FELP - Foresight Energy

[Picasso]

I posted something to that tune on Twitter.  The coal export terminal that Cline used to own and sold to SXCP last summer can push through 15Mt of exports.  Murray and Foresight each have a 5 Mt take-or-pay with that facility.  As of the end of the 1Q Foresight only hedged 1Mt.  And if you go through SXCP earnings they were only using about 60% of their capacity at the export terminal in the 1Q.  Or it might be less than 60%, I'm just going off memory. 

 

If they can push through more volume above their minimum 5Mt levels, that's maybe $4-5 margins per ton at $57 API 2.  Maybe more if you give credit for the fact that it's incremental tonnage and costs are pretty fixed, so per ton costs are probably going down.  I think it would strongly imply that volumes will hold up pretty well this year.  And Foresight seems best positioned as the first producer to be "in the money" on coal exports at current API 2 pricing.  I don't think even Murray is at that level.

[sampr01]

Is there way track domestic coal spot price?. Is it the same?

[Picasso]

ILB spot is different. https://www.eia.gov/coal/markets/

 

SNL Energy has some useful information in terms of local pricing. I noticed that some utilities are pulling in spot from Foresight in the high $30's as recently as the 1Q, but it varies. That utility also had contracts with Foresight running off in 2016 and 2018, so kind of interesting to see them pull additional volume at spot.  I'd need to dig in more to see if that's happening at ARLP.  They also signed a contract for 1Mt and an option up to 3Mt with LG-KU at $38-42 out into 2019. 

 

SNL is around $36k per year, so I haven't decided to purchase it yet because I was sort of hoping I wouldn't need to. But I did a demo with a rep to go through some pieces of their data that I can't find elsewhere and it's getting to the point where I think I need to bite that bullet.  If anyone has access to help out with some data I'm looking for, that'd be helpful.  It seemed to me like the Western producers are at massive risk and I'd like to cross check which utilities are pulling from PRB that can instead pull from FELP more cheaply. 

[sampr01]

Thanks for the info. if they do volume 22 mill tons (17 mt to domestic and 5mt) this year. Foresight will have $20-25 mil from exports at $5 margin per ton and $170 mil from domestic at $10 margins per ton. Is it correct math if all variables are same?. EIA shows only $32 per ton for ILB coal, where did you get the info on high $30's pricing?

 

Thanks

 

ILB spot is different. https://www.eia.gov/coal/markets/

 

SNL Energy has some useful information in terms of local pricing. I noticed that some utilities are pulling in spot from Foresight in the high $30's as recently as the 1Q, but it varies. That utility also had contracts with Foresight running off in 2016 and 2018, so kind of interesting to see them pull additional volume at spot.  I'd need to dig in more to see if that's happening at ARLP.  They also signed a contract for 1Mt and an option up to 3Mt with LG-KU at $38-42 out into 2019. 

 

SNL is around $36k per year, so I haven't decided to purchase it yet because I was sort of hoping I wouldn't need to. But I did a demo with a rep to go through some pieces of their data that I can't find elsewhere and it's getting to the point where I think I need to bite that bullet.  If anyone has access to help out with some data I'm looking for, that'd be helpful.  It seemed to me like the Western producers are at massive risk and I'd like to cross check which utilities are pulling from PRB that can instead pull from FELP more cheaply.

[Picasso]

$10 margins on the ILB seems really low considering they did $13 margins in the 1Q on very little tons sold. The $13 margins also include pretty much no margins on the export volumes, so overall ILB is likely a lot higher than $10.

 

SNL has all volumes and pricing going into various plants, but high $30's was not the netback price to Foresight. I'd have to dig back into it to get a better idea.

[heth247]

Picasso, how to follow you on Twitter? thanks.

[sampr01]

Hi Picasso

 

Do we have a way to find out how many notes were tendered. I hope they had enough and July 15th is the deadline.

 

:)

ILB spot is different. https://www.eia.gov/coal/markets/

 

SNL Energy has some useful information in terms of local pricing. I noticed that some utilities are pulling in spot from Foresight in the high $30's as recently as the 1Q, but it varies. That utility also had contracts with Foresight running off in 2016 and 2018, so kind of interesting to see them pull additional volume at spot.  I'd need to dig in more to see if that's happening at ARLP.  They also signed a contract for 1Mt and an option up to 3Mt with LG-KU at $38-42 out into 2019. 

 

SNL is around $36k per year, so I haven't decided to purchase it yet because I was sort of hoping I wouldn't need to. But I did a demo with a rep to go through some pieces of their data that I can't find elsewhere and it's getting to the point where I think I need to bite that bullet.  If anyone has access to help out with some data I'm looking for, that'd be helpful.  It seemed to me like the Western producers are at massive risk and I'd like to cross check which utilities are pulling from PRB that can instead pull from FELP more cheaply.

[Picasso]

There's still no note tender from Cline.  I think there may be some change to the note swap but I'm trying to figure out what that may be.  I spoke with Murray and SunCoke about this and they sort of mentioned that certain terms are still being worked through.  In that sense something could still fall apart.

 

I did take a look at Murray's financials (they're subject to NDA so don't want to say a lot).  I think I know what is going on but I'm not entirely certain.  Rather than speculate I'd rather just let the chips fall. 

[sampr01]

 

Thanks for the color. DMed you on twitter. Hope its the good for Murray subordinates.

 

:)

@YoloCapMgt is my handle. 

 

There's still no note tender from Cline.  I think there may be some change to the note swap but I'm trying to figure out what that may be.  I spoke with Murray and SunCoke about this and they sort of mentioned that certain terms are still being worked through.  In that sense something could still fall apart.

 

I did take a look at Murray's financials (they're subject to NDA so don't want to say a lot).  I think I know what is going on but I'm not entirely certain.  Rather than speculate I'd rather just let the chips fall.  But if you DM me on twitter I could probably go into more detail.

[Picasso]

I forgot to update this before, but Fidelity is officially out.

[wachtwoord]

Thanks that you keep updating this and good news!

[wachtwoord]

Up ten percent rather quickly (on not out of the ordinary volume as far as I can see). Any news?

[heth247]

No SEC filings, and no news....

 

And I guess Picasso must be busy playing Pokemon Go....  ;)

[Picasso]

So there's the confirmation that they're trying to make a change to the note restructuring.  My best guess is that April 2017 is too soon of a maturity on the PIK's.  If they can successfully make any incremental improvement there, then that's probably a better outcome for the equity.  We have some new extensions expiring in August.

[sampr01]

Hi Picasso

 

It looks like Cline don't want to contribute more money for this transaction and he is dragging his feet with so many extensions. May be that's the reason for  support agreement between the Murray and Cline Dev.

 

Thanks for your analysis

 

So there's the confirmation that they're trying to make a change to the note restructuring.  My best guess is that April 2017 is too soon of a maturity on the PIK's.  If they can successfully make any incremental improvement there, then that's probably a better outcome for the equity.  We have some new extensions expiring in August.

[Picasso]

There's probably more to it than that.  As it stands, Cline will be buying back his stake at 10% of what he sold it for a year ago should Murray be unable to come up with funds by April 2017.  If you look at Murray debt trading volume, maybe Murray wants to spend the next year reducing leverage at Murray without having to also figure out a way to redeem the PIK's by April.  If they can extend that April 2017 PIK, then Cline doesn't have to worry about Murray going into bankruptcy and causing other issues for FELP.  I doubt Cline has any issues with the current deal structure, but it may make more sense for all parties to give Murray additional time to generate cash. 

[sampr01]

Hi Dennis,

 

Thanks for the color. Someone slowly accumulating with a disciplined approach (buying around 2.00 in early hours).

 

http://www.snl.com/web/client?auth=inherit#news/article?id=37108889&cdid=A-37108889-11048

 

It looks like ILB region coal production is down 6.2% quarter to quarter (Q1 to Q2). It looks like FELP has to produce more in H2 2016.

 

 

There's probably more to it than that.  As it stands, Cline will be buying back his stake at 10% of what he sold it for a year ago should Murray be unable to come up with funds by April 2017.  If you look at Murray debt trading volume, maybe Murray wants to spend the next year reducing leverage at Murray without having to also figure out a way to redeem the PIK's by April.  If they can extend that April 2017 PIK, then Cline doesn't have to worry about Murray going into bankruptcy and causing other issues for FELP.  I doubt Cline has any issues with the current deal structure, but it may make more sense for all parties to give Murray additional time to generate cash.

[PullTheTrigger]

Increased production.

 

http://www.platts.com/latest-news/coal/houston/ilb-q2-coal-production-totals-234-million-st-21063126

[sampr01]

Hi Picasso

 

Any thoughts on amended agreement. Thanks

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?filingid=11501334&tabindex=2&type=html

[Picasso]

So my speculation was close enough to the mark, the PIK's will have a September 2017 maturity instead of April.  That's a big positive.  Also less warrants are being issued (~6 million versus 9.8 million).  Tender launch date should begin August 1st and we should be looking at the new capital structure on September 1st.  Downside is they still have that excess cash flow sweep feature through 2017.

[sampr01]

Thanks. It looks like no Dividends till later half of 2018 based on "the prohibition of certain restricted payments in 2016, 2017 and the first six months of 2018".

 

 

 

So my speculation was close enough to the mark, the PIK's will have a September 2017 maturity instead of April.  That's a big positive.  Also less warrants are being issued (~6 million versus 9.8 million).  Tender launch date should begin August 1st and we should be looking at the new capital structure on September 1st.  Downside is they still have that excess cash flow sweep feature through 2017.

[heth247]

Why? Isn't that "excessive cash flow sweep" requirement only for 50% of the excess cash flow? So can't they still pay out the other 50% for dividend?  I haven't checked the covenant for leverage ratio though.

 

Thanks. It looks like no Dividends till later half of 2018 based on "the prohibition of certain restricted payments in 2016, 2017 and the first six months of 2018".

 

So my speculation was close enough to the mark, the PIK's will have a September 2017 maturity instead of April.  That's a big positive.  Also less warrants are being issued (~6 million versus 9.8 million).  Tender launch date should begin August 1st and we should be looking at the new capital structure on September 1st.  Downside is they still have that excess cash flow sweep feature through 2017.

[heth247]

I am sorry, yes you are right. Just got more time to read it:

 

(iii) the Restricted Payment covenant shall be modified to (A) prohibit any Restricted Payments by the Borrower during fiscal year 2016, (B) prohibit Restricted Payments (other than permitted Tax Distributions and TRA Distributions described in clause © below) from January 1, 2017 until the later to occur of (x) June 30, 2018 and (y) the refinancing of the Revolving Facility and © permit Tax Distributions and TRA Distributions by the Borrower during fiscal years 2017 and 2018 and thereafter, provided that Tax Distributions related to cancellation of debt income shall be capped at $15 million per fiscal year; provided, further , that in each case such provisions shall be subject to customary exceptions to permit payments of expenses of the MLP and the General Partner, payments under the MSA and other customary exceptions to be agreed;

 

 

 

Why? Isn't that "excessive cash flow sweep" requirement only for 50% of the excess cash flow? So can't they still pay out the other 50% for dividend?  I haven't checked the covenant for leverage ratio though.

 

Thanks. It looks like no Dividends till later half of 2018 based on "the prohibition of certain restricted payments in 2016, 2017 and the first six months of 2018".

 

So my speculation was close enough to the mark, the PIK's will have a September 2017 maturity instead of April.  That's a big positive.  Also less warrants are being issued (~6 million versus 9.8 million).  Tender launch date should begin August 1st and we should be looking at the new capital structure on September 1st.  Downside is they still have that excess cash flow sweep feature through 2017.

[hswoon]

Lowered senior secured leverage ratios:

(a) 3.8 to 1 through the end of 2016; (b) 4.0 to 1 during 2017; © 3.8 to 1 during 2018; (d) 3.5 to 1 during 2019; and (e) 3.25 to 1

during 2020;

 

to

 

(a) 3.5 to 1 through the end of 2016; (b) 3.5 to 1 during 2017; © 3.5 to

1 during 2018; (d) 3.25 to 1 during 2019; (e) 3.00 to 1 during 2020; and (f) 2.75 to 1 during 2021

 

[Picasso]

After falling nearly 30% from the previous year during the first quarter of this year, production at mines owned by Ohio-based coal producer Murray Energy Corp. flattened out in the second quarter, slipping just 5.2% from last year and less than a percent from the previous period.

 

During the second quarter of 2016, Murray Energy mines produced 11.1 million tons of coal, down from 11.7 million tons in the year-ago period and 11.2 million tons in the first quarter of the year.

 

According to data compiled by the U.S. Mine Safety and Health Administration, output at Murray mines not jointly owned with Foresight Energy LP remained virtually flat from the first quarter of this year overall, though certain individual mines saw sharp changes quarter to quarter and year to year.

 

Company spokesman Gary Broadbent explained the slight decline as a result of "scheduling changes which reflect the total destruction of the United States coal industry, as caused by the policies of the Obama Administration and the increased use of natural gas to generate electricity."

 

The largest increases in production over last year were seen at the company's Lila Canyon mine, climbing 477% over 2015, and its Monongalia County facility, growing by 211%.

 

Broadbent said both increases in production were a result of the mines not being operational during the first half of 2015.

 

Located in the Uinta Basin, the Lila Canyon mine saw its sharp increase in output as company CEO and founder, Robert Murray, predicted an end to westbound production in the basin by 2030. The basin is made up of facilities in Utah and Colorado.

 

In early June, Murray told S&P Global Market Intelligence that an earlier prediction he made about the basin's future was becoming a reality far quicker than he expected.

 

"Uinta Basin coal going west and power from coal in Utah going west is going to be totally eliminated in time so that's why I said five years ago that the Uinta Basin would be destroyed," Murray said, adding that Colorado wasn't doing much better. "I see a rapid decline in the Uinta Basin."

 

From the first quarter of this year, Murray witnessed growth in output at a number of its Northern Appalachian and Illinois Basin mines, with the largest percentage increase seen at its New Future facility. Production at the mine climbed 79.7% from the first quarter, though it dropped by a little over 50% from the same period last year.

 

Production at Murray's Powhatan No. 6 mine fell 11.3% from the year-ago period and 17.1% from the previous quarter, but is expected to see a much sharper decline in the months ahead. In May, Murray announced that it will wrap up underground coal mining production at the mine in November 2016. The facility was slated to close this month, but closure was extended for a few months, pushing back a series of likely staff transfers and layoffs.

 

Another one of the company's mines will also see a sharp drop-off in the months ahead at its New Era facility.

 

Production at the mine fell 15.6% from the same quarter in 2015 and nearly 50% from the previous period, but is scheduled to cease operations in October, "on completion of mining in the current longwall panel."

 

Even as it plans for mine closures and the possibility of thousands of layoffs in the months ahead, Murray does have some intention of expanding its production reach. Earlier this month, Murray told S&P Global Market Intelligence that it filed a permit application with the West Virginia Department of Environmental Protection to add about 7,200 acres of coal reserves to the Marion County coal mine in northern West Virginia.

 

The Marion County mine produced 783,381 tons in the second quarter of this year, amounting to a 54.6% drop from the year-ago period and a 37.6% increase over the first quarter of 2016.

 

This Murray guy.  Never misses a chance to blame Obama.