Natural Resource Partners L.P. ‘B’ Issuer Credit Rating Affirmed; Off Credit Watch, Outlook Revised to Positive

  • Natural Resource Partners L.P. (NRP) used part of the proceeds from the previously completed sale of its construction aggregates segment ($197 million after transaction expenses) to repay approximately $144 million of outstanding debt.
  • We anticipate adjusted leverage will continue to fall, reaching 4.1x by the end of 2019 compared to 4.8x and 4.2x as of year-end 2017 and 2018 respectively.
  • Therefore, we are affirming our 'B' issuer credit rating on NRP and removing all ratings from credit watch with positive implications, where we placed it on Nov 19, 2018. The outlook is positive.
  • At the same time, we are affirming our 'B' issue-level rating on the company's $346 million senior unsecured notes and revising the recovery rating to '3' from '4'.
  • The positive outlook reflects our assumption that NRP will benefit from high international metallurgical (met) and thermal coal prices, partially offset by continued decline in thermal production. We expect NRP will generate $140-150 million of free operating cash flow (FOCF) in 2019.
NEW YORK (S&P Global Ratings) Feb. 1, 2019-- S&P Global Ratings today took the 
rating actions listed above. The positive outlook of NRP is driven by lower 
absolute debt levels, improved credit metrics and our expectation for stable 
cash flows in the next 12 months. The company repaid approximately $144 
million in outstanding debt since the asset sale completed in December 2018. 
NRP will use remaining $53 million in proceeds to pre-fund the amortization 
payments of its NRP Operating Co. (Opco) notes (about $67 million scheduled 
for 2019). This will enable the company to build its cash balance in the next 
12 months that we anticipate will approach $170 million by year-end 2019. 

The positive outlook reflects our expectation that NRP will continue to lower 
leverage in the next 12 months. We also expect the company to generate stable 
cash flows driven by strong export met and thermal demand, partially offset by 
lower domestic thermal production. We anticipate the company to generate 
approximately $140-150 million in FOCF, which is roughly unchanged from our 
2018 expectations. This should allow the company to continue to make mandatory 
debt repayments and lower adjusted leverage to about 4x in the next 12 months.

We could revise the outlook to stable if we believe there is a material 
decline in the international met and thermal coal prices and sharp production 
decline coal, causing leverage to increase and remain above 4x. This could 
occur if met coal prices drop 20%-30 in the next 12 months, causing EBITDA to 
drop by about 10%-15% from our base-case expectations. We could also lower the 
rating if the company implements a more aggressive financial policy that 
results in debt-financed distributions or weaker liquidity.  
We could raise the rating over the next 12 months if we believe that adjusted 
leverage could fall and be sustained below 4x. This could occur there is a 
material improvement in met and thermal production volumes and price 
realizations, causing EBITDA to improve above $225 million. Additionally, we 
could raise the rating if the company refinances its revolving credit facility 
due April 2020 in 2019.
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