S&P may cut Massey Energy rating after mine disaster

NEW YORK (BestGrowthStock) – Standard & Poor’s on Tuesday said it may cut its ratings on Massey Energy (MEE.N: ) deeper into junk territory, saying the disaster at one of its coal mines could bring greater regulatory scrutiny that would hurt the company’s production.

At least 25 miners were killed at a West Virginia coal mine owned by Massey in one of the deadliest U.S. mining disasters in decades.

S&P said it may cut Massey’s rating from BB-minus, already three notches below investment grade.

“The action reflects the uncertainty surrounding the potential impact on the company’s overall production this year,” S&P said in a statement.

Massey may lose up to $50 million in earnings from production losses at the West Virginia mine, though this in itself is unlikely to provoke a downgrade, S&P said.

Greater scrutiny from regulators, however, at the company’s mines in Central Appalachia could affect Massey’s production in the near term, the rating agency added.

It also said “uncertainty exists regarding the impact on the company’s worker’s compensation liability and any impact potential lawsuits brought against the company may have on its overall financial profile.”

The cost of insuring Massey’s debt with credit default swaps rose on Tuesday to 390 basis points — or $390,000 per year for five years to insure $10 million in debt — from 378 basis points on Monday, according to Markit Intraday.

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S&P may cut Massey Energy rating after mine disaster