Replies to post #175 on Walter Industries, Inc. (fka WLTGQ)

[hogman_5]

Yeah, but the WLT employees I know say the steel industry is a long way from recovery. They tell me to buy only if I am willing to hold it for a good while! There is a glut of coke. As I have said before, when you drive past the mines, there is a LOT of coal piling up outside. There are 5 or 6 tugboats tied up outside the tugboat company's headquarters right now. When coal is selling, there are never any tugs tied up sitting idle!

That's a barometer for me. IMO.

[Tommy]

$WLT - Good Times To Return For Coal Producers

http://seekingalpha.com/article/1717702-good-times-to-return-for-coal-producers?source=email_rt_article_readmore

Walter Energy (WLT) is among the leading U.S. met coal producers. Recently, the company has been struggling to post a decent financial performance due to soft coal market conditions. Also, growing debt and liquidity concerns have taken a toll on the stock price; WLT's stock is down 63% YTD. However, the company has been taking corrective measures to improve its financial flexibility and boost its liquidity position. Also, I believe met coal markets will improve in the future, which will bode well for the company.

WLT has been taking measures to improve its financial flexibility in the ongoing soft coal market conditions. Recently, the company announced to issue $450 million senior notes, due in 2019, with a coupon rate of 9.5% per year. Moody's assigned a B3 credit rating to WLT's proposed senior secured issue. The issue will help the company boost its liquidity position, comply with a minimum liquidity covenant of $225 million through Q22014 and strengthen its financial flexibility. Also, the senior secured note issue will help refinance the current debt and extend upcoming debt maturities. WLT plans to use the issue proceeds to repurchase $250 million of its Term Loan A, and the remainder for general cooperate purposes. As the company plans to repurchase a portion of its outstanding debt, its debt maturity for 2015 will decrease from $500 million to $250 million.

WLT's liquidity is expected to improve to approximately $650 million, including unused revolver capacity of more than $300 million. The transaction will be positively impact the stock price in the near term, as it will strengthen WLT's financial position, address the liquidity concerns of investors, and help the company comply with liquidity covenants. However, despite the fact that the transaction is likely to improve WLT's near term liquidity position, the issue is likely to increase annual interest expense by almost $30 million.

Earlier, the company took several measures to enhance its financial flexibility, including a dividend cut of 92%, and secured a credit amendment. Also, the company plans to sell some of its non-core assets, which is expected to generate $250 million in cash. These steps will help the company generate cash to address near term liquidity concerns. However, as met coal demand and prices recover in the long term, it will bode well for the company and will have a positive impact on the stock price.

I believe met coal prices will improve as we move forwards, as coal demand will improve and production cuts will continue. Despite the recent improvement in met coal markets, I believe more production cuts are required to address the oversupplied coal market, and trigger a further recovery in the price. As European and Chinese economies are showing signs of improvement, spot met coal prices have increased by more than 20% since bottoming at $129 per ton in July 2013. Last week, the met coal benchmark price for the upcoming fourth quarter settled at $152 per ton, in line with analyst expectations, up almost 5% QoQ. As more production cuts are undertaken by producers, we will see further improvement in coal prices. Alpha Natural Resource (ANR) and Arch Coal (ACI) are among the other U.S. coal companies whose earnings are highly leveraged to met coal operations. Both companies, ANR and ACI, have idled several of their mines and lowered their production in response to soft met coal prices. ANR has lowered its annual met coal production by 1 million ton, while ACI has lowered its annual production by 2 million tons.

Conclusion

WLT has been taking corrective measures to boost its liquidity position and improve its financial flexibility to survive through the prevailing tough times for the industry. I believe met coal markets will strengthen as we move forward, as producers will curtail their production to address the oversupplied market and as demand for coal increases. The level and the timing of a recovery in met coal markets is dependent on production cuts. As coal markets balance out, i.e. excess supply is removed from coal markets, I believe the stock has the potential to offer attractive returns as it is currently trading at depressed valuations.