* Nervous creditors squaring off into warring camps * Coal price recovery also crucial to prevent bankruptcy By Tracy Rucinski CHICAGO, Sept 22 (Reuters) - After a string of smaller bankruptcies in the depressed coal sector, the second-largest U.S. coal miner, Arch Coal Inc, could be next to file for Chapter 11 protection if it fails to seal a crucial debt swap this week, lawyers and analysts said. Miners are suffering from stricter regulation and sinking coal prices as energy companies seek cheaper and cleaner generation sources, leading to mine closures and extensive job losses, particularly in Central Appalachia. Arch Coal, with 5,500 employees in nine states, is heavily indebted after buying International Coal Group (ICG) during a coal price peak in 2011. The $3.4 billion deal transformed Arch into one of the world's largest producers, but also saddled it with costly assets that are hampering its ability to restore its balance sheet. "The debt load was geared for a larger company, but with the downturn in coal, prices and production have dropped," Morningstar analyst Kristoffer Inton said. Arch Coal did not return repeated requests for comment. The money-losing miner has $5.1 billion in debt, far outstripping a $74 million stock market value. Its debt-to-EBITDA ratio, a measure of leverage, reached an alarming 18 times in 2014, though it has since come down slightly. Several of Arch Coal's smaller competitors have recently filed for Chapter 11, including Walter Energy, Alpha Natural Resources and Patriot Coal. To avoid the immediate fate of its peers, Arch Coal CEO John Eaves has suspended dividend payments and is proposing swapping existing debt for longer-term securities to boost liquidity before $1.9 billion in loans mature in 2018. Nervous creditors have already squared off into warring camps, with some pushing for a bankruptcy sooner while the company still has cash to pay them, and others preferring to give the company time to ride out the downturn. Junior bondholders even filed a lawsuit in New York last week seeking a court order to keep lenders from trying to block the debt exchange. "Absent this restructuring, it is a near certainty that the company will file for bankruptcy," the bondholders said in court papers. Arch Coal could postpone Wednesday's deadline, when it needs at least a majority of investors to agree to the debt swap, while the company waits for a New York judge to decide whether to grant the injunction requested by junior bondholders. The debt swap deadline has already been extended twice. BLEAK FUTURE If Missouri-based Arch Coal does file for Chapter 11, it would make it easier for the company to close high-cost, underperforming mines in Central Appalachia, a region hard hit after similar moves by Alpha Natural Resources and Patriot Coal. Arch could then focus on cheaper production capacity in Wyoming's Powder River Basin, which contains one of the largest deposits of coal in the world. Other coal miners may fare better. Peabody Energy Corp, the world's largest private-sector coal producer, is also exploring restructuring options due in part to debt taken on to fund its $5.1 billion acquisition of Australia's Macarthur Coal in 2011. However, the Australian assets are generating strong cash flow, enabling it to use equity in a potential debt swap as opposed to Arch's planned debt-for-debt exchange. The best-positioned miner is Cloud Peak Energy Inc, which refrained from debt-backed purchases during the coal price peak. Key to all of their futures is the price of natural gas, which surpassed coal in electricity generation in the United States for the first time this year. Analysts say gas prices need to rise to at least $4 per thousand cubic feet to make coal competitive. Gas prices are trading at about $2.58 and have been below $3 since May. "A successful debt swap for Arch could add to the liquidity runway, deleverage the balance sheet and motivate management to keep the company alive," said Amer Tiwana, senior analyst at CRT Capital. "But barring some sort of miracle in the coal market, liquidity is still stretched," he added. (Editing by Tom Hals and Matthew Lewis)
|