FELP - Foresight Energy

[Patmo]

Note: This trade had tons of appeal to me at the beginning, but not for the right reasons. It's slowly seeping in my thick skull, bit by bit, how genius it really was.  At a price of $1.6 when the restructuring was virtually complete,  this stock was essentially an unlocked ATM machine out in the open... It's ridiculous...

 

Yeah I think most of us, except for Picasso, didn't truly believe how cheap it was.

 

Assuming things play out as you've laid out, it seems like another double from here is very much on the table. The only question is time-frame.

 

I wouldn't assume anything I say will play out, I always shoot crap out my posterior like I had mexican food the night before...

[Patmo]

It was from an S&P leveraged loan reporter via twitter:

 

 

Maybe she spoke with someone at the bondholder meeting today, not sure where she got it from..

 

https://fred.stlouisfed.org/series/BAMLH0A3HYC/

 

Man has these moved.

 

That'd be like $150-200mil over the top, I guess to handle all redemption premiums?

[valcont]

Gotcha thanks, so what is the rationale for Murray taking any equity? Is it required for the refi? If they are refinancing 1.4 billion in debt (750 Term, 170 revolver and 500 2024 Notes) it seems like the credit demand is there so why bother with $60.6 million from Murray, especially if 15 mill of that is the Murray Option. Could Foresight have refinanced without this $60.6 from Murray, was it required?

 

 

Good question. Maybe he is trying to drum up the majority at the unit level for the eventual sale of the MLP. He has said in the past that he wants to take

it private.

 

Yeah the call was pretty useless. The only useful disclosure was that they already had contracted out 17m tonnes (77% of the 2016 coal volume) and expecting a lot more.

[gadfly]

Not sure if this is news or recap of yesterday's 8k, but if anyone has WSJ Pro Bankrupcy access just saw this article:

 

https://www.wsj.com/articles/foresight-refinances-1-3-billion-in-debt-giving-murray-majority-stake-1488488115?mod=yahoo_hs&yptr=yahoo

[PullTheTrigger]

Moody's upgrade:

 

https://www.moodys.com/research/Moodys-upgrades-Foresights-CFR-to-B3-assigns-new-ratings-to--PR_362824?WT.mc_id=AM~WWFob29fRmluYW5jZTQyX1NCX1JhdGluZyBOZXdzX0FsbF9Fbmc%3d~20170302_PR_362824&yptr=yahoo

 

New York, March 02, 2017 -- Moody's Investors Service, ("Moody's") today upgraded Foresight Energy, LLC's Corporate Family Rating (CFR) to B3 from Caa1, and its probability of default rating (PD) to B3-PD from Caa1-PD. At the same time, Moody's assigned ratings to the proposed debt offering, including a B2 rating to the new first lien term loan and a Caa2 rating to the new second lien notes, subject to final documentation being consistent with our expectations. Moody's also changed the Speculative Grade Liquidity rating to SGL-2 from SGL-3. The ratings outlook is stable.

 

And Potential Upgrade of MEC:

 

https://www.moodys.com/research/Moodys-places-the-ratings-of-Murray-Energy-Corporation-on-review--PR_362918?WT.mc_id=AM~WWFob29fRmluYW5jZV9TQl9SYXRpbmcgTmV3c19BbGxfRW5n~20170302_PR_362918&yptr=yahoo

 

 

New York, March 02, 2017 -- Moody's Investors Service, ("Moody's") today placed all ratings of Murray Energy Corporation on review for upgrade, including the Corporate Family Rating (CFR) of Caa2, Probability of Default Rating (PDR) of Caa2-PD, and the Caa1 rating on the first-lien term loan.

 

The review was initiated in response to the announcement that the company intends to contribute approximately $60 million in cash to Foresight Energy LLC (rated B3 stable) in the form of common equity, and upon consummation of Foresight's refinancing transaction, to exercise its option to acquire an additional 46% voting interest in Foresight Energy GP LLC, thereby increasing its voting interest to 80%.

 

On March 1, 2017 Foresight announced its plan to refinance its capital structure by issuing $750 million of new first lien term loan, as well as new second lien notes due 2024, the proceeds of which will be used to repay the company's existing revolver, first lien term loan, second lien notes, and second lien convertible PIK notes.

 

The review will be concluded once the above transactions are consummated and will focus on the effect of the increased ownership interest in Foresight on Murray's future cash flows.

 

[valcont]

Just thinking loud about possible outcomes for this stock. Murray has said previously that he wants to take this company private and the recent refinancing indicate as much.Now that Cline is out of the picture, I think its in Murray's interest to not let the price run up. Granted he has to pay the MQD before he can stake a majority claim but what prevents him now to issue $3.50 in MQD/arrears and the rest of the $3.50 as an offer to buy FELP? Why would the market rerate this stock simply because he started paying out distributions in arrears knowing that he wants to acquire the company?

[heth247]

Just thinking loud about possible outcomes for this stock. Murray has said previously that he wants to take this company private and the recent refinancing indicate as much.Now that Cline is out of the picture, I think its in Murray's interest to not let the price run up. Granted he has to pay the MQD before he can stake a majority claim but what prevents him now to issue $3.50 in MQD/arrears and the rest of the $3.50 as an offer to buy FELP? Why would the market rerate this stock simply because he started paying out distributions in arrears knowing that he wants to acquire the company?

 

If Murray really wants to take it private soon, shouldn't he wait until then to do it together with the refinance? Otherwise, when he take it private, doesn't he need to get financing again for the debt as well as for the common units? (I don't know if the upcoming new debt has any change-of-control provision like before or what terms it will be...)

[valcont]

 

If Murray really wants to take it private soon, shouldn't he wait until then to do it together with the refinance? Otherwise, when he take it private, doesn't he need to get financing again for the debt as well as for the common units? (I don't know if the upcoming new debt has any change-of-control provision like before or what terms it will be...)

 

Not according to this. The last change of control was triggered because Murray and Cline tried to negotiate a sale without paying/seeking consent from the note holders.

 

“Change in Control” means the occurrence of any of the following:

(a) Foresight ceases to own, directly, 100% of the issued and outstanding Capital Stock and all other equity interests of the Borrower;

(b) Foresight ceases to own, directly or indirectly, 100% of the issued and outstanding Capital Stock, membership interests or other equity interests of any Originator;

© Parent (or one or more Permitted Holders) ceases to own, directly or indirectly, 100% of the issued and outstanding Capital Stock, membership interests or other equity interests of Foresight;

(d) the occurrence of a “Change of Control” under and as defined in the Credit Agreement;

 

- 6 -

(e) any Subordinated Note shall at any time cease to be owned by an Originator; or

(f) with respect to the General Partner:

(i) any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), excluding the Permitted Holders, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of thirty-five percent (35%) or more of the voting power of the then outstanding Capital Stock of the General Partner; or

(ii) Parent consolidates with or merges into another corporation (other than a Subsidiary of Parent or one or more Permitted Holders) or conveys, transfers or leases all or substantially all of its property to any person (other than a Subsidiary of Parent or one or more Permitted Holders), or any corporation (other than a Subsidiary of Parent or one or more Permitted Holders) consolidates with or merges into Parent, in either event pursuant to a transaction in which the outstanding Capital Stock of Parent is reclassified or changed into or exchanged for cash, securities or other property.

[gadfly]

Just thinking loud about possible outcomes for this stock. Murray has said previously that he wants to take this company private and the recent refinancing indicate as much.Now that Cline is out of the picture, I think its in Murray's interest to not let the price run up. Granted he has to pay the MQD before he can stake a majority claim but what prevents him now to issue $3.50 in MQD/arrears and the rest of the $3.50 as an offer to buy FELP? Why would the market rerate this stock simply because he started paying out distributions in arrears knowing that he wants to acquire the company?

 

Cline isn't out of the picture, he still is the largest owner of FELP common units. Murray's transaction gives him control of the GP, which as things stand now is worth zilch. The GP doesn't get IDRs until LP distributions are over 1.35 per year.

 

Anyone know what to make of that Murray Form 4 today? Curious what the $40 exercise price was referring to. Also, I wish the 8k was a little more clear about the refi. To my eyes this all seems great for common unit holders

[Green King]

http://www.reuters.com/article/us-coal-loans-idUSKBN16A24I

 

It is all happening. :D

 

Arch Coal’s new US$300m term loan will refinance existing debt. The company emerged from bankruptcy in October 2016 after eliminating about US$4.8bn in debt. In addition to increasing the loan, Arch Coal was also able to cut the pricing to 400bp over Libor from initial guidance of 450bp.

[valcont]

I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?

Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

[heth247]

I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?

Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

 

They are probably going to generate $1/unit or more of DCF after the refinance and you are talking about a $2.30/unit of buyout?  Cline is still the chairman of the board and I don't think the board will approve it.  I think the current depressed share price is still due to the lack of dividend, lack of information about the refinance. Price should rise when they complete the refi and announce the date when they start to pay distribution again.

[Green King]

I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?

Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

 

One Risk Management and mind set side of things. If you have already made money and you are really worried about blow up risk at this moment in time.

 

Cut your position in half, look at the cash, take a walk and sleep on it for a day see how you feel than. The future is a set of probability in outcomes. Size your bet accordingly based on your risk tolerance and psychological capabilities.

[gadfly]

I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?

Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

 

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

 

Setup:

 

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution

-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons

-IDRs don't kick-in until distributions are over $2.203 per year.

 

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

 

EBITDA: 350

Maintenance Capex: 50

Interest Expense: 85

 

DCF :215

 

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

 

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

 

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

 

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

 

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

 

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

 

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

 

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

[jrallen81]

is the Reserves group Cline plus anyone else?

 

Thanks

[valcont]

 

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

 

Setup:

 

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution

-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons

-IDRs don't kick-in until distributions are over $2.203 per year.

 

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

 

EBITDA: 350

Maintenance Capex: 50

Interest Expense: 85

 

DCF :215

 

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

 

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

 

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

 

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

 

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

 

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

 

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

 

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

 

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

 

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

 

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

[gadfly]

 

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

 

Setup:

 

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution

-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons

-IDRs don't kick-in until distributions are over $2.203 per year.

 

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

 

EBITDA: 350

Maintenance Capex: 50

Interest Expense: 85

 

DCF :215

 

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

 

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

 

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

 

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

 

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

 

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

 

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

 

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

 

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

 

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

 

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

 

No worries, it was just a rough attempt and my interest expense is probably on the low side as well, but we're in the ballpark. Anyway, point is, if the subs turn to commons you're looking at, on the low low low side, $1 distributions for the 140ish million unit holders. In a middle of the road case scenario those commons should be worth 8x or a 12.5 yield. So say this happens at the end of this year, It would be reasonable for a common holder to demand $5.35 + $8 = $13.35. Now, you could argue why would Murray pay $13.35 for a cash flow stream we just said is worth $8? It's like a house with a market value of 500k, but a tax lien that needs to be settled for 100k...you should only pay 400k for such a house, right...

 

But our situation is different because if Murray never converts his subs to commons, the common holders get outsized returns. Murray would be providing capital to the business, but not receiving anything in return. Using a little Sicilian reasoning...he knows we know that he can't get any money out until he pays us...and thus my assumption that arrears, MQD and conversion money will be paid.

 

Furthermore, say Murray never tries a buy out or can't afford it. That's still a fine scenario.  All the DCF will come in to the 75 million or so common holders. 140 DCF (as above) /75 common units is plenty of money to convert the subs to commons over a three year period. We would get paid back our $5.35 anyway plus pick up additional $1.35 MQDs along the way (20% yield at current prices) the longer Murray lets it go. After the 3 year period the cash flow stream to 140 unit holders would still be worth $8 to Murray. So it's essentially the same outcome as the buyout except the cash flows are drawn out so the present value of everything is diminished. However, this problem is more than offset by the commons picking up additional MQDs at juicy yields as we wait for the conversion.

 

And don't forget Deer Run, its capable of something like 10 million tons. If there's a 50% chance that it is running in 3 years that's worth around $2 per share today.

 

[Patmo]

 

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

 

Setup:

 

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution

-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons

-IDRs don't kick-in until distributions are over $2.203 per year.

 

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

 

EBITDA: 350

Maintenance Capex: 50

Interest Expense: 85

 

DCF :215

 

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

 

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

 

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

 

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

 

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

 

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

 

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

 

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

 

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

 

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

 

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

 

No worries, it was just a rough attempt and my interest expense is probably on the low side as well, but we're in the ballpark. Anyway, point is, if the subs turn to commons you're looking at, on the low low low side, $1 distributions for the 140ish million unit holders. In a middle of the road case scenario those commons should be worth 8x or a 12.5 yield. So say this happens at the end of this year, It would be reasonable for a common holder to demand $5.35 + $8 = $13.35. Now, you could argue why would Murray pay $13.35 for a cash flow stream we just said is worth $8? It's like a house with a market value of 500k, but a tax lien that needs to be settled for 100k...you should only pay 400k for such a house, right...

 

But our situation is different because if Murray never converts his subs to commons, the common holders get outsized returns. Murray would be providing capital to the business, but not receiving anything in return. Using a little Sicilian reasoning...he knows we know that he can't get any money out until he pays us...and thus my assumption that arrears, MQD and conversion money will be paid.

 

Furthermore, say Murray never tries a buy out or can't afford it. That's still a fine scenario.  All the DCF will come in to the 75 million or so common holders. 140 DCF (as above) /75 common units is plenty of money to convert the subs to commons over a three year period. We would get paid back our $5.35 anyway plus pick up additional $1.35 MQDs along the way (20% yield at current prices) the longer Murray lets it go. After the 3 year period the cash flow stream to 140 unit holders would still be worth $8 to Murray. So it's essentially the same outcome as the buyout except the cash flows are drawn out so the present value of everything is diminished. However, this problem is more than offset by the commons picking up additional MQDs at juicy yields as we wait for the conversion.

 

And don't forget Deer Run, its capable of something like 10 million tons. If there's a 50% chance that it is running in 3 years that's worth around $2 per share today.

 

I think that Valcont's point is that after truing up the arrears and stuff, Murray will have free reign to pay what he feels like to take out the business, rendering the fair value of the business meaningless.

[Ismael]

@Valcont,it looks like FELP has a fair price charter restriction.

 

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner will have the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Please read “The Partnership Agreement—Limited Call Right.”

 

see page 17 and 211

https://www.sec.gov/Archives/edgar/data/1540729/000119312514229380/d737973ds1a.htm

[gadfly]

Patmo

 

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up.  If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.  And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring. Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs

[Patmo]

Patmo

 

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up.  If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.  And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring. Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs

 

If you flip the coin over, this very pessimistic scenario establishes the downside pretty clearly. You're virtually putting 20ish % of your money at risk for a business that's really profitable but where the outcome to equity depends a lot on game theory. I think this investment is plenty +EV in that framework but who knows, my gut is giving me mixed feelings honestly. I would be fine with losing 20% of my stake so I figure I got to ride along here and see what happens.

[valcont]

@Valcont,it looks like FELP has a fair price charter restriction.

 

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner will have the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Please read “The Partnership Agreement—Limited Call Right.”

 

see page 17 and 211

https://www.sec.gov/Archives/edgar/data/1540729/000119312514229380/d737973ds1a.htm

 

Thanks for the link Ismael. I am not saying that Murray will give the shaft to the unit holders, I am saying that I don't see a reason as to why this stock will be bid up based on the distributions considering there is a chance that Murray will take it private.

 

Murray has way too many options to take it private, here is one way he can do it.

 

"Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general

 

 

partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from causing us to issue additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act. Upon consummation of this offering, and assuming no exercise of the underwriters’ option to purchase additional common units, Foresight Reserves and Michael J. Beyer will own an aggregate of 85.9% and 0.6%, respectively, of our common and subordinated units, respectively. At the end of the subordination period, assuming no additional issuances of units (other than upon the conversion of the subordinated units), Foresight Reserves and Michael J. Beyer will own an aggregate of 85.9% and 0.6%, respectively, of our common units. For additional information about the limited call right, please read “The Partnership Agreement—Limited Call Right.”"

[valcont]

 

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up. 

 

I am not saying that.

 

If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.

 

What else would they do? BTW Cline already got $1.37B and 18% on PIKs , I don't think he has any reasons to complain.

And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring.

 

This was done to protect their interest in case the dilution happens to pay out the PIKs.

Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs

 

I don't think he wants to. If he does then their is a substantial upside.

[Ismael]

I don't know why Murray and Cline wouldn't buy out the remaining 13% of equity for as low as a price as possible, given the chance. While they don't need a fairness opinion, they do need to abide by the limited call right clause.

[gadfly]

 

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up. 

 

I am not saying that.

 

If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.

 

What else would they do? BTW Cline already got $1.37B and 18% on PIKs , I don't think he has any reasons to complain.

And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring.

 

This was done to protect their interest in case the dilution happens to pay out the PIKs.

Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs

 

I don't think he wants to. If he does then their is a substantial upside.

 

 

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up. 

 

I am not saying that.

 

If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.

 

What else would they do? BTW Cline already got $1.37B and 18% on PIKs , I don't think he has any reasons to complain.

And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring.

 

This was done to protect their interest in case the dilution happens to pay out the PIKs.

Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs

 

I don't think he wants to. If he does then their is a substantial upside.

 

Re Warrants: If I remember correctly, during the first debt restructuring the bond holders wanted warrants to purchase something like 9% of total units and it was fiercely contested and in the end they got 4.5%. Also, per the recent Form 4, Murray acquired 17,500 warrants for FELP commons. I think each warrant allows him to acquire 11.4 commons for $.89 each. So would be weird to do that if the commons were in trouble post FEGP change of control.

 

How much of that call right language do you think is boilerplate? I mean if we think Murray is capable of that then we're assuming he is going to screw Cline. I don't think Cline is stupid. He's been royally screwed legally with the change of control issues, so I don't think he'd be holding if there was a technicality Murray could get him on...

 

Also, Cline is still going to be on FEGP's board after this Murray transaction goes through, Robert Moore will be the Chairman of the FEGP's board and he owns 137,000 common units. Sure, it's not the 40.8 million that Cline owns, but if Moore is worth 10 million, that's 10% of his net worth in common FELP units. Not to mention all the other members of the FEGP board own common units in FELP except Murray's son (I assume that's who the 43 year old Robert E Murray is) who will FEGP's new board member.