A Closer Look at Alliance Resource Partners’ Financial Position
Alliance Resource Partners’ (ARLP) interest expenses fell for the first time in five quarters in 4Q16. In the quarter, ARLP reported interest expenses of $7.3 million, compared to $7.5 million in 4Q15.
According to company filings, ARLP significantly reduced its borrowings under its revolving credit facility and paid down its existing term loan to a remaining balance of $50 million, which the company expects to pay in May 2017.
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Currently, ARLP’s interest coverage ratio (the number of times a company can pay its interest with its earnings in the same period) stands at 17.0x, an improvement from 7.2x at the end of 1Q16.
According to ARLP’s latest filings, the book value of its long-term debt is ~$550 million. The majority of the company’s debt is due for payment in 2017, and the remaining amount is due in 2018. During 2016, ARLP paid down ~$269 million of its outstanding debt. As a result, ARLP’s leverage, or the ratio of its net debt to its trailing-12-month adjusted EBITDA, stood at ~0.9x at the end of 2016, compared to 1.05x at the end of 2015.
Unlike coal (KOL) miners Peabody Energy (BTUUQ), Arch Coal (ARCH), and Alpha Natural Resources (ANRZQ), ARLP has effectively managed its leverage under difficult market conditions.
Alliance Resource Partners’ liquidity position
According to its 4Q16 company filings, ARLP had ~$39.8 million in cash and cash equivalents on its books in the quarter. The company had total available liquidity of ~$575 million at the end of 4Q16. ARLP can also borrow up to $480 million under its recently extended revolving credit facility, which is due to mature in May 2019.
In 4Q16, ARLP declared a quarterly cash distribution of $0.44 per unit, payable on February 14, 2017. This quarterly cash distribution is nearly 35% lower than the $0.68 the partnership paid per unit in 4Q15. However, it remained unchanged on a quarter-over-quarter basis.
On December 31, 2016, the company’s distribution coverage ratio (or DCR) stood at ~2.9, compared to 2.4 at the end of 3Q16. A DCR value of less than 1 indicates that a company is distributing more cash than it’s actually making.
We’ll conclude the series with a discussion of what we can expect from Alliance Resource Partners in the future.