valcont Posted October 25, 2016 Share Posted October 25, 2016 Any thoughts on the valuation after the run up of the last two days? My last notes say assuming no refinance and full dilution , at 100m DCF they should be valued around $5.70 at 8x multiple(350m/6 = 58m + 71m =129 m shares divided by 100m discount to today at 8%). Do you guys think this is fully valued at 100m DCF. I know they will be doing more but until this qtr earning comes out , I am just trying to figure out the value with the information that I have. Link to comment Share on other sites More sharing options...
Picasso Posted October 25, 2016 Author Share Posted October 25, 2016 I'd agree with that, if you think the long-term earnings here are $100 million then $6 is fully valued. Link to comment Share on other sites More sharing options...
valcont Posted October 25, 2016 Share Posted October 25, 2016 I'd agree with that, if you think the long-term earnings here are $100 million then $6 is fully valued. Thanks Picasso. Off course there is a lot of optionality here that I like. Refinancing and hillsboro situation are the short term catalyst here. Talking about Hillsboro , they settled a lawsuit with the fired employees couple weeks ago. Not material but maybe a PR gig considering they've been waiting for the decision on extending the mine since March of this year. Link to comment Share on other sites More sharing options...
Picasso Posted October 25, 2016 Author Share Posted October 25, 2016 Yep. I think there's still a lot of optionality here that should play out favorably. It looks fairly easy to just refi out the whole debt structure or worst case dilute at these higher unit prices. And there is a very high probability of more than $100 million of DCF next year. So I'd prefer to think of $6-ish as my worst case price target assuming nothing else bad happens. I'm keeping all my eggs in the FELP basket but watching the basket very carefully... Link to comment Share on other sites More sharing options...
awindenberger Posted October 25, 2016 Share Posted October 25, 2016 So I'd prefer to think of $6-ish as my worst case price target assuming nothing else bad happens. I'm keeping all my eggs in the FELP basket but watching the basket very carefully... I imagine you'd really like to be able to hold at least a year to take advantage of long term Cap Gains rates when you sell, right! Clearly we weren't the only one's that put two and two together regarding the SXCP commentary. I'm really curious on what the timeline might be to restart paying dividends. Link to comment Share on other sites More sharing options...
Picasso Posted October 25, 2016 Author Share Posted October 25, 2016 So I'd prefer to think of $6-ish as my worst case price target assuming nothing else bad happens. I'm keeping all my eggs in the FELP basket but watching the basket very carefully... I imagine you'd really like to be able to hold at least a year to take advantage of long term Cap Gains rates when you sell, right! Clearly we weren't the only one's that put two and two together regarding the SXCP commentary. I'm really curious on what the timeline might be to restart paying dividends. I'd really, really like to take advantage of the LTCG treatment if possible. I think there's a good possibility of that. First they need to refi out the new debt before they work on the distributions. I noticed the new debt traded today at 95 on both the PIK's and cash pays. Also good from a very low CODI tax standpoint. Link to comment Share on other sites More sharing options...
valcont Posted October 26, 2016 Share Posted October 26, 2016 Is this for real? Has everyone realized all of a sudden what a great deal this stock is. BTW do you guys know when the earning call is? Google Finance shows its tomorrow but I don't see anything on their website. Link to comment Share on other sites More sharing options...
arcube Posted October 26, 2016 Share Posted October 26, 2016 Is this for real? Has everyone realized all of a sudden what a great deal this stock is. BTW do you guys know when the earning call is? Google Finance shows its tomorrow but I don't see anything on their website. This from BusinessWire. Foresight Energy LP Schedules Third Quarter 2016 Earnings Call Font size: A | A | A 7:30 AM ET 10/26/16 | BusinessWire Foresight Energy LP ("Foresight") (NYSE: FELP), a Delaware limited partnership, will report its third quarter 2016 earnings before the market opens on Wednesday, November 9, 2016. A conference call to discuss financial results will take place on the same day at 10:00 a.m. Eastern Standard Time. Participating on the call will be Robert D. Moore, President and Chief Executive Officer and James T. Murphy, Chief Accounting Officer. Participants may access the call using the following phone number: Teleconference Dial in: (800) 288-8968 Participant Passcode: 405201 Investors may also listen to the call via webcast on Foresight's website at http://investor.foresight.com. A replay of the call will be available on the website for approximately one week. About Foresight Energy LP Foresight is a leading producer and marketer of thermal coal controlling over 3 billion tons of coal reserves in the Illinois Basin. Foresight currently operates two longwall mining complexes with three longwall mining systems (Williamson (one longwall mining system) and Sugar Camp (two longwall mining systems)), one continuous mining operation (Macoupin) and the Sitran river terminal on the Ohio River. Foresight's operations are strategically located near multiple rail and river transportation access points, providing transportation cost certainty and flexibility to direct shipments to the domestic and international markets. http://cts.businesswire.com/ct/CT?id=bwnews&sty=20161026005078r1&sid=cmtx6&distro=nx&lang=en View source version on businesswire.com: http://www.businesswire.com/news/home/20161026005078/en/ SOURCE: Foresight Energy LP Foresight Energy LP Gary M. Broadbent, 740-338-3100 Assistant General Counsel and Media Director Investor.relations@foresight.com media@coalsource.com Link to comment Share on other sites More sharing options...
valcont Posted October 26, 2016 Share Posted October 26, 2016 Thanks arcube Link to comment Share on other sites More sharing options...
jrallen81 Posted October 26, 2016 Share Posted October 26, 2016 So, is this a situation where the dilution is lessened as the share price goes up? Link to comment Share on other sites More sharing options...
Picasso Posted October 26, 2016 Author Share Posted October 26, 2016 Pretty much. Fair value actually goes up as the stock goes up. Already half the potential dilution as a month ago. Link to comment Share on other sites More sharing options...
awindenberger Posted October 28, 2016 Share Posted October 28, 2016 Part of what I think explains the current price is this hedge fund Accipiter Capital. I attached their holdings. Here's a little bio: Accipiter Capital Management, LLC is an employee owned hedge fund sponsor. The firm primarily provides its services to pooled investment vehicles. It invests in public equity markets of the United States. The firm primarily makes its investments in equity securities in the life science, biotechnology, pharmaceuticals, medical device, healthcare providers, managed care, and health care service sectors. It employs fundamental analysis to make its portfolio. The firm obtains external research to complement its in-house research. Accipiter Capital Management, LLC was founded in 2002 and is based in New York City Now get this... They bought roughly 6.4% of all FELP shares outstanding last quarter. They also bought $25 million worth of VRX in the $100's. But more importantly, why the hell did they buy $50 million of FELP at $6? It doesn't fit their circle of competence at all. And FELP is the bulk of their equity portfolio. The rest of their portfolio has been getting smoked so maybe they have some redemption pressures. Assuming they're the fund selling here, there just isn't enough liquidity to get out. Average volume is in the 100k share region, they need to unload 84x that. So I think you have some interesting dynamics with a low float and seller that may want out of a badly timed purchase. Or it could be Fidelity and Accipiter is just riding out that mistake. I'm having some fun reading through this thread again and found this interesting comment by Picasso. Now I'm curious if Accipiter is still holding their position or not. Link to comment Share on other sites More sharing options...
PullTheTrigger Posted October 28, 2016 Share Posted October 28, 2016 They have over 8 million shares. It won't be easy to unload. Gave Hoffman is buddies with Cline. Hard to say. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2016 Author Share Posted October 28, 2016 It's tempting to put together a some investors to make an offer for Accipiter's units at a discount to market value. I imagine he's hurting pretty bad from poorly timed healthcare investments and it can't be easy to get liquidity from FELP since he'd need to file any changes within a couple days. Probably not a lot of natural buyers for those units because of the complexity of this situation. Link to comment Share on other sites More sharing options...
valcont Posted October 28, 2016 Share Posted October 28, 2016 ARLP just posted their results and they beat on both revenue and earnings. The conference call was pretty interesting. Although they are not a major exporters , they did 3 million tons this quarter. Here are my notes from the management discussion: 1. Illinois Basin will see 5-10% increased demand next year. 2. Higher API2 will increase US prices. 3. Their Hamilton mine in ILB can be ramped up to increase export volume but they like to see sustainable API2 prices to start hiring. 4. They are focussed on US demand and anticipate higher volumes here. 5. Maintains distribution of 43c and they believe they can sustain it next year. 6. Higher guidance. Its difficult to imagine downside for FELP at current prices. Higher export demand, increased US demand. I added to my stake today. Link to comment Share on other sites More sharing options...
awindenberger Posted October 28, 2016 Share Posted October 28, 2016 I was reading through the exchange agreement again last night and had something regarding the PIKs I wanted to confirm my understanding of: If all of the Exchangeable PIK Notes have not been redeemed or purchased for cash at 100% of the principal amount thereof plus accrued interest to, but excluding, the date of redemption and/or purchase on or prior to October 2, 2017, then, at 1:00 p.m. (New York City time) on the Exchangeable PIK Notes Maturity Date, the Exchangeable PIK Notes shall mature, at which time the Issuers will be required to repay the Exchangeable PIK Notes in cash at 100% of the principal amount of the Exchangeable PIK Notes plus accrued interest to the Exchangeable PIK Note Maturity Date; provided , that if the Issuers fail to so repay the Exchangeable PIK Notes at or prior to 1:00 p.m. (New York City time) on the Exchangeable PIK Notes Maturity Date, then all outstanding Exchangeable PIK Notes (including all principal, interest, and other amounts outstanding thereunder) shall immediately and automatically be exchanged for Common Units representing 75% of FELP’s outstanding units (including Common Units and subordinated units) on the Exchangeable PIK Notes Maturity Date (after giving effect to the full exchange of the Exchangeable PIK Notes into Common Units), subject to adjustment on account of certain anti-dilution protections. 1. We've previously discussed that the amount of potential dilution depends on the price of the shares, but nowhere in this statement do I see anything indicating that share price will be used, it simply says the exchange will be for 75% of FELP's outstanding units. 2. The language seems to indicate that the conversion would be for 75% of outstanding units, whether the outstanding PIKs due were $250Million, or $10Million. So it seems to be that all we need to care about is whether or not Murray can find a way to pay these off via some sort of refinance, and he needs to pay off the entire amount; its all or nothing. Share price doesn't matter at all either. I've skimmed through the rest of the document and didn't find anything to refute this interpretation, but hoping I missed something. Link to comment Share on other sites More sharing options...
valcont Posted October 28, 2016 Share Posted October 28, 2016 1. We've previously discussed that the amount of potential dilution depends on the price of the shares, but nowhere in this statement do I see anything indicating that share price will be used, it simply says the exchange will be for 75% of FELP's outstanding units. Dilution will depend on the price of share. If at the time of dilution , price is $6 then FELP only has to assign 58million common units. If however the price is $3 then units double which impacts distributions. Oh I see what you are saying. You are saying that the unit holders will get 75% of the outstanding units if the notes can't be redeemed or refinanced by the maturity date. I thought they was another paragraph that discussed the maturity.Let me look it up. Link to comment Share on other sites More sharing options...
valcont Posted October 28, 2016 Share Posted October 28, 2016 1. We've previously discussed that the amount of potential dilution depends on the price of the shares, but nowhere in this statement do I see anything indicating that share price will be used, it simply says the exchange will be for 75% of FELP's outstanding units. Dilution will depend on the price of share. If at the time of dilution , price is $6 then FELP only has to assign 58million common units. If however the price is $3 then units double which impacts distributions. Oh I see what you are saying. You are saying that the unit holders will get 75% of the outstanding units if the notes can't be redeemed or refinanced by the maturity date. I thought they was another paragraph that discussed the maturity.Let me look it up. Duh that will not happen. FELP will simply redeem the notes based on the price of the shares at the time. I was right the first time. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2016 Author Share Posted October 28, 2016 My interpretation was fuzzy/wrong on the PIK's in the past. But basically the conversion is protection against non-payment where fair value on non-payment would likely be well in excess of the $0.89 price where it would represent 75% dilution. That would only happen if the units were trading at $0.25 and it would be cheaper for Murray to let it convert and wipe out his sub units. You really just have to ignore the conversion feature and assume it will be done closer to fair value, maybe through a rights offering if need be. But I could see how the market will view those odds at 50/50 for non-repayment and try to price in crappy dilution. There's a sweet spot where Murray doesn't want to issue equity at too attractive a price or else Cline will take 60% of it. But it can't be so unattractive that Murray doesn't get a good return if he eats it all up with other investors. At $6 I think Cline would take his fill considering it would be more common units with a very high cash yield. We should take bets for fun, but I think it will eventually be done over $10. Link to comment Share on other sites More sharing options...
sampr01 Posted October 28, 2016 Share Posted October 28, 2016 Hi Picasso, I taught MEC is going to take this one private in couple months. But, you have my permission to smack me in the face if I don't listen to you next time. ;D My interpretation was fuzzy/wrong on the PIK's in the past. But basically the conversion is protection against non-payment where fair value on non-payment would likely be well in excess of the $0.89 price where it would represent 75% dilution. That would only happen if the units were trading at $0.25 and it would be cheaper for Murray to let it convert and wipe out his sub units. You really just have to ignore the conversion feature and assume it will be done closer to fair value, maybe through a rights offering if need be. But I could see how the market will view those odds at 50/50 for non-repayment and try to price in crappy dilution. There's a sweet spot where Murray doesn't want to issue equity at too attractive a price or else Cline will take 60% of it. But it can't be so unattractive that Murray doesn't get a good return if he eats it all up with other investors. At $6 I think Cline would take his fill considering it would be more common units with a very high cash yield. We should take bets for fun, but I think it will eventually be done over $10. Link to comment Share on other sites More sharing options...
awindenberger Posted October 28, 2016 Share Posted October 28, 2016 My interpretation was fuzzy/wrong on the PIK's in the past. But basically the conversion is protection against non-payment where fair value on non-payment would likely be well in excess of the $0.89 price where it would represent 75% dilution. That would only happen if the units were trading at $0.25 and it would be cheaper for Murray to let it convert and wipe out his sub units. You really just have to ignore the conversion feature and assume it will be done closer to fair value, maybe through a rights offering if need be. But I could see how the market will view those odds at 50/50 for non-repayment and try to price in crappy dilution. There's a sweet spot where Murray doesn't want to issue equity at too attractive a price or else Cline will take 60% of it. But it can't be so unattractive that Murray doesn't get a good return if he eats it all up with other investors. At $6 I think Cline would take his fill considering it would be more common units with a very high cash yield. We should take bets for fun, but I think it will eventually be done over $10. So would I be correct in assuming that you think the following will happen: 1. Over the next year, FELP buys back as much of the 2017 PIK Notes as possible with operating cashflows. 2. Any amount remaining is dealt with via a share offering at prevailing market prices. If FELP can generate FCF of $200M over the next 12 Months and uses it all to buy-back the PIKs, that would leave about $100M next October to refinance. Assuming a share offering, that would only be 10M new units at $10/unit, 16.6M at $6/unit, or 25M at $4/unit. Given the $1.35/Minimum Annual Distribution, its definitely hard to imagine Cline not being willing to buy 60% of any units issued under $7 (19%+ yield, not including the arrearages that will have accrued by then). Alternatively, Murray should be able to refinance with a new note on better terms, particularly if FELP can lock in current API2 rates on a solid portion of a couple years of production. That would be the best outcome in terms of limited dilution. Link to comment Share on other sites More sharing options...
awindenberger Posted October 28, 2016 Share Posted October 28, 2016 Its amazing how I'm more interested in adding to my position at current prices than I was with the stock at $4 when the deal was confirmed at the end of August. What exactly does the company need to do before they can start paying distributions again? Link to comment Share on other sites More sharing options...
heth247 Posted October 28, 2016 Share Posted October 28, 2016 Its amazing how I'm more interested in adding to my position at current prices than I was with the stock at $4 when the deal was confirmed at the end of August. What exactly does the company need to do before they can start paying distributions again? I thought they cannot pay out any dividend until 2H of 2018. Not sure if this restriction can change if they refinance the PIK in a year. Link to comment Share on other sites More sharing options...
Patmo Posted October 29, 2016 Share Posted October 29, 2016 Yeah, I put a pretty large bet on coal a while ago. FELP, Teck, Suncoke, Consol... Not going to complain about the state of affairs Link to comment Share on other sites More sharing options...
heth247 Posted November 2, 2016 Share Posted November 2, 2016 If Trump won next week, we should expect this one to fly instead of going down with the broad market, correct? Link to comment Share on other sites More sharing options...
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