Walter Energy, Inc (NYSE:WLT) losing energy on debt withdrawal news
Walter Energy, Inc (NYSE:WLT) has confirmed that it will be withdrawing its debt refinancing plan. Even before the news broke out, the company shares had been halted and had fallen 17.43% to $12.13 even before the trading halt. Over the past 12 months, the stock has slid 73%.
Earlier this month the company disclosed that it had started exploring various options to have some of its existing debt refinanced and that refinancing transactions may include borrowings under an entirely new secured term loan facility, an un-secured debt financing as well as a new revolving credit facility. The proceeds were to be used to repay the company’s debt and also to pay expenses that were related to the refinancing transactions. WLT said that earlier this year, it had completed the closing of a $450M note offering that added to its financial flexibility. The company also said that until 2015, there were no other material-debt principal payments due. WLT said that it does not currently require any incremental funding and said that the proposed refinancing would not have actually have raised any additional capital.
Walter Energy, Inc (NYSE:WLT) said that an uncertain coal market and global economy is now making it focus on cost-cutting, reducing marginal production and managing capital spending to bring an improvement in results. Last month, WLT had reported that it had faced a loss in the first-quarter as revenue dropped 22%. This was attributed to the industry-wide dip in metallurgical coal prices.
What is debt refinancing?
Either an improvement in the credit rating of a company or favorable market conditions may result in refinancing of debt. The two main factors that influence any company to refinance are a drop in the interest rate or improvement in its credit quality.
Debt is generally issued in the form of long-term bonds. In doing so, the company is agreeing to pay-out a periodic-interest charge to its bondholders. This is called a coupon. The coupon rate is a reflection of current market interest-rates as well as the credit rating of the company. If there is a drop in interest rates, the company will seek to refinance its debt at that new rate as this will allow it to pay a much smaller interest charge. In the case of Walter Energy, Inc (NYSE:WLT), the company has said that it is withdrawing its refinancing plan altogether.