FELP - Foresight Energy

[Picasso]

Picasso et al,

  What are your thoughts on Murray's plan for post default FELP? One of the reasons he paid up for it last year was potential tax advantaged drop down  from Murray to FELP with lower cost of capital and to use FELP to buy up the coal assets by accessing the capital markets. This isn't true anymore although he can still get some accretive synergies. FELP wouldn't trade as stable yield vehicle for atleast a year or two so until then aren't we in a commodity play here?

 

I don't think his plan has changed.  It just might take a couple extra years to get back to square one.  I do agree that the closer it trades to peers the more commodity-like this investment becomes.  So having a view on their coal and margins will become a lot more important for all the upside optionality we didn't have to pay for.

[valcont]

Picasso et al,

  What are your thoughts on Murray's plan for post default FELP? One of the reasons he paid up for it last year was potential tax advantaged drop down  from Murray to FELP with lower cost of capital and to use FELP to buy up the coal assets by accessing the capital markets. This isn't true anymore although he can still get some accretive synergies. FELP wouldn't trade as stable yield vehicle for atleast a year or two so until then aren't we in a commodity play here?

 

I don't think his plan has changed.  It just might take a couple extra years to get back to square one.  I do agree that the closer it trades to peers the more commodity-like this investment becomes.  So having a view on their coal and margins will become a lot more important for all the upside optionality we didn't have to pay for.

 

Thanks Picasso,

  Yes the margins are going to play a big role. IB mid sulfur is trading at $32 and their basis is about $22(probably the cheapest) . API2 is at $57 so some margin there as well. You'll see a lot of mine closures at $27-28 so there is an optionality to buy assets on fire sale. I won't be surprised if Hillsboro suddenly becomes operational after the restructuring drama  ;)

[heth247]

What happened at the close today?!

[Picasso]

What happened at the close today?!

 

You asked the same question on the last day of June. Not sure why someone throws end of month orders at an illiquid stock like this, but it seems to happen a lot with FELP.

[indirect]

daytraders going wild?

[Picasso]

daytraders going wild?

 

I have that on VHS somewhere.

[wachtwoord]

What happened at the close today?!

 

You asked the same question on the last day of June. Not sure why someone throws end of month orders at an illiquid stock like this, but it seems to happen a lot with FELP.

 

Broken algo? Manipulating (downward) some metric which only looks at the end of month price of a stock?

[writser]

Quant traders are not _that_ stupid .. Probably a human being playing around trying to achieve something arbitrary (and probably not with his own money).

[heth247]

Hi, Picasso,

 

Murray paid ~$20 for the sub units, and they issued debt with coupon of 11.25% to finance it.  Ignoring the IDRs he get along with it, would it be fair to assume that he expects the units (on a fully diluted basis once the sub converted) to at least pay out a dividend of $20x11.25%=$2.25 or more in the future when this company in fully growth mode?

 

Thanks,

 

Picasso et al,

  What are your thoughts on Murray's plan for post default FELP? One of the reasons he paid up for it last year was potential tax advantaged drop down  from Murray to FELP with lower cost of capital and to use FELP to buy up the coal assets by accessing the capital markets. This isn't true anymore although he can still get some accretive synergies. FELP wouldn't trade as stable yield vehicle for atleast a year or two so until then aren't we in a commodity play here?

 

I don't think his plan has changed.  It just might take a couple extra years to get back to square one.  I do agree that the closer it trades to peers the more commodity-like this investment becomes.  So having a view on their coal and margins will become a lot more important for all the upside optionality we didn't have to pay for.

[valcont]

Market is completely freaked out about the IEA report. This would hurt FELP's export volume. Expect a lot of volatility.

[awindenberger]

Market is completely freaked out about the IEA report. This would hurt FELP's export volume. Expect a lot of volatility.

 

The IEA report is about oil demand. FELP sells coal. How will it be affected?

[valcont]

Market is completely freaked out about the IEA report. This would hurt FELP's export volume. Expect a lot of volatility.

 

The IEA report is about oil demand. FELP sells coal. How will it be affected?

 

Its the energy demand that drives prices. IEA says Asia is slowing down demand wise. That would slowdown the international coal price recovery that we saw in the last few months.

[valcont]

Upgraded by S&P to B- from D.

 

http://www.streetinsider.com/Credit+Ratings/S%26P+Upgrades+Foresight+Energy+LP+(FELP)+to+B-+Following+Recent+Restructuring/12061122.html

[valcont]

Lets speculate why it dropped today.My top two:

 

1. Picasso bailing out and moving to SXC.

2. China restarting some coal mines.

[PullTheTrigger]

It's up over 130% since day 1 of this thread and over 250% since it's low in early April.

 

Probably smart to take profits if it's the right thing to do for your own personal situation.

 

 

 

 

 

 

[Picasso]

Lets speculate why it dropped today.My top two:

 

1. Picasso bailing out and moving to SXC.

2. China restarting some coal mines.

 

Interesting theory....

 

API 2 keeps cranking higher, Murray debt went over 50 today (turns out it was better to buy Murray debt than it was to buy FELP), the new 2021 debt traded at 90, and I'm still waiting for some trades on the PIK debt.  Against my better judgement, I've been buying more FELP and plan to buy up PIK debt to hedge out the worst case scenario.  I may end up a little cranky if they can't refi that PIK debt.

 

Plus if FELP is still trading like death going into the refi, Cline will probably choose to take equity.  It would forever lock out Murray from getting any reasonable return off his investment.  So I'd say there is still a ton of incentive to get a nice return for the common units.  Also amazing to see where other coal stocks are now trading.  Some of this volatility is incredible.... NRP goes up to $30 then drops back to $17, then back up to $30.  Over a month.  Six flags needs a new ride called Coal Rush.  Based on a real life coal stock chart.

[Guest roark33]

When ZINC went from 2 to 10, people started calling it a compounder as it slowly went up to 15 (heck, I think it even hit 20).  Just a reminder, these are not compounders, these are cigar butts that have an eventual value of zero....

 

Picasso will obviously disagree with me.  In fact, I hear Picasso is inviting the CFO of FELP to his annual meeting this year. 

 

 

[Picasso]

Well it's only been several months and the fundamental picture keeps getting better.  So probably a bit early to talk about this cigar butt having an eventual price of zero.

 

There are good reasons why this will stay relatively inexpensive to something like an ARLP.  Since these are partnership units, owners will likely get taxed on income generated during the year even without getting distributions.  That's not a good selling point to the types of investors who would normally buy this kind of thing.  It's also unclear to the market how the PIK refi will happen.  Plus there is still no analyst coverage (look at the ugly attachment).  We haven't had an earnings call in about a year.  The restructuring hasn't even been done for a month yet.  And there's been less than $2 million of volume on the new FELP debt.  I'd like to think those are all conditions where an investor might poke around to find a security trading a fair amount below intrinsic value.

 

I was sort of joking about being cranky if they can't refi the PIK debt.  In reality I can buy FELP units here at less than the future MQD's, some super low multiple on a diluted DCF basis, and simultaneously buy their one year debt at a 15% yield.  If they can refi the debt like I think they will, I can make a very low risk 15% return on the PIK's (it's unlikely to trade over par/accrued PIK because of the call feature) and probably get another 100% or more on my units.  If they can't refi the debt for some crazy reason, that PIK debt will likely get some 50-100% return based on the no redemption conversion feature and my units will probably be sitting at breakeven.  The no refi outcome is an extremely low probability event, but even if it happens I don't think losing money on this trade is likely.  Plus given what I've made on other parts of this FELP/Murray cap structure it would take some extreme events... And never mind the downside support of the subordinated equity structure.

 

Since I can't find anything else like that in the market, I'm happy to press the bet further.  But it's sort of dependent on how much PIK debt I can pick up. 

[valcont]

When ZINC went from 2 to 10, people started calling it a compounder as it slowly went up to 15 (heck, I think it even hit 20).  Just a reminder, these are not compounders, these are cigar butts that have an eventual value of zero....

 

Picasso will obviously disagree with me.  In fact, I hear Picasso is inviting the CFO of FELP to his annual meeting this year.

 

ZINC was never a cigar butt imo. It was "Heads I win , tails I don't lose much" kind of investment (not) . Most of the retail crowd was in because of Pabrai. Could I tell it will go to the bankruptcy when it was at $10? Not at all. But I could really tell that the management is slimy. Overpromising and under delivering quarter over quarter. This was not a last minute shocking development as lot of people including Guy Spier believes. This was a slow train wreck but everyone trusted the conductor (Pabrai) rather than the driver(mgmt).

 

I didn't get in to FELP because of Picasso but he made me look at the whole Murray complex and a new way of valuing the investment. I was way off but I knew the price wasn't right few months ago.

 

 

 

[valcont]

API 2 keeps cranking higher, Murray debt went over 50 today (turns out it was better to buy Murray debt than it was to buy FELP), the new 2021 debt traded at 90, and I'm still waiting for some trades on the PIK debt.  Against my better judgement, I've been buying more FELP and plan to buy up PIK debt to hedge out the worst case scenario.  I may end up a little cranky if they can't refi that PIK debt.

 

Plus if FELP is still trading like death going into the refi, Cline will probably choose to take equity.  It would forever lock out Murray from getting any reasonable return off his investment.  So I'd say there is still a ton of incentive to get a nice return for the common units.  Also amazing to see where other coal stocks are now trading.  Some of this volatility is incredible.... NRP goes up to $30 then drops back to $17, then back up to $30.  Over a month.  Six flags needs a new ride called Coal Rush.  Based on a real life coal stock chart.

 

FELP has transitioned from a restructuring to an export coal story. Its easy to correlate the volatility to Chinese coal planning. There was a rumor floating around yesterday that the Chinese planning commission might allow some mine restarts due to the recent rally but then Goldman came out and supported the current price level. Anytime I am in commodity plays I like to keep an ear out for these stories. Adds zero value to my thesis but saves a lot of heartburn.

 

 

[Picasso]

My understanding of the Goldman report was the forecast of coking coal going into China?  I didn't see them make any mention of the coal exports that Foresight participates in. 

[PullTheTrigger]

Some information related to the EPAs Clean Power Plan:

 

http://www.snl.com/web/client?auth=inherit#news/article?id=37836371&cdid=A-37836371-10034

 

Regardless of whether the U.S. EPA's signature climate change regulation for fossil fuel power plants survives the court challenge, many industry experts agree that the power industry is transitioning to cleaner sources of fuel amid lower natural gas prices, dropping costs of renewable infrastructure and other regulatory actions impacting coal-fired generators. Those same facts were touted by EPA Administrator Gina McCarthy in the aftermath of the U.S. Supreme Court decision to place a hold on the rule pending the outcome of the litigation

 

And Bob Murray's release:

 

https://www.documentcloud.org/documents/3114757-2016-09-27-MEC-PRESS-RELEASE-Murray-Energy.html

 

Nothing really new here.

 

[awindenberger]

Some information related to the EPAs Clean Power Plan:

 

http://www.snl.com/web/client?auth=inherit#news/article?id=37836371&cdid=A-37836371-10034

 

@Pull,

 

Could you please load the other article in this series? It would be great for further context.

 

I find the whole thing very interesting because I support the goals of the CPP, but also think that coal will remain an important portion of the US energy mix for another couple decades. I expect to see massive growth in electric vehicles over the next few years, and those cars are going to use a lot of electricity. So overall we can expect electricity demand to go up, with gasoline demand coming down. Even with solar, wind and NG additions, its hard to see coal usage shrinking too quickly in the face of increasing demand.

 

Anyone know if the CPP includes any tracking of oil/gasoline emissions, given that the targets are expressed in pounds/MWh?

[Aqul]

Well it's only been several months and the fundamental picture keeps getting better.  So probably a bit early to talk about this cigar butt having an eventual price of zero.

 

There are good reasons why this will stay relatively inexpensive to something like an ARLP.  Since these are partnership units, owners will likely get taxed on income generated during the year even without getting distributions.  That's not a good selling point to the types of investors who would normally buy this kind of thing.  It's also unclear to the market how the PIK refi will happen.  Plus there is still no analyst coverage (look at the ugly attachment).  We haven't had an earnings call in about a year.  The restructuring hasn't even been done for a month yet.  And there's been less than $2 million of volume on the new FELP debt.  I'd like to think those are all conditions where an investor might poke around to find a security trading a fair amount below intrinsic value.

 

I was sort of joking about being cranky if they can't refi the PIK debt.  In reality I can buy FELP units here at less than the future MQD's, some super low multiple on a diluted DCF basis, and simultaneously buy their one year debt at a 15% yield.  If they can refi the debt like I think they will, I can make a very low risk 15% return on the PIK's (it's unlikely to trade over par/accrued PIK because of the call feature) and probably get another 100% or more on my units.  If they can't refi the debt for some crazy reason, that PIK debt will likely get some 50-100% return based on the no redemption conversion feature and my units will probably be sitting at breakeven.  The no refi outcome is an extremely low probability event, but even if it happens I don't think losing money on this trade is likely.  Plus given what I've made on other parts of this FELP/Murray cap structure it would take some extreme events... And never mind the downside support of the subordinated equity structure.

 

Since I can't find anything else like that in the market, I'm happy to press the bet further.  But it's sort of dependent on how much PIK debt I can pick up.

 

How are you buying the PIKs/what pricing are you seeing? I tried to go through Bloomberg today; saw the cash-pays at 89. There was no pricing on the PIKs

[PullTheTrigger]

I don't have a subscription to this series.

 

Taylor Kuykendall on Twitter is an energy (coal) reporter who posts a lot of good information and I saw this on his feed.