Bankruptcy experts predict that Birmingham-based coal company Walter Energy may enter bankruptcy negotiations as soon as this month, after its market value plummeted a stunning 99% over the last four years, a new Bloomberg report states.
Despite Walter Energy’s corporate credit rating going up, it wasn’t enough to give shareholders optimism for the company’s future, especially as its debt level remains utterly unsustainable. As news of its imminent bankruptcy filing spread, Walter Energy’s shares tumbled by about a third, closing at 30 cents a share on June 8 — the biggest decline in company stock since it began trading in 1995.
The company, which hasn’t managed to generate an annual profit since 2011, is expected to seek out a debtor-in-possession loan from its lenders, which would allow the company to continue to operate while in bankruptcy. While consumer bankruptcies like Chapter 7 typically take about six months, bankruptcies involving companies take between four and five years, on average.
The last few years have been anything but easy for American coal mining companies. In 2011, a ton of metallurgical coal sold for about $330; by the second quarter of 2015, the price-per-ton of this resource has fallen to just $95.
According to Bloomberg, falling demand from the Chinese market and growing competition from Australian coal have both contributed to the significant decline of American coal. Last month, Walter Energy laid off 370 of its workers at its Brookwood facility near Tuscaloosa. The same month, Patriot Coal Corp. filed bankruptcy.
Daniel W. Scott and Bryan C. Bergin, analysts at Cowen and Co., said the likelihood that Walter Energy will file bankruptcy soon “should not be surprising.”
“Several coal management teams are faced with increasingly difficult decisions as coal market conditions show few signs of a nascent recovery,” the two told Bloomberg.
