Forward View Consulting

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Belly Up: Why Walter Energy Will Be The Next Coal Industry Casualty

By Nathan Yates, M.S.F.

The Background:

In the summer of 2013, I predicted that James River Coal, a company then using the JRCC ticker, would file for Chapter 11 within a year. James River's symbol became RCCQ a few months ago-the Q noting that the ticker is attached to a bankrupt company. The James River bankruptcy call was easy to make because the company had a mountain of debt and only mediocre operations. When the last coal industry boom finally collapsed, it was only a matter of time until James River went under. Total liquidation of the corporation now seems likely.

At the time that I forecast James River's demise, I also stated that Walter Energy (NYSE: WLT) would be the next coal company to enter Chapter 11. Here at Forward View, we continue to believe that WLT is unlikely to survive beyond mid-2016 unless the coal market improves dramatically or the company is acquired. The latter two outcomes are unlikely, though. There is no catalyst for a significant surge in coal prices, and Walter's high-cost metallurgical coal portfolio shouldn't be particularly appealing to other struggling coal companies. (Around 90% all of Walter's 12.7M tons of annual coal production is met coal, putting it in a particularly difficult position.) Thus, Walter Energy is left staring bankruptcy in the face. As you'll see the chart below, the price of WLT shares is definitely moving in the wrong direction:

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