-week range of $5.41/share (52-week low) to $28.76/share (52-week high), has a market cap of $1.42 billion. ACI currently has $117.77 million in total cash on its books (the company currently has $611.09 million in operating cash flow and -$35.06 million in free cash flow) and has $4.07 billion in total debt. That equates to a debt-to-total-cash ratio of 34.55, which is a very negative catalyst moving forward. Recently trading at a 37.8% discount to its 200-day moving average, ACI has had its senior unsecured debt downgraded by Moody's to a B3 rating from a B2 rating.
Alpha Natural Resources (ANR), which trades in a 52-week range of $7.46/share (52-week low) to 47.23/share (52-week high), has a market cap of $1.76 billion. ANR currently has $117.77 million in total cash on its books (the company currently has $684.85 million in operating cash flow and $454.53 million in free cash flow) and has $2.97 billion in total debt. That equates to a debt-to-total-cash ratio of 5.04, which is a very negative catalyst moving forward. Recently trading at a 48.7% discount to its 200-day moving average, ANR had its rating at S&P cut to negative from stable, even though Standard & Poor's affirmed its BB- rating on the company.
Based on my calculations, all four companies are currently carrying a debt load that is at least three times their current total cash. As companies continue to pile on the debt, their credit ratings get worse and their total available credit becomes less. Therefore, in a worst-case scenario, a company is left with no other choice but to file bankruptcy. Given the course of action taken by PCX, I strongly believe the remaining three companies above may be headed toward the same fate.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
