Moody's Investors Service downgraded its ratings for privately held Murray Energy, citing higher risks to the US coal miner's credit and liquidity due to the recent Chapter 11 bankruptcy filing by a major customer, but maintained a stable outlook for Murray.
FirstEnergy Solutions, a merchant generator and owner of the coal-fired Bruce Mansfield and W.H. Sammis power plants in Pennsylvania and Ohio, respectively, filed for bankruptcy protection on March 31.
The Mansfield plant took delivery of 3.26 million st of coal from Murray mines in 2017, according to US Energy Information Administration data. Of that amount, 3.1 million st was delivered under a contract with Murray that expires in December 2028.
The Sammis plant took delivery of 1.78 million st in 2017 from Murray mines, also under a contract that ends in December 2028.
Moody's also cited challenges facing the industry for the downgrade, due to increased natural gas and renewables generation.
The agency said the downgrade also reflects the potential for declining average realizations beyond 2018 as well as the relatively low margin potential of some of Murray's mines. Moody's said it expects Murray's debt to EBITDA to trend above 5x over the next 18 months.
Moody's downgraded Murray's Corporate Family Rating to Caa1 from B3.
But the ratings agency sounded one positive note, saying the Ohio-based producer is a diversified, low-cost producer with access to the international market.
"The ratings also, reflect, however, the advantageous position of the [Illinois Basin] and [Northern Appalachia] relative to other basins, and the company's access into the export markets," it said. "Internationally, coal consumption continues to grow, driven by economic development of India and Southeast Asia."
The agency added that its "stable outlook reflects [Murray's] solid contracted position."
Fellow ratings agency S&P Global Ratings, which, like S&P Global Platts, is owned by S&P Global Inc., has a corporate credit rating of B- on Murray Energy, and a stable outlook.
In a research note issued in late January, S&P said it did "not expect Murray's operating performance to be materially impacted by the potential bankruptcy of FirstEnergy Solutions. We expect Murray to be able to place the FES contract volume by redirecting tonnage to [Allegheny Energy's] Pleasants coal plant and to other customers."
Murray, in an e-mail to Platts, said it expects to produce roughly 76 million st in 2018 from its mines in Ohio, Kentucky, Utah and West Virginia as well as its subsidiary properties in Illinois and Colombia.
