Why Bankruptcy Could Be around the Corner for Arch Coal


Dec. 4 2020, Updated 10:53 a.m. ET

Arch Coal in 2015

Arch Coal (ACI) published its 3Q15 earnings on November 9, 2015. During the first nine months of 2015, Arch Coal sold 83.5 million tons of Powder River Basin coal, up from 81.9 million tons during the first nine months of 2015. However, shipments from the Appalachian region and the company’s other Eastern mines fell during the first nine months of 2015 due to the effect of regulatory changes and weak natural gas prices.

On a positive note, realization per ton except for Appalachian coal saw an uptick during the first nine months of 2015. Subdued pricing and lower shipments in the East led to a 9.3% fall in revenues to $2.0 billion in the first nine months of 2015.

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In spite of the stellar cost performance exhibited by the company during the first nine months of 2015, net losses extended to $2.3 billion, or $107.2 a share, from $318.2 million, or $15.0 per share, during the first nine months of 2014. The losses were largely driven by $2.1 billion in asset impairment this year. The company burned around $190 million in free cash during the first nine months of 2015. The balance sheet of the company remained highly leveraged with $5.1 billion of debt on the books.

Bankruptcy looms

As a last-ditch attempt to avoid bankruptcy, Arch Coal offered a debt exchange deal to its creditors to offload some of its debt. However, the deal didn’t go through, as the company failed to reach an agreement with its creditors. On December 15, the company announced that it intended to use its 30-day grace period for $90 million in interest payments, fueling the possibility that bankruptcy is around the corner.

Since the end of 3Q15 until December 17, Arch Coal lost 72% compared to Peabody Energy’s (BTU) 64% and Cloud Peak Energy’s (CLD) 23% during the same period. Consol Energy (CNX) lost 31% during the same period while the VanEck Vectors Coal ETF (KOL) lost 20%.


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