At this point it’s no secret just how abysmal the prospects for coal stocks have been.

The sector has faced the dual threat of rising environmental regulation as well as falling demand due to relatively low natural gas prices. These two factors have basically tied the hands of many utilities, which continue to close coal-fired power plants and open new natural gas powered capacity.

It’s no wonder why the broad coal stocks measure — the Market Vectors Coal ETF (KOL) — has produced an annual return of -14% over the past three years. Year-to-date, the ETF has decreased 11%.

And things continue to get worse for the coal stocks.

Both China and India — the two largest end-users of the fuel — continue to reduce their demand and dependency of coal imports. That includes steel making or metallurgical coal. In fact, new projections by the U.S. Energy Information Administration shows that China is on track to decrease its consumption of coal — going from 69% of its total energy pie back in 2011 to just 55% by 2040.

So needless to say, many analysts are now predicting coals stocks could continue to slide downwards and even face bankruptcy in the near future. But which exact coal stocks could follow James River (JRRCQ) and Patriot Coal (PCXCQ) into bankruptcy? Read on to find out.

Coal Stocks Bankruptcy Candidate #1 — Walter Energy

Bankruptcy Chance: Very High

Walter Energy (WLT) is the current coal stocks whipping boy. And it’s easy to see why — its debt load is massive.

Like many of its coal stocks brothers, WLT made some very ill-timed acquisitions at just the wrong time. Those buyouts were fueled with a hefty amount of debt, and WLT currently has around $3 billion in IOU’s sitting on its balance sheet. That’s a staggering debt-to-equity ratio of 5.2. Now, while WLT has been able to refinance some of that debt at lower rates, it still isn’t out of the woods yet.

The problem is that WLT’s specialty is metallurgical coal, and prices for the steel-making ingredient have plunged from around $330 to $120 per ton. That hasn’t been too good for WLT’s cash flows or margins.Net profit margins for the coal stock are a big fat negative 40%, while WLT’s net operating cash flow has significantly decreased to a negative $74.40 million. That’s a 1480% decrease when comparing cash flows versus this time last year.

All of these factors have helped WLT stock become the target of short-sellers, and analysts are pegging that bankruptcy for the coal producer could be in the near future.

Given all of its negatives, WLT stock has fallen a staggering 85% this year and currently sits under $3. Shares of the coal stock peaked at $141 per share.

Coal Stocks Bankruptcy Candidate #2 — Cloud Peak Energy

Bankruptcy Chance: Very Low

Not every one of the coal stocks got caught up in the buyout binge. Case in point: Cloud Peak Energy (CLD).

Instead of buying broad exposure, CLD just plowed ahead in its main operating area: thermal coal in the Powder River Basin of Wyoming. PRB coal is some of the cleanest burning in the world and is prized by utilities here and abroad. Its prices have remained relatively stable, which has helped CLB generate excess cash and actually helped it reduce its debt levels, while other coal stocks have been trying to refinance their debt to stay alive.

Meanwhile, the firm has room to cut production at several mines to help reduce capex even further. That should give CLD some extra wiggle room to continue plowing ahead during this coal stocks downturn. Having its lenders relax several debt covenants due to its positive financial standing also doesn’t hurt.

All of this means that Cloud Peak will most likely survive the coal stocks rout just fine. In fact, many analysts actually have price targets for shares at higher amounts than what CLD stock is currently trading at. At $12 per share, CLD could actually be a buy.

Coal Stocks Bankruptcy Candidate #3 — Alpha Natural Resources

Bankruptcy Chance: Low

Unfortunately for Alpha Natural Resources (ANR), its big buy of troubled coal stock Massey Energy came at just the wrong time. Coking coal is in the dumps and, as one of the biggest pure-metallurgical coal players, so is ANR stock.

At one time, ANR stock fetched $67 dollars per share. Now it trades for barely more than $2 per share.

Like its other coking coal stocks rivals, lower prices for steel-making coal have crimped cash flows and profits margins. That drop highlighted the big risk for ANR — namely its $3.4 billion in debt.

But ANR’s bankruptcy risk is only so-so according to analysts. The key for the Massey deal was much of that was done with equity dilution. Meanwhile, Alpha still has plenty of wiggle room on its balance sheet — with total liquidity of cash & equivalents of approximately $2.4 billion. Additionally, ANR has pushed out its debt due dates to give itself the needed time for the coal market to recover. Add in the ability to cut capacity further, and you have a recipe for an extended life.

Obviously, the key for ANR stock is the longer term. If thermal coal continues to weaken and demand doesn’t pick up, Alpha could be at the mercy of the bankruptcy gods. However, at $2, ANR stock makes an interesting “lotto ticket” on the long-term fate of coal.

Coal Stocks Bankruptcy Candidate #4 — Peabody Energy

Bankruptcy Chance: Low

Unlike other coal stocks, Peabody Energy’s (BTU) issues aren’t just localized, but international. BTU’s big headache comes from its buys of various Australian miners.

The idea was that by owning the coal supplies right in China and India’s backyards, BTU would be in the best position to profit from their hunger. That hasn’t exactly panned out as planned. Prices for PCI — the specialized coal produced in BTU’s Australian mines — have tanked along with the rest of the coal sector. Add in the high cost of production in the land down under and you can see why BTU has suffered.

All in all, the lesson cost BTU around $6 billion in total debt.

However, despite that high number, bankruptcy risk remains low for BTU. Only around $21 million of that debt matures by June of next year — thanks to a debt swap which pushed the due date out to 2020. Meanwhile, BTU has ample liquidity to get it through any issues. At the end of the second quarter, BTU had almost $500 million in cash and $2.1 billion worth of total liquidity available.

That makes it bankruptcy risk pretty low when compared to other coal stocks.

And if coal demand picks up, those mines across the world could be the key for BTU stock to rise once again.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities. However, heplans on opening positions in ANR, CLD, BTU and Arch Coal (ACI) within the next few trading sessions.