Moody's downgrades CONSOL to B2, outlook negative.
The downgrade reflects our expectation that leverage (as measured by Debt/ EBITDA, as adjusted) will approach 5x in 2016, on the back of declining realizations in coal and natural gas divisions, while also acknowledging ample liquidity and management's demonstrated willingness and ability to scale down capital investments and institute asset sales in order to manage leverage and limit cash burn. The ratings also reflect the company's recent announcement that it has entered into an agreement for the sale of its Buchanan Mine for total consideration of $420 million.
CONSOL's B2 corporate family rating continues to reflect CONSOL's efficient, high quality coal assets in the Northern Appalachian coal basin, sizable and growing presence in the gas business, large reserves of coal and natural gas, and the stability provided by its long-term thermal coal agreements and natural gas hedging program.
The ratings also reflect weak pricing conditions affecting the company's coal and natural gas businesses, which we expect to persist for the foreseeable future. If current pricing conditions do not improve, we expect the company to eventually face declining EBITDA and increasing leverage as higher priced coal contracts and natural gas hedge positions roll off.
The speculative grade liquidity of SGL-3 reflects our expectation that CONSOL will have adequate liquidity, which at December 31, 2015 included $73 million in cash, roughly $790 million available under the company's $2 billion revolver, roughly $215 million available under the $400 million revolver at CNX Coal Resources, and another $177 million available under the $250 million unsecured revolver at CONE Midstream Partners. We expect the company to be in compliance with the financial covenants under its credit facility over the next twelve months. The company has a substantial asset base that's available for sale, as an alternative source of liquidity to offset negative free cash flows.
The Caa1 rating on the senior unsecured notes, two notches below the B2 CFR reflects their weaker position relative to claim on collateral, as compared to the secured revolver.
The negative outlook reflects the continued pressure facing the US coal and natural gas industry and our expectation that industry dynamics will not change for the next 12 to 18 months.
A rating upgrade is unlikely at this time, but the outlook could be stabilized if we see a sustainable price recovery in coal and natural gas prices.
A downgrade would be considered if liquidity were to deteriorate further, industry dynamics were worsen, or if Debt/ EBITDA, as adjusted, were to increase above 5.5x.
CONSOL Energy Inc. (CONSOL) is a major diversified fuel producer in the Eastern US, engaged in production of natural gas and thermal and metallurgical coal. CONSOL controls approximately 5.6 Tcfe of proved natural gas reserves and 3 billion tons of coal reserves in Northern and Central Appalachia. For the last twelve months ending December 31, 2015, the company generated approximately $3.1 billion in revenues.
The principal methodology used in these ratings was Global Mining Industry published in August 2014.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Apr 5, 2016|
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