OREANDA-NEWS. Fitch Ratings has withdrawn the 'C/RR6' ratings on Arch Coal, Inc.'s (Arch Coal; NYSE: ACI) senior secured second-lien notes and senior unsecured notes, and has affirmed ACI's IDR at 'D' and senior secured term loan at 'C/RR4'.

Roughly $5.1 billion in principal amount of debt is affected by this action.

ACI filed for bankruptcy protection on Jan. 11, 2016 following the missed payment of $90 million aggregate semi-annual coupons due on Dec. 15, 2015.

The monthly operating report for Jan. 31, 2016 shows cash and short-term investments of $612 million and that the term loan interest is being paid. A $275 million delayed draw Debtor-in-Possession term loan (DIP Financing) has been approved and the $200 million accounts receivable facility continues to be provided to Arch Receivable Company LLC, a subsidiary that is not party to the bankruptcy filing.

The Restructuring Support Agreement dated as of Jan. 10, 2016 as amended Feb. 25, 2016 (RSA) with certain holders of the first-lien term loans remains in effect but has not been approved by the court. Pursuant to the amendment, Arch is required to obtain court approval of the assumption of the agreement on or before April 10, 2016, unless otherwise agreed by the required lenders.

Principal terms of the RSA are: extinguishment of the existing common stock; claims arising from the DIP Financing to be permitted to be satisfied in cash; claims of the first-lien term loan holders to be exchanged for a combination of cash and $326.5 million of new first-lien debt and 100% of the common stock of the reorganized company, subject to dilution on account of a proposed management incentive plan and the distribution to unsecured creditors of any new common stock and warrants; and first-lien term loan deficiency claims as well as second lien notes, unsecured notes and general unsecured claims against the debtors to be exchanged for either common stock in the reorganized company and warrants or the value of unencumbered assets of the company, if any.

If the reorganization follows the restructuring plan it would reduce Arch's long-term debt by more than $4.5 billion, reducing total debt-to-EBITDA to about 2x, which would be sustainable even in a weak environment.

Recovery Analysis:

ACI submitted revised projections as an exhibit to its form 8K filed Jan. 11, 2016, which show a decline in EBITDA from $374 million for the latest 12 months ended Sept. 30, 2015 to $152 million for 2017. Fitch's going concern estimated EBITDA is about $200 million, generating a going-concern enterprise value of $1.1 billion using a 5.5x multiple. Under this valuation, the first-lien senior secured debt, including an assumption of 100% utilization under the $200 million accounts receivable facility and full drawing of the DIP Facility, has recovery given default at 36%. The second-lien and senior unsecured debt have no recovery.