Alabama problems isolated: NCC

THE Tennessee operations of National Coal Corporation will not be affected by its Alabama subsidiary’s default on a $US60 million loan, the Appalachia-based producer said Monday.
Alabama problems isolated: NCC Alabama problems isolated: NCC Alabama problems isolated: NCC Alabama problems isolated: NCC Alabama problems isolated: NCC

National Coal's Baldwin Preparation Plant, located in Devonia, TN.

Donna Schmidt

National Coal of Alabama entered into the loan agreement with TCW Asset Management Company and various other lenders. NCC anticipates that the lenders will foreclose on the subsidiary’s outstanding capital stock and noted that none of its creditors had a lien or encumbrance on NCC assets.

"We expect that the operations of National Coal and our other subsidiaries, which operate coal mines and other facilities in Tennessee, will continue independent of any actions that the lenders may take with respect to National Coal of Alabama and its assets,” company president and chief executive Daniel Roling said.

"We have made every effort available to us to service this obligation, while being mindful of the continued protection of National Coal’s shareholder value.”

NCC noted that its Alabama subsidiary, which is wholly owned, made up about 55% of the company’s debt and liabilities as of June 30, but also about 39% of its consolidated revenues (for the six months ended that date) and 16% of its total reserves in December 2008.

National Coal of Alabama was acquired by NCC in October 2007, with financing of the purchase and funding for its operations made possible by a combination of equity and debt.

It was a significant drop in sales volumes, however, that kept the Alabama division from being able to meet the terms of the credit agreement.

"Some of our customers reduced or deferred their purchase commitments by up to 25 per cent, due in large part to varying demands for their products,” Roling said.

“In addition, other anticipated sales did not materialise. Due to this rapid deterioration of business in our southern customer base, we were operating at volumes significantly lower than at the level required to service the debt.”

He said all of NCC’s operations had felt the pinch, but not to the same extent.

"We have not experienced the same decline in demand at our Tennessee operations that we have experienced in Alabama. Coal sales in Tennessee, although lower than originally budgeted, are in line with our revised expectations, and they continue to show improvement.”

In late June, National Coal of Alabama was obligated to pay $1.9 million in accrued interest to its lenders, but the payment due date was extended to July 16, 2009, as the subsidiary negotiated on terms to restructure the loan. However, the parties could not come to an agreement and the lenders delivered a notice of default on July 17.

If the interest is not paid by July 21, it will create an “event of default” under the agreement’s terms, but NCC said that was inevitable.

“National Coal of Alabama is unable to pay the interest payment and an event of default under the credit agreement will occur on July 21, 2009. Upon an event of default, the lenders have advised that they will declare all of the obligations under the credit agreement and the other loan documents entered into in connection therewith immediately due and payable,” NCC said.