SunCoke cut debt by $53 million in Q1, expects continued deleveraging

By Paul Deckelman

New York, April 27 – SunCoke Energy, Inc., through its 53.9%-owned limited partnership entity, SunCoke Energy Partners, L.P, cut its debt by nearly $53 million during its 2016 first quarter, company executives said Wednesday, and it anticipates continuing its deleveraging during the remainder of the year.

Frederick A. “Fritz” Henderson, chairman and chief executive officer for both SunCoke, a Lisle, Ill.-based producer of coke used in steelmaking and provider of coal mixing and handling services to the steel, coke, electric utility and coal mining industries, and its partnership entity, told analysts on the partnership’s conference call following the release of the quarterly results that “we outlined some goals with respect to deleveraging the balance sheet at Investor Day,” which took place on Dec. 17, “and then, again, we reaffirmed them when we released our fourth-quarter earnings” earlier this year.

“When we look at what was accomplished in the first quarter and cumulatively for six months, we did bring our leverage slightly below 4.0 [times trailing 12-month adjusted EBITDA]. And we are, as I look at what was accomplished in the first year, well on track to achieve our deleveraging goals through 2016.”

$100 million bond reduction

Henderson said that over the past six months, the company reduced the amount of its outstanding unsecured bonds by about $100 million.

During the first quarter ended March 31, the partnership repurchased $52.8 million face value of its outstanding SunCoke Energy Partners 7 3/8% senior notes due 2020 for $32.6 million in the open market, or an average price of 61.72 cents on the dollar, resulting in a $20.4 million gain on extinguishment of debt.

During the 2015 fourth quarter ended Dec. 31, the parent company had redeemed $60.4 million of its outstanding SunCoke Energy 7 5/8% senior notes due 2019. That Oct. 22, 2015 redemption took place at a price of 103.813 plus accrued interest, or $63.7 million total, which included accrued interest of $1 million and a market premium of $2.3 million. The company took a $3.2 million loss on debt extinguishment during the quarter. The redemption was funded using cash of $3.3 million and $60.4 million of borrowings from its revolving credit facility.

According to the company’s most recent 10-Q filing with the Securities and Exchange Commission, as of the end of the first quarter, SunCoke had total consolidated debt of $945.9 million, down from $998.8 million at the end of fiscal 2015 on Dec. 31.

The vast bulk of the debt – $845.7 million – had been incurred by SunCoke Energy Partners, including $499.7 million of the 7 3/8% notes, after taking into account the aforementioned open-market repurchases; $182 million of revolver debt due in 2019; $114 million of promissory note debt due in 2021; and $50 million of term loan debt due 2019.

The company’s consolidated capital structure also included $44.6 million of the parent company’s outstanding 7 5/8% notes, after taking into account the aforementioned 2015 fourth-quarter partial redemption, and $60.4 million of parent company revolver debt due in 2019.

De-levering to continue

During the question-and-answer portion of the call that followed the formal presentations by Henderson and by SunCoke’s chief financial officer and senior vice president Fay West, an analyst asked whether the company plans to continue to retire debt in the coming quarters and continue on that path of de-levering the partnership.

West replied “absolutely.”

While she said that “we’re not going to comment necessarily on what kind of activity has occurred here in April, since we’ve been in [earnings season] blackout” – but added “that is our intent – to continue to de-lever throughout the balance of the year using the excess cash flow generated by the MLP.”

West noted that the company generated $45.9 million of distributable cash flow during the first quarter.

She said that SunCoke is “reaffirming our guidance for 2016, and [we] continue to focus excess cash towards de-levering our balance sheet.” The company anticipates generating between $210 million and $235 million of consolidated adjusted EBITDA in 2016.

As of March 31, consolidated liquidity was some $225 million – $100.7 million at the partnership and $124.1 million at the parent company.

The liquidity consisted of $123 million of revolver availability – $67 million at the partnership facility and $56 million at the parent’s facility – plus $101.8 million of available cash, $33.7 million at the partnership level and $68.1 million at the parent.

© 2015 Prospect News.
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