FELP - Foresight Energy

[awindenberger]

It's just such a bummer that Obama created policies that favor clean energy instead of coal...

 

Murray should realize that anyone thats not a coal miner or mine owner prefers cleaner energy if its of similar cost. Renewables aren't quite there yet, but they will be once the cost of storage comes down enough.

 

This will take a few years, hence why I'll happy to buy undervalued FELP in the interim.

[gadfly]

Pretty encouraging stuff lately with nat gas prices, summer weather and good price action from some other less leveraged coal MLPs like ARLP and CNXC. Not to mention FELP up a lot today on sorta decent volume.

 

One thing that has worried me lately is Bob Murray. I wonder why he is pursuing such a strong media offensive right now. It seems like every other day he is on TV or in print sounding off on the EPA and Obama. As a coal exc you'd think the right strategy would be to toil in anonymity...maybe he's trying to ride the Trump wave? I hope it's not desperate behavior.

 

Anyone have any insight into how the ongoing Murray creditor negotiations could affect FELP? Also, has there been any news about Deer run lately?

[Picasso]

Not sure about the MEC negotiations. They have a term loan coming due pretty soon.

 

I haven't seen any news with Deer Run.  If we could get some progress there, that could be a pretty huge catalyst for the equity.  Otherwise they'll have to convert Hillsboro to continuous mining and the cost structure goes up a bit.

 

One other thing that seems like a big deal to me.  You would think that if Cline/Murray didn't see the value in their IDR's, they would be okay with giving out whatever warrants on the debt swap.  But instead they reduced the warrant component.  Which sort of leads me to think that they'll come up with something clever to refinance the PIK's and avoid extra dilution.  If they were willing to go through this effort to get a 4 million unit reduction in dilution, then I feel pretty good about the August 2017 maturity being done in a fair manner.  Also Cline isn't taking accrued interest on his FELP tender which is another indication that they're being thoughtful about how much value is being extracted from equity holders.

[valcont]

Any idea why its up 12%?  I don't see any new filing.

[Patmo]

I spread printouts of Picasso's posts throughout my neighborhood this morning, looking to share the Good News. That should be it...

 

[heth247]

Any idea why its up 12%?  I don't see any new filing.

 

Actually, you should ask "why is it still below $3"?  ;)

[valcont]

Agree. Having owned FCAU for the last two years,should've learnt that I have no clue what the catalyst are.

 

I guess I have to vote for Trump to get this stock moving.

[Picasso]

Up until a month ago I was able to buy FELP notes at around 71.  I tried to pick some up this week and I started hearing back that no one wanted to sell because of the upcoming tender.  So if they're not selling to me (there's been no volume in the notes since I purchased last and I was willing to bid up a decent amount in the $70's) then I'd be super surprised if there was enough no votes on this tender to mess up the swap.  Why say no to an offer around $95+?  Add in all the improvements in fundamentals and I think you have quite a nice catalyst after they exit this technical default.

 

Plus SunCoke had some interesting comments from their earnings call (since they own the export terminal that FELP and MEC run volumes through).  There wasn't any improvement in export volumes in the 2Q, which probably means that the extra volumes produced are either going into the higher margin domestic market and/or we're also going to see extra volume put through their Convent terminal later in the year.  And with a pretty decent forward curve on API 2, it doesn't seem like some short term dead cat bounce. 

 

It's also important to note that FELP isn't trading for $2.50 because coal is dead.  If you look at where CNXC or ARLP trades, any repricing closer to those comps would put it multiples higher.  So the market is still pricing in lots of dilution or a deal falling apart.  But again the structure of this swap isn't so that you'll get massively diluted.  As the market hopefully recognizes this, the higher the units trade, the less impact dilution has on the valuation because we have a fixed dollar refinance coming up.  But if the market is indeed warming up to coal then there's probably other refinance options, including taking out the more restrictive 2021 2nd liens.  Which makes this is a situation where the higher the stock goes, the better the outcome gets and the intrinsic value also goes up.  I think that's what you're normally looking for for multi bagger type returns.

 

So if you step back and think about this for a minute... you have two guys who own 85% of the equity still playing for maximum equity upside, potential bankruptcy is going to be averted, coal is bouncing off the lows and CEO's of CNXC and CLD are finally positive on the turn, there is massive operating and financial leverage, half the share count is subordinated and way out of the money which cushions the downside risk in dilution, and it's in a sector which is extremely hated.  I really like all those things about this investment.

 

All that said, I think $2.50 is still really compelling so I bought more today.  I own so much of it that I may sell some after they exit technical default, but not quite sure yet...  We'll see how the market reacts to a clean entity versus one several months into potential bankruptcy. 

[Patmo]

Also, lets take a look behind us and appreciate the fact that this stock already more than doubled since its recent lows. Not sure that complaining about this company's stock not moving is warranted.

 

Personally I shed a tear thinking about how awesome the coal space, and resource-related in general, has done and continues to do this year.

 

[valcont]

I was being sarcastic. My cost basis was $1.70 so I can't complain. I am just surprised at how many stocks have been overtaken by the macros in this market.

[valcont]

Wow what a momentum. I am really tempted to sell half of my position. A lot of day traders are jumping in. Better to buy before close.

[Picasso]

Am I the only guy who is hodling?

 

https://bitcointalk.org/index.php?topic=375643.0

[PullTheTrigger]

I'm hodling.

 

If we are at the turn of the coal market and FELP gets repriced similar to CNXC and ARLP, as you said Picasso, I think it's better to hold.

 

 

 

[leviathan]

Am I the only guy who is hodling?

 

https://bitcointalk.org/index.php?topic=375643.0

 

Today, we are all hodling.

[valcont]

I should have explained my reasoning as I don't want to turn this board into a twitter dialog. Actually I am the worst timer, I bought this stock at $2.20 and had to average down quite a bit to get my cost basis to $1.70. I hate it when I find myself in this situation but I just couldn't believe Murray will drop $1.3B and watch the dilution over a technical default. And no bondholder would take that to the bankruptcy. Good luck selling coal assets or running one. My valuation wasn't even close to what you guys came up with correctly but I can spot a cigar butt from a distance.

 

 

[sampr01]

Hi Picasso,

 

Lets get back to boring stuff like EBITDA. Do you see a significant improvement in ~EBTIDA with recent price improvements in export coal and domestic coal (with base EBTIDA ~$ 264 millions at $12 margins).

 

Thanks for the idea as well as all of the info you provided (on and offline). I don't to make same mistake as I did with SXC (will follow peter lynch advise on winners).

 

Thanks

 

 

 

 

Am I the only guy who is hodling?

 

https://bitcointalk.org/index.php?topic=375643.0

[Picasso]

I should have explained my reasoning as I don't want to turn this board into a twitter dialog. Actually I am the worst timer, I bought this stock at $2.20 and had to average down quite a bit to get my cost basis to $1.70. I hate it when I find myself in this situation but I just couldn't believe Murray will drop $1.3B and watch the dilution over a technical default. And no bondholder would take that to the bankruptcy. Good luck selling coal assets or running one. My valuation wasn't even close to what you guys came up with correctly but I can spot a cigar butt from a distance.

 

I think it's one of those human tendencies that results from having gone through a lot of anguish.  A lot of FELP holders are used to seeing the stock go down, and it might have been painful or frustrating, so recouping losses or getting a decent exit price can be appealing.  It amazes me how many investors identify a great investment and then just as soon as things are improving, they are happy to sell for some 50% gain.  Or whatever the gain is.  Not because they think they are getting a fully valued price, but just to pull some chips off the table.  It's so detrimental to long-term returns but investors do it all the time.

 

It's sort of like options traders.  Bad option traders take chips off when they get a double or triple.  Then they get hit with a string of losses and they end up wiping out their capital.  Good option traders hold their bets to realize as much of the upside as long as it's warranted.  Because they know it doesn't come around often and they need to make the most of those opportunities.  FELP was an option (still is) so you almost have to approach it like that as well.

 

I look at the current price, improvement in fundamentals, the structure of this note exchange, and just can't see how this stock is still trading $2.85 (less at the time I'm posting).  Now it's possible that fundamentals get terrible next year.  But it seems much more probable that the opposite happens.  You also have to ask yourself whether Murray/Cline would go through all this trouble to have the common units trading at $3 or $4. 

 

Anyway, we'll see what happens. 

[awindenberger]

Wild trading on FELP today. First we see panic buying sending the stock up as high as $3.54 in the morning, then panic selling at the close to drop it as low as $2.25 in the last 30mins, before closing the day around $2.85.

[Picasso]

Cline started the tender for the notes.  My guess is some algo saw the headlines I attached... Amazing.

[Picasso]

Oh god... Bloomberg put out this news report:

 

(Bloomberg) --

Foresight Energy LP is planning to launch a debt exchange as early as Monday that could allow the struggling coal miner to avert a potential bankruptcy and give bondholders a majority stake, according to people with direct knowledge of the matter.

 

The coal company, which previously disclosed it was in talks with certain lenders about a deal, will offer to swap existing debt for a combination of convertible pay-in-kind securities, cash and warrants, according to the people, who asked not to be named because the arrangements haven’t been publicly announced.

 

The terms could give bondholders a 75 percent equity stake and warrants for 4.5 percent, the people said.

 

Gary Broadbent, a spokesman at Foresight, declined to comment.

 

No, the idea isn't to give bondholders a majority stake... And if that happens they won't get a 75% stake plus the 4.5% warrants.  They only get the 4.5% warrants spread across the PIK's if they are redeemed for cash.

[valcont]

Oh god... Bloomberg put out this news report:

 

(Bloomberg) --

Foresight Energy LP is planning to launch a debt exchange as early as Monday that could allow the struggling coal miner to avert a potential bankruptcy and give bondholders a majority stake, according to people with direct knowledge of the matter.

 

The coal company, which previously disclosed it was in talks with certain lenders about a deal, will offer to swap existing debt for a combination of convertible pay-in-kind securities, cash and warrants, according to the people, who asked not to be named because the arrangements haven’t been publicly announced.

 

The terms could give bondholders a 75 percent equity stake and warrants for 4.5 percent, the people said...

 

 

Thanks for the clarification. I couldn't believe that the bondholders can get such a sweetheart deal without forcing them into bankruptcy.

 

[awindenberger]

Im confused, nothing new is happening that we didn't already know right? The Bloomberg reporter is simply misunderstanding what is happening.

[Picasso]

Here's an updated one.

 

(Bloomberg) --

Foresight Energy LP launched a debt exchange that could buy time for the struggling coal miner to ride out the industry’s long-running slump.

 

The coal company founded by billionaire Christopher Cline offered to swap existing debt for pay-in-kind securities that could eventually be exchanged for common units, as well as cash and warrants, according to a statement Monday.

 

The deal could end a dispute with investors who claimed Foresight had triggered a clause that required the company to repay all of its notes at a premium when it agreed to be partially bought by rival Murray Energy Corp. last year. Foresight has already persuaded key holders of its $600 million of 7.875 percent senior unsecured notes maturing 2021 to sign up for the deal, according to a July 25 regulatory filing.

 

Gary Broadbent, a spokesman for Foresight, declined to elaborate beyond the statement. Foresight is restructuring its debt as America’s coal miners struggle to survive the worst industry downturn in decades. Cheap natural gas, new environmental regulations and weakening demand abroad have driven the country’s largest miners, including Peabody Energy Corp., Arch Coal Inc. and Alpha Natural Resources Inc., into bankruptcy.

 

Foresight shares gained 33 cents, or 13 percent, to $2.83 in New York. The stock is down more than 80 percent over the past two years.

 

Who Gets What

 

Terms include giving current holders new senior secured second-lien notes due 2021 that offer a 9 percent cash coupon for the first two years, and 10 percent after that, according to the latest filing. They’d get an additional 1 percent paid-in-kind throughout, among other terms. PIK securities typically issue more notes in lieu of cash.

 

Holders would also get senior secured second-lien notes with a 15 percent PIK coupon that runs until October 2017. After that, they’d automatically be exchanged for common units, plus warrants equal to 4.5 percent of those units.

 

The company didn’t specify the numerical common stake for bondholders after the conversion. A previous filing that disclosed preliminary terms put the figure at about 75 percent.

 

The dispute with bondholders began after Murray bought a 50 percent stake in St. Louis-based Foresight a year ago. The creditors argued that the acquisition amounted to a change of control and pushed to be repaid at a premium.

 

Senior lenders plan to cut the amount available under Foresight’s credit facility by $75 million and will lower it by another $25 million by the end of the year, according to last month’s regulatory filing.

 

It's in the filings... Murray needs to exercise their right for the remaining 15% of FELP, redeem the PIK notes and then dilution is limited to 4.5%.  If they issue equity to do the redemption, it's done at the higher of the 30-day VWAP or 0.88/unit.  So if FELP is trading at $4, then divide say $250 million (they'll likely be repurchasing PIK debt ahead of the redemption date) into $4 for another 62.5 million units.  Total common units would total 132 million, subordinated units would total 65 million.  Total units would go from 130 million to 197 million.  Even in that scenario ($4 is probably a low figure for the VWAP), noteholders wouldn't own anywhere close to 75% of the company.  75% dilution is the worst that can possibly happen if FELP somewhere trades for less than $0.88/unit by August 2017.  It didn't even trade there when there was massive Fidelity selling and all the bankruptcy talk.  And if coal does improve then it's likely they'll refinance out all the debt.  A lot of things become possible once they exit default.

[wachtwoord]

All I want to contribute right now is that I'm holding and it's a large relative position for me (at the spike yesterday it was my largest holding at nearly 20% of my portfolio). My average buy price is $1.70 (I'm probably relatively high compared to most of you).

 

I'm continously keeping watch on this for when to sell but for now think it's unlikely that selling any before $4 is a good idea at least. Thanks for updating this topic, extremely valuable information for me (especially since I'm on holiday on my phone).

[awindenberger]

Thanks again Picasso. I've learned a lot from you on FELP and SXC(P) these past few months.