S&P Global Ratings lowered its corporate credit rating on Westmoreland Coal to CCC+ from B, citing its view that the company could be unable to refinance 2018 maturities without a significant boost in coal prices and volumes over the next year.
The agency at the same time lowered its issue-level rating on Oxford Mining Company's $306 million outstanding first-lien term loan to CCC+, from B, though the recovery rating remains unchanged, at 3, indicating a meaningful recovery estimate in the range of 50–70% in the event of a payment default.
The company’s $350 million of 8.75% senior secured notes due 2022 were also lowered to CCC+, with the recovery rating unchanged at 4 for an expectation of a 30–50% recovery rate.
S&P Global said its negative outlook reflects its belief that the company does not have sufficient sources of liquidity from its operations and its revolving credit facility to repay its $306 million currently outstanding term loan due December 2018, adding that it continues to view Westmoreland's liquidity as less than adequate, reflecting its expectation that the company could breach coverage tests if EBITDA were to decline by 15%. As such, the agency views the company’s capital structure as unsustainable.
Westmoreland Coal and its consolidated subsidiaries have consolidated EBITDA to consolidated fixed charges of 1 to 1, according to S&P Global. The company was in compliance with financial covenants as of Dec. 31, 2016; however, the covenant headroom is tight, and S&P Global therefore believes the company could breach its covenant in the next 12 months.
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