Is Walter Energy’s Negative 1Q15 EBITDA a Signal of the End?



Margin per ton drops substantially

Walter Energy’s (WLT) met coal margins per ton in its US segment took a plunge in 1Q15 to $9.50, from $31.80 in 1Q14, as realized prices dropped and costs increased. Margin per ton is calculated as selling price per ton minus the cash cost of sales per ton. We looked at these two measures in the first two parts of this series.

Margin per ton for Canadian and UK met coal remained negative in 1Q15, as the cost of sales per ton surpassed the price per ton.

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Adjusted EBITDA

Walter Energy (WLT) reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) losses of $9.5 million against gains of $39.7 million in 1Q14. The drop in pricing and shipments was the primary contributor of the fall in adjusted EBITDA.

Net losses

While adjusted EBITDA came in substantially lower in 1Q15, Walter Energy reported marginally lower net losses compared to 1Q14. The company’s net losses during 1Q15 came in at $80.2 million compared to $92.2 million in 1Q14. However, the lower net losses were primarily a result of a $58.6 million gain on extinguishment of debt.

In March 2015, Walter Energy issued shares in exchange of $66.7 million worth of notes due in 2021. The gains on extinguishment are recorded in relation to this transaction. On a per-share basis, the losses came in at $1.08 in 1Q15 compared to $1.47 in 1Q14.

A lot of American coal producers (KOL), including Arch Coal (ACI), Alpha Natural Resources (ANR), and Peabody Energy (BTU) are employing various ways to prolong debt maturities or save on massive interest costs. Alpha Natural Resources (ANR) reduced its debt load during the quarter to save on interest costs.


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