Walter Energy's Asset Value Dropped in Second Quarter

By Stephanie Gleason

August 7,2015

Walter Energy Inc. endured a $2.46 billion net loss, amounting to more than $30 a share, in the quarter ended June 30, as it wrote down assets in Canada and the U.K. just weeks before it entered chapter 11 bankruptcy protection.

The bankrupt coal company released an earnings statement with the U.S. Securities and Exchange Commission Thursday, several weeks into its bankruptcy case, showing that the company pulled in revenue of $196.6 million during the quarter ended June 30, a sharp decline from the $378.3 million it earned during the same period last year.

The huge net loss it posted, however, was largely the result of a $2.9 billion asset impairment on its balance sheet. Walter explained the impairment as the result of an analysis performed in May that showed net undiscounted cash flows from the company's mines in Canada and the U.K. were less than the values of those assets on its balance sheet. To revalue the assets, Walter said it used discounted cash flow based on management estimates of future sales and other forecasts.

The $2.9 billion impairment included a mineral interest reserves reduction of $2.4 billion and $508.5 million on property, plants and equipment.

Overall, the impairment reduced the value of Walter's assets to $2.12 billion, according to its balance sheet from more than $5.3 billion at the end of last year.

Walter Energy didn't provide additional comment for this article on Friday.

The reduction is notable in that the value of assets is a common bankruptcy-court fight. Often, junior creditors will argue that assets have enough value to trickle down to them after senior creditors are paid.

Walter entered bankruptcy on July 15 after striking a deal with senior creditors to swap $1.8 billion of their debt owed for "substantially all" of its new common stock. The plan is subject to a creditor vote and court approval. The company has more than $3 billion in debt overall in addition to labor and pension costs.

The deal with senior creditors is the company's best option for restructuring, it said, and was struck in exchange for permission to continue spending cash that secures the senior debt. The deal contains certain milestones that if missed would force Walter to put its assets up for sale.

Walter entered bankruptcy in the face of low prices for coal and high labor costs. Upon the filing, Chief Executive Walt Scheller said: "In the face of ongoing depressed conditions in the market for [metallurgical] coal, we must do what is necessary to adapt to the new reality in our industry."