Wednesday, September 17, 2008

Major coal companies' credit ratings improve

Despite proposed greenhouse-gas legislation and an increased interest in alternative, clean fuels, Wall Street is projecting that the coal industry is going to do well for at least the next two years. After a review of the industry in general, Standard & Poor's Rating Service increased the credit ratings of five major U.S. coal companies, bringing them one step closer to investment-grade status.

"S&P noted coal is likely to remain the dominant fuel for the foreseeable future and long-term industry fundamentals remain positive as North American coal prices have increased substantially over the past several quarters." Lauren Pollack writes for Dow Jones Newswires. "The agency added that a number of companies have contracted for improved prices for a high percentage of their 2009 and 2010 planned production. If that production falls in line, S&P expects the companies to see improved cash flow and reduced leverage."

However, the industry's susceptibility to changes in pricing and operational problems are so far keeping the credit ratings from reaching investment-grade status. Companies are wary at locking in multi-year contracts, leading to shorter contract periods and increased price renegotiation. (Read more; subscription may be required)

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