Cloud Peak Energy to Refinance Debt via $100M Stock Issue - Analyst Blog

Cloud Peak Energy (CLD) a pure play Powder River Basin coal company announced that it has begun the issue of $100 million mandatory convertible preferred stock. The company intends to utilize the net proceeds from the issue to fund a portion of its outstanding $300 million 8.50% senior notes due 2019 issued in 2009. A portion of the proceeds will also be used for general corporate purposes.

The offering comprises 100 thousand shares of $1,000 each. The underwriters will be provided a window of 30 days to purchase up to 15,000 additional shares to cover over-allotments, if any.

As the issued preferred stock is mandatory convertible, the preferred stock will automatically convert into a variable number of shares of Cloud Peak Energy common stock on or around December 1, 2017. However, the holders of the preferred stock will have the right to convert the same at an earlier date.

The ultimate objective of refinancing debts is to lower the cost of capital. This move will help Cloud Peak Energy to lower its interest burden going forward.  

The going has been tough for U.S. coal companies in the face of stringent pollution control measures targeting the sector. Increasing competition in the global markets is also weighing on sales volumes. Cloud Peak Energy apart from streamlining its balance sheet is also trying to lower operating costs and reduce capital expenditure to remain competitive in this difficult market.

Per a release from Cloud Peak Energy, thermal coal imports from Asian countries are expected to increase by 351 metric tons in the 2014-2018 period due to the expected addition of 333.3 GW of coal-fired units over the same time frame. The U.S. exporters will be aiming to capitalize on rising Asian coal demand to offset the slackness in the domestic market.

Cloud Peak Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the coal space include SunCoke Energy Inc. (SXC), Natural Resource Partners LP (NRP) and Hallador Energy Company (HNRG). While SunCoke Energy Inc. sports a Zacks Rank #1 (Strong Buy), both Natural Resource Partners and Hallador Energy Company carry a Zacks Rank #2 (Buy).
 

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