UBS is expected to launch syndication of a $175 million senior credit facility for PinnOak Resources tomorrow. The deal consists of a six-year, $150 million revolver and a seven-year, $175 million term loan. Pricing could not be determined. PinnOak, a Pittsburg, Pa.-based company that produces high quality, low volatile metallurgical coal, will use the term loan to pay a dividend to equity holders, Benjamin Statler, ceo, and Questor Management Co., and use the revolver to fund the growth of the company. Standard & Poor's assigned a B- to the facility.
"This coal is in very short supply, the kind produced by PinnOak and it is in very high demand," said Robert Denious, managing director at Questor. "Prices are attractive, supply and demand is attractive from PinnOak's point of view, the company is doing well and the coal markets are strong. That's why we are doing what we are doing."
PinnOak was formed to acquire two underground coal mines, Pinnacle in West Virginia and Oak Grove in Alabama, both owned by U.S. Steel. At full production, the two mines produce more than 5.5 million tons of met coal per year, which is used in the steel making process. Shortly following the U.S. Steel transaction, PinnOak sold the acquired coal reserves to Natural Resource Partners, a publicly traded limited partnership, but retained the exclusive right to mine the coal in return for royalty payments to NRP. Denious said the decision to turn around and sell the reserves was to generate cash to pay back most of the capital it had taken out to acquire the mines from U.S. Steel.
In the future, acquisitions are a possibility for PinnOak, Denious said. "We are actively looking to grow the company and the undrawn revolver is being reserved for growth," he said. The choice of UBS was based on both Questor and Statler's relationships with the bank, he explained. "We are very familiar with them."