FELP - Foresight Energy

[PullTheTrigger]

Good point Patmo.

 

I'm thanking myself now for putting my own balls on the line.

[arcube]

We all owe Picasso a debt of gratitude for his generosity of time spent educating us and bringing the idea to the board. I could say the same about SXC and I've probably missed some other threads.

 

Picasso should probably change his screen name to Babe Ruth.

 

If he would like to post an office address or P.O. Box, I'm sure the gifts would start rolling in.

 

Many thanks Picasso! Hopefully we can find some ideas to repay you someday.

 

Relax there, his ideas are great but at the end of the day it's your own balls on the line. If it had gone the other way, I'm not sure he'd want nor deserve the other side of those kinds of comments...

 

While what you are saying makes sense but the gratitude is not just for the idea but the painstaking way he has been explaining this ultra complex situation and answering everyone's questions. Most of us have balls here but putting them to work on everything is not easy or clear. Just for that I think we owe him gratitude. Thanks for understanding.

[Patmo]

Fair enough, thx Picasso my brother, your enthusiasm for talking shop is well appreciated

[jrallen81]

Hello,

 

Maybe I'm reading the 10-q wrong - Doesn't Murray have first right to redeem the exchangeable PIKs and get 1.12 units per PIK? I don't see where Cline gets the right to buy 60% of the equity. It looks like dilution isn't based on the price of the shares but rather the lesser of that or the 1.12 ratio. Can someone set me straight?

 

 

 

 

So now for the PIK.  I no longer think dilution will happen at $7.  Not with how much cash flow they're producing and this Trump victory.  The math wouldn't work for Bob Murray.  Plus Bob Murray probably feels like a million bucks now, and he probably doesn't want to sell this stock to anyone else at $7.  He paid $20 when the fundamentals were a lot worse.  I have free cash flow for next year at over $250 million, so if he chooses to dilute at $7 you're talking about 121 million common units + 65 million subs earning $1.35+.  Commons will get the first $2-3 of arrears which is a 28% return from that alone.  And the whole equity structure including subs will be at 5x FCF.  Why would Cline turn that down since he has the right to take 60% of whatever the equity issuance is?  Murray would be handing a lot of value back to Cline.  It makes much more sense to issue equity at a price where Cline isn't going to take a big chunk of the free cash flow coming out of FELP.  So it comes down to figuring out what price Cline says, "it's okay I don't want a 10% return, you take all the commons with so-and-so," or whatever.

[awindenberger]

We all owe Picasso a debt of gratitude for his generosity of time spent educating us and bringing the idea to the board. I could say the same about SXC and I've probably missed some other threads.

 

Picasso should probably change his screen name to Babe Ruth.

 

If he would like to post an office address or P.O. Box, I'm sure the gifts would start rolling in.

 

Many thanks Picasso! Hopefully we can find some ideas to repay you someday.

 

Relax there, his ideas are great but at the end of the day it's your own balls on the line. If it had gone the other way, I'm not sure he'd want nor deserve the other side of those kinds of comments...

 

While what you are saying makes sense but the gratitude is not just for the idea but the painstaking way he has been explaining this ultra complex situation and answering everyone's questions. Most of us have balls here but putting them to work on everything is not easy or clear. Just for that I think we owe him gratitude. Thanks for understanding.

 

I 2nd that. Picasso's best accomplishment here was definitely being willing to explain the nuances clearly and carefully.

 

What's your next idea Picasso?

[awindenberger]

Well it is poorly worded.You have to make both (1) and (2) comparable first. Here is how I interpret it going by your example of $404m amount with a $5 price.

 

1. "a number equal to one divided by 92.5% of the last thirty days weighted-average trading price"

  .925*5 =  $4.6 which when divided by 1 gives us unit per $1 (i.e. 1/4.6)

  SO

  $1 of principal amount will buy you 0.21 unit

 

2. "1.12007 common units per $1.00 principal amount of Exchangeable PIK Notes."

    Here

  $1 of principal amount will buy you 1.12 unit

 

you take the lesser of these two which is 0.21 unit/$1 prinicipal and multiply it by total amount due $404m * 0.21 ~ 84m units

 

I think the clause is there to prevent extreme dilution in case the price goes below $1 at the time of refinance say at $0.50 after the 92% discount.

 

In case (1) you'll get 2 units per $1 and in (2) you get 1.12 so you will go with 1.12 unit.

 

 

Thanks, this makes a lot more sense! I figured it must mean this but couldn't get the wording to mean that in my head.

[Patmo]

Good point Patmo.

 

I'm thanking myself now for putting my own balls on the line.

 

Damn right, own it, man. You're Carl Icahn, you're Warren B. You're from their cloth. You are the best there has ever been, nobody can match you. Your style is impetuous, your analysis is impregnable and you are just ferocious.

[PullTheTrigger]

Damn straight Patmo!

 

Except Icahn and Buffet are patsies. I studied under J. Wohl. Bam!

[jrallen81]

Accipiter sales: http://www.snl.com/IRWeblinkx/ShowFile.aspx?KeyFile=36700373&Output=XML&Format=XML

 

 

[awindenberger]

Accipiter sales: http://www.snl.com/IRWeblinkx/ShowFile.aspx?KeyFile=36700373&Output=XML&Format=XML

 

No wonder the stock has tanked every afternoon after a morning move up.

[valcont]

Accipiter sales: http://www.snl.com/IRWeblinkx/ShowFile.aspx?KeyFile=36700373&Output=XML&Format=XML

 

No wonder the stock has tanked every afternoon after a morning move up.

 

Its only 6% of their stake. I would worry if they keep selling and keep playing golf with Cline. You gotta give these guys a break though. They bought at 6 in the industry they had no experience in and almost got closer to losing their entire stake.

[PullTheTrigger]

They had a large percentage in VRX if I recall, so maybe they are dealing with redemptions.

[Beardog]

They had a large percentage in VRX if I recall, so maybe they are dealing with redemptions.

 

Maybe I'm wrong, but since all of the sales came from the onshore fund, can't we infer the sales are the result of a redemption from a US taxable investor?  If Accipiter was selling down their stake, share sales would be reported pro rata from the onshore and offshore funds.

[PullTheTrigger]

Beardog - you could be right given the selling seems to have stopped.

 

It would be tough for Accipter to sell down their stake with such low volume. All speculation.

[heth247]

New SeekingAlpha writing up:

 

http://seekingalpha.com/article/4024019-impending-catalysts-foresight-energy-

will-drive-strong-returns

 

[heth247]

New SeekingAlpha writing up:

 

http://seekingalpha.com/article/4024019-impending-catalysts-foresight-energy-

will-drive-strong-returns

 

Nothing new that Picasso does not know of.... ;)

[PullTheTrigger]

No mention in the article of the possibility of Murray taking it private.

[awindenberger]

No mention in the article of the possibility of Murray taking it private.

Mr. Lazarus commented to the effect afterwards. Could that be Picasso?

[valcont]

Mr. Lazarus commented to the effect afterwards. Could that be Picasso?

 

Nah. he was raised from the dead by Picasso.

[valcont]

New SeekingAlpha writing up:

 

http://seekingalpha.com/article/4024019-impending-catalysts-foresight-energy-

will-drive-strong-returns

 

And its down 5%. Terrible article loaded with information , no pump whatsoever.

[Aqul]

Is there any chance of a re-fi for the Exchangeable PIK? The new 2021 notes don't allow the refinancing debt to pay cash, or have more favorable maturity terms (see below), so it's going to be difficult to re-fi, to say the least. Are you all assuming full dilution for the PIK in your valuations?

 

From the Indenture (Exhibit 4.1 from the 9-6-16 8-K):

With respect to (i) any Debt Incurred pursuant to this Section 4.06 to refinance the Exchangeable PIK Notes and all subsequent refinancings thereof (collectively, the “Exchangeable PIK Notes Refinancing Debt”) and (ii) any Debt Incurred pursuant to this Section 4.06 after the Issue Date more than a majority of which is loaned or otherwise provided by an Affiliate (other than the Issuers and any Restricted Subsidiary) (which, for the avoidance of doubt, does not apply to any Debt outstanding on the Issue Date, including the Exchangeable PIK Notes, or any Debt outstanding (whether Incurred before, on or after the Issue Date) that is acquired by an Affiliate after the initial Incurrence thereof), in each case of clauses (i) and (ii) other than Excluded Debt, such Debt must: (a) be unsecured or constitute Junior Lien Obligations, (b) have a maturity date no earlier than 91 days later than the earlier of (i) the Notes Maturity Date and (ii) the date on which the Notes are no longer outstanding, © have no issuer, obligor or guarantor thereof other than the Issuers and the Guarantors, (d) not provide for any cash payments while the Notes are outstanding and (e) not contain any negative covenants or events of default that are more restrictive than the negative covenants and Events of Default (as applicable) in this Indenture unless this Indenture is amended to contain such more restrictive negative covenants or events of default (as applicable).

 

 

[heth247]

Is there any chance of a re-fi for the Exchangeable PIK? The new 2021 notes don't allow the refinancing debt to pay cash, or have more favorable maturity terms (see below), so it's going to be difficult to re-fi, to say the least. Are you all assuming full dilution for the PIK in your valuations?

 

From the Indenture (Exhibit 4.1 from the 9-6-16 8-K):

With respect to (i) any Debt Incurred pursuant to this Section 4.06 to refinance the Exchangeable PIK Notes and all subsequent refinancings thereof (collectively, the “Exchangeable PIK Notes Refinancing Debt”) and (ii) any Debt Incurred pursuant to this Section 4.06 after the Issue Date more than a majority of which is loaned or otherwise provided by an Affiliate (other than the Issuers and any Restricted Subsidiary) (which, for the avoidance of doubt, does not apply to any Debt outstanding on the Issue Date, including the Exchangeable PIK Notes, or any Debt outstanding (whether Incurred before, on or after the Issue Date) that is acquired by an Affiliate after the initial Incurrence thereof), in each case of clauses (i) and (ii) other than Excluded Debt, such Debt must: (a) be unsecured or constitute Junior Lien Obligations, (b) have a maturity date no earlier than 91 days later than the earlier of (i) the Notes Maturity Date and (ii) the date on which the Notes are no longer outstanding, © have no issuer, obligor or guarantor thereof other than the Issuers and the Guarantors, (d) not provide for any cash payments while the Notes are outstanding and (e) not contain any negative covenants or events of default that are more restrictive than the negative covenants and Events of Default (as applicable) in this Indenture unless this Indenture is amended to contain such more restrictive negative covenants or events of default (as applicable).

 

My understanding of "(d) not provide for any cash payments while the Notes are outstanding and" is that you cannot use the refinancing as an opportunity to get cash out of it to pay other bills.  E.g. you cannot take another $400MM loan to pay off the $300MM PIK and also get 400-300=$100MM cash out to pay other stuff like cash distribution. This however does not prevent you from taking another $300MM loan to pay off this $300MM PIK.

 

But I could be wrong since English is not my first language. 

[Aqul]

Is there any chance of a re-fi for the Exchangeable PIK? The new 2021 notes don't allow the refinancing debt to pay cash, or have more favorable maturity terms (see below), so it's going to be difficult to re-fi, to say the least. Are you all assuming full dilution for the PIK in your valuations?

 

From the Indenture (Exhibit 4.1 from the 9-6-16 8-K):

With respect to (i) any Debt Incurred pursuant to this Section 4.06 to refinance the Exchangeable PIK Notes and all subsequent refinancings thereof (collectively, the “Exchangeable PIK Notes Refinancing Debt”) and (ii) any Debt Incurred pursuant to this Section 4.06 after the Issue Date more than a majority of which is loaned or otherwise provided by an Affiliate (other than the Issuers and any Restricted Subsidiary) (which, for the avoidance of doubt, does not apply to any Debt outstanding on the Issue Date, including the Exchangeable PIK Notes, or any Debt outstanding (whether Incurred before, on or after the Issue Date) that is acquired by an Affiliate after the initial Incurrence thereof), in each case of clauses (i) and (ii) other than Excluded Debt, such Debt must: (a) be unsecured or constitute Junior Lien Obligations, (b) have a maturity date no earlier than 91 days later than the earlier of (i) the Notes Maturity Date and (ii) the date on which the Notes are no longer outstanding, © have no issuer, obligor or guarantor thereof other than the Issuers and the Guarantors, (d) not provide for any cash payments while the Notes are outstanding and (e) not contain any negative covenants or events of default that are more restrictive than the negative covenants and Events of Default (as applicable) in this Indenture unless this Indenture is amended to contain such more restrictive negative covenants or events of default (as applicable).

 

My understanding of "(d) not provide for any cash payments while the Notes are outstanding and" is that you cannot use the refinancing as an opportunity to get cash out of it to pay other bills.  E.g. you cannot take another $400MM loan to pay off the $300MM PIK and also get 400-300=$100MM cash out to pay other stuff like cash distribution. This however does not prevent you from taking another $300MM loan to pay off this $300MM PIK.

 

But I could be wrong since English is not my first language.

 

I don't think so. I think any Refinancing Debt must be PIK as opposed to cash-pay. I believe this is why the existing Exchangeable PIK was structured in this way, to allow the Second-Liens to have no junior tranche paying out cash interest, and have this continue until maturity. Of course, I'm no expert and could very well be wrong.

[Picasso]

You're right Aqul, there would need to be a full refinance of the 2021 notes since it's unlikely that someone would buy 2022 PIK debt without a relatively high rate attached to it.  I'm sure Murray/Cline would rather take common units.

 

I think FELP should maintain as much leverage as it can comfortably carry.  Having debt at 8-10% is better than being non-leveraged since the equity of these coal yieldco's are trading at really high yields on what appears to be trough earnings.  I'd feel better about owning FELP longer term if they reduce debt by that $350 million when the PIK comes due.  Even if it comes at the expense of some equity. 

 

I am confused about one part.  Moore mentioned this on the earnings call:

 

Importantly, this restructuring alleviated all existing defaults under the various debt and equipment lease agreements to

which the partnership is a party. It provided certain covenant relief and restored four sites access to liquidity beyond

cash held on the balance sheet. It also places restrictions on distributions through the later of June 30, 2018 or the

refinancing of our revolving credit facility, which matures in August of 2018. It also introduces the exchangeable PIK

Notes which mature October 3rd, 2017.

 

I don't get the "later of" comment.  Wouldn't it just mean August 2018?  But if they refinance the revolver earlier (say next year) then it would obviously re-rate the equity soon. 

 

My thinking is that Murray would rather not refinance the revolver until he negotiates the equity issuance to repay the PIK's.  He'd want to create some uncertainty around the asset to redeem the PIK for common units ahead of the revolver refi, not the other way around.  Assuming he has the cash to eat all $350 million (I think he'll have it).  Maybe if he runs out of cash he'd push to refi the revolver, get the stock to jump and then have others partner on the equity issuance.  Which would imply he wants a price on FELP just high enough for Cline not to participate or participate at a price that's minimally dilutive to Murray while balancing the eventual refi of the revolver.  Maybe would better help explain the lack of questions on the earnings call.

 

I do have someone I can call about this, should probably do so...

[Aqul]

I think that means June 30, 2018 is the earliest that distributions will begin, and they could be delayed further if the revolver is not refinanced.

 

Honestly, the stock is cheap enough even with no credit to the export business AND full dilution for the PIK that it doesn't make sense to sell now. That being said, this is precisely why giving up $180M of equity to Reserves would be bad for the minority holders, not to mention Murray. I am assuming that the non-reserves holders would simply take cash (which FELP should generate comfortably). Any thoughts on this last part?