Murray Energy Corp. Recovery Expectations Issue-Level And Recovery Ratings On First-Lien Debt Unchanged

Stocks and Financial Services Press Releases Thursday January 19, 2017 09:05
NEW YORK--19 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 18, 2017--S&P Global Ratings said today that, as a result of reassessing the recovery prospects for Murray Energy Corp.'s debt, it is revising its recovery expectations on the company's senior secured first-lien term loans B-1 and B-3 and now expects a recovery in the higher half of the 50%-70% range. The recovery rating remains '3'. The issue-level ratings are unchanged at 'B-'.

We also note that the October maturity of $300 million in convertible notes issued by Foresight Energy (FELP) (which we consider to be in the same group as Murray) will not have a material impact on Murray's credit quality.

FELP has a $300 million pay-in-kind (PIK) convertible note maturing on Oct. 3, 2017. Given the ability of Murray to influence FELP's business strategy, we consider FELP to be a moderately strategic member of the group, which has Murray Energy as a parent. Nevertheless, we don't anticipate that the upcoming FELP maturity will have a material effect on Murray's credit quality.

This determination is based on the following factors:
Murray and its subsidiaries have not provided guarantees or asset pledges to support Foresight's debt obligations;
There are no cross default provisions between the two companies' creditors; and
The notes are convertible to equity in the absence of a refinancing option.
RECOVERY ANALYSIS
Key analytical factors
Our enterprise value is based on a fixed charge proxy of $436 million, which includes default year interest, amortization, and minimum capital expenditures.
We estimate a gross recovery value of $2.2 billion, assuming an emergence EBITDA of $436 million and a 5x EBITDA multiple that is consistent with the metals and mining industry multiple.

As a result, the recovery rating on the senior secured first-lien term loans B-1 and B-3 is revised to '3H' from '3L', which indicates our expectation for meaningful (50%-70%) recovery prospects in the event of a payment default.

The recovery rating on the senior secured second-lien notes is unchanged at '6', which indicates our expectation for negligible (0%-10%) recovery prospects in the event of a payment default.
Simulated default assumptions
Year of default: 2018
EBITDA at emergence: $436 million
Implied enterprise value multiple: 5x
Gross enterprise value: $2.18 billion
Simplified waterfall
Net recovery value for waterfall after administrative expenses (5%)and pensions deficits of $885 million: $1.23 billion
Obligor/nonobligor valuation split: 100%/0%
Estimated priority claims: $2 million (asset-based lending facility balance due to historically high letters of credits outstanding)
Remaining recovery value: $1.22 billion
Estimated first lien claim: $1.82 billion
Value available for first lien claim: $1.22 billion
Recovery range: 50%-70% (at the higher end)
Estimated senior unsecured notes claim: $1.09 billion
Estimated senior secured deficiency claim: $600 million
Value available for unsecured claim: $0 million
Recovery range: 0%-10%

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