Alpha Natural gets $3.3 billion commitment for Massey buy, will look to high-yield market later

By Jennifer Lanning Drey and Sara Rosenberg

Savannah, Ga., and New York, Jan. 31 - Alpha Natural Resources Inc. has received a $3.3 billion debt financing commitment to help fund its acquisition of Massey Energy Co., Alpha officials said during a conference call on Monday.

Morgan Stanley and Citigroup are the lead banks on the financing.

The debt includes a commitment for a roughly $1 billion revolver, which Alpha chief executive officer Kevin Crutchfield said he believes is appropriate for the size of the combined company.

In addition, Crutchfield remarked that the company will approach the high-yield market at the appropriate time to establish a long-term capital structure.

Under the agreement with Massey, Alpha is purchasing Massey for 1.025 shares of Alpha common stock and $10 in cash for each share of Massey common stock.

Proceeds from the new debt, along with cash on hand, will be used to fund the cash consideration to Massey stockholders, to refinance $1.4 billion of Massey debt and to refinance existing debt at Alpha, including its term loan A.

After the closing of the transaction, the capital structure of the combined entity is expected to be 75% stock and 25% debt, Crutchfield said.

Pro forma post closing, last-12-months adjusted EBITDA will be $1.17 billion and total debt will be $2.9 billion.

The combined company will initially have a debt-to-adjusted EBITDA ratio of about 2.5 times with the opportunity for rapid deleveraging given the potential cash flow generation of the combined company, Crutchfield said.

Overall available liquidity will be about $1.3 billion, which includes revolver availability as well as a target of $500 million of cash, Crutchfield said.

"As a combined entity, we will emerge from this transaction with significant financial strength and flexibility," Crutchfield said.

Strategic, financial benefits

The combination of Alpha and Massey is expected to generate synergies of more than $150 million annually by mid-2012, officials also said during the call. The figure is more than could be generated by any other conceivable combination due to the strength of both companies in Appalachia, Crutchfield said.

"We believe the combination of Alpha and Massey is a logical combination with undeniable and compelling strategic and financial benefits," he said.

Alpha also believes the increased scale of the combined company will allow it to prioritize capital projects over a much larger base of assets and invest in the most productive initiatives, which will amount to more than $50 million of cash savings on a recurring basis above the $150 million in synergies, he said.

Massey's chief executive officer, Baxter Phillips Jr., also said he believes the combination with Alpha is "the best way forward for both companies."

"As a board, we conducted a thorough review of all strategic alternatives and unanimously decided that Alpha was the logical partner for Massey," he said.

"Alpha and Massey are uniquely positioned to create a company that will be more successful together than the companies would be individually."

The transaction is expected to close in mid-2011, subject to approval by each company's stockholders and customary regulatory approvals and conditions.

Abingdon, Va.-based Alpha Natural Resources and Richmond, Va.-based Massey are coal companies.

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