Fitch Assigns Initial Rating of 'BB-' to Arch Coal; Outlook Stable

Fitch Ratings has assigned an Issuer Default Rating (IDR) at 'BB-' for Arch Coal, Inc. ('Arch Coal', NYSE: ACI). In addition, Fitch assigns a 'BB-' rating to the prospective $2 billion in aggregate of senior notes due 2019 and 2021. A complete list of rating actions is at the end of this release.

The Rating Outlook is Stable.

Arch Coal announced the offering of 44 million shares of common stock and $2 billion in aggregate of senior notes due 2019 and 2021, the proceeds of which, together with drawings under the prospective amended and restated $1.75 billion secured revolving credit agreement, will be used to finance the acquisition of International Coal Group, Inc.

Arch Coal's credit ratings reflect large, well diversified operations, good control of low-cost production, strong liquidity and expectations that financial leverage will return to modest levels within 18 months.

Pro forma liquidity is expected to be strong, with cash on hand of $255.8 million and $1.2 billion of availability estimated under the company's prospective credit facilities. The facilities are expected to mature in five years and have substantially similar terms as the existing facility. Fitch expects Arch Coal to be well within compliance of the amended covenants.

Fitch expects operating cash flows will cover capital expenditures and dividends amply over the next 18 months. Free cash flow is expected to be neutral in 2011 and at least $120 million in 2012. At Dec. 31, 2010, debt due in 2011 was $71 million including $56.9 million drawn under Arch Western's $75 million commercial paper program (annually renewable). The next debt maturity is the $450 million Arch Western notes due in July 2013.

Pro forma total debt/adjusted EBITDA for the latest 12 months ended March 31, 2011, is 4.3 times (x). Fitch expects total debt/operating EBITDA to decline below 3.0x over the next 24 months.

The Stable Outlook reflects Fitch's expectation that Arch Coal will achieve strategic benefits from the merger with International Coal Group and will repay debt to reduce leverage within two years.

Fitch would consider a negative rating action if synergies were not achieved and leverage remained above 3.5x by the end of 2012.

Fitch has assigned the following ratings:

Arch Coal, Inc.

--IDR 'BB-';

--Senior unsecured notes 'BB-'; and

--Senior secured revolving credit facility 'BB'.

Arch Western Finance, LLC

--Senior unsecured notes 'BB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Corporate Rating Methodology' dated Aug. 16, 2010.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

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Contacts:

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Monica M. Bonar, +1-212-908-0579
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Adam Miller, +1-312-368-3113
Director
or
Committee Chairperson:
Sean T. Sexton, CFA, +1-312-368-3130
Managing Director
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