Moody assigned a B3 rating to the company’s proposed loan for $US125 million, due in 2012, as well as its $US50 million revolving debt, due in 2011. In addition, it has assigned the company a SGL-2 Speculative Grade Liquidity Rating (SGLR).
Moody based its decision on Pinnoak’s small size (projected 2005 production is 4.7Mt), high operating costs and insufficient diversity, as Pinnoak anticipated obtaining some 94% of its 2006 production from two mines.
Also playing a part in the discouraging ratings was the risky geologic environment of Pinnoak’s West Virginia and Alabama longwalls, the short-range nature of its current contract and the company’s reliance on an expected production increase in 2006 and beyond of 19% over the current year – a feat Moody’s said was challenging given the company’s scanty operating history and current production rate.
However, the ratings positively reveal Pinnoak’s production and reserves of high-quality, low-vol metallurgical product, the increased current prices for this type of coal as well as the increased cash flow and decreased debt the company could enjoy over the next couple of years.
The announcement is Moody’s inaugural rating of Pinnoak’s debt, and noted the debt outlook was stable.