Warrior Met Coal Inc. Rating Raised To #B# From #B-# On Strong Performance, Outlook Debt Ratings Raised

Stocks and Financial Services Press Releases Thursday January 18, 2018 09:06
NEW YORK--18 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 17, 2018--S&P Global Ratings today raised its corporate credit rating on Brookwood, Ala.-based coal producer Warrior Met Coal Inc. to 'B' from 'B-'. The outlook is stable.

At the same time, we raised the issue-level rating on the company's $350 million senior secured notes to 'B+' from 'B-'. We also revised the recovery rating on the debt to '2' from '3', indicating our expectation of substantial (70%-90%; rounded estimate: 85%) recovery for lenders in the event of a payment default.

The upgrade reflects our view that the company can sustain its low credit measures and generate positive discretionary cash flow in the next 12 months. Even if prices were to drop by 30%-40% from current levels, we believe that the company would be able to sustain adjusted leverage below 2x. We also expect the company will generate at least $200 million in discretionary cash flow in 2018 and 2019. Our ratings take into account the potential for the company to make cash distributions to its sponsors. Even so, we would expect a sufficient financial discipline that preserves leverage within our expected targets and a liquidity cushion of at least $100 million.

The stable outlook reflects our expectation that the company will operate at adjusted leverage below 2x on sustained basis, generating positive discretionary cash flow for the next 12 months. We believe that the company will be able to maintain adjusted EBITDA margins over 30% even with a 30%-40% drop in HCC prices from current levels. We believe that the company is well positioned to achieve these credit measures due to positive momentum in global demand for high quality met coal that should preserve prices and its flexible cost structure.

We expect high quality metallurgical (met) coal producer Warrior Met Coal Inc.'s credit measures to remain strong in 2018. We believe that the company will continue to benefit from robust demand for met coal and increase quarterly run rate production to 8 million short tons annually by the second half of 2019. We are raising our corporate credit rating on Warrior to 'B' from 'B-'. The outlook is stable.We are also raising the issue-level rating on the company's senior secured debt to 'B+' from 'B-' and revising the recovery rating on the debt to '2' from '3'.The stable rating outlook on Warrior reflects our view that the company will operate at adjusted leverage below 2x on sustained basis.NEW YORK (S&P Global Ratings) Jan. 17, 2018--S&P Global Ratings today raised its corporate credit rating on Brookwood, Ala.-based coal producer Warrior Met Coal Inc. to 'B' from 'B-'. The outlook is stable. At the same time, we raised the issue-level rating on the company's $350 million senior secured notes to 'B+' from 'B-'. We also revised the recovery rating on the debt to '2' from '3', indicating our expectation of substantial (70%-90%; rounded estimate: 85%) recovery for lenders in the event of a payment default.

The upgrade reflects our view that the company can sustain its low credit measures and generate positive discretionary cash flow in the next 12 months. Even if prices were to drop by 30%-40% from current levels, we believe that the company would be able to sustain adjusted leverage below 2x. We also expect the company will generate at least $200 million in discretionary cash flow in 2018 and 2019. Our ratings take into account the potential for the company to make cash distributions to its sponsors. Even so, we would expect a sufficient financial discipline that preserves leverage within our expected targets and a liquidity cushion of at least $100 million.

The stable outlook reflects our expectation that the company will operate at adjusted leverage below 2x on sustained basis, generating positive discretionary cash flow for the next 12 months. We believe that the company will be able to maintain adjusted EBITDA margins over 30% even with a 30%-40% drop in HCC prices from current levels. We believe that the company is well positioned to achieve these credit measures due to positive momentum in global demand for high quality met coal that should preserve prices and its flexible cost structure.

We could lower the rating if we expect adjusted leverage will approach 5x. This could result from a combination of an aggressive financial policy and an EBITDA decline of over 50% from our expectations as a result of weaker global demand for low-volatility HCC coal or a decline in the steel end markets.

Although less likely, we could raise the rating if we believe that the financial sponsors are likely to divest their equity ownership in the company to below 40%. Under this scenario, we would also expect the company to maintain adjusted leverage below 3x.


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