Understanding Alliance Resource Partners’ Financial Position

ARLP’s leverage

As of June 30, 2017, the book value of Alliance Resource Partners’ (ARLP) long-term debt was about $1.0 billion, of which ~$145 million is due for payment over the next year.

Understanding Alliance Resource Partners’ Financial Position

ARLP’s leverage, which is its net debt divided by EBITDA (earnings before interest, tax, depreciation, and amortization) for the fiscal year, has been consistently low. The lowest was 0.71x in 2011.

ARLP strives to maintain a strong balance with a conservative financial strategy. Its net-debt-to-EBITDA for 2016 was 1.07x—lower than the industry median of 3.31x.

Understanding Alliance Resource Partners’ Financial Position

As of June 30, 2017, ARLP’s LTM total debt-to-adjusted EBITDA was 0.81x—much lower than the 2.8x average for coal (KOL) peers Westmoreland Coal (WLB), Cloud Peak Energy (CLD), Arch Coal (ARCH), Peabody Energy (BTU), and CNX Coal Resources (CNXC).

Interest expenses

In 2016, ARLP’s interest expenses reached $30.7 million, compared with $31.2 million in 2015 and $32.8 million in 2014.

Understanding Alliance Resource Partners’ Financial Position

ARLP’s interest expenses are in the $20.0 million–$35 million range and fluctuate marginally, based on the repayment of interest incurred on its various borrowing and debt.

As of June 30, 2017, ARLP had an interest coverage ratio (the number of times interest expenses can be paid with earnings) of 7.42x for 2Q17, compared with CNX Coal Resources’ (CNXC) 5.79x, CONSOL Energy’s (CNX) 6.55x, and Cloud Peak Energy’s (CLD) 0.14x.

A high interest coverage ratio is a good indicator of a company’s ability to pay off debt on a regular basis.

Next, we’ll assess the key risks in ARLP’s business.