FELP - Foresight Energy

[valcont]

i have been trying to read up on MLP in IRAs, i guess specifically due to FELP. Should you hold FELP in IRA or a taxable account considering what is currently going on at FELP (no income, potential future distribution and a large cap gain.) I guess the more specific question is if you bought FELP in the past year and has a large cap gain, does it make sense to sell it now in your IRA account to capture the cap gain, assuming you don't have to pay cap gain tax because its held in IRA? and then buy back FELP in your taxable account  to potentially side step future UBTI you might have to pay in your IRA?????

 

Good question. If you don't expect any more cap gains then you should swap but even better , close the position :) . As for the UBTI (btw my sick mind conjures up UTI every time I read that word) , distributions and capital gains don't trigger UBTI. The only thing I worry about is the CODI due to refinancing. They exchanged a 18% near term debt to a 11.5% longer term. Not sure what kind of CODI is generated because of that but I guess its not worth selling before the date of debt exchange and buying after that since I don't know what kind of price movement there will be.

 

Just talked with the Fidelity rep who manage my solo 401K. The woman was trying to be helpful but didn't know much about 990-T and UBTI. She spoke with someone else and assured me that they are going to file 990-T on my behalf. I asked her if they will file in case of a negative UBTI to offset future gains.She mumbled yes. Not very reassuring.

[heth247]

Do any of you hold FELP in your 401K/IRA account? I have some in my 401K account and I'm getting ready to file taxes. Their K1 shows negative income on line 20v. My question is do you report negative income on your taxes to increase the cost basis? My understanding is that since the capital gains and distributions are not taxed in a tax efficient account, it wouldn't matter if you maintain the basis. We have to worry about the UBTI but I am not sure how that is tied to the basis. Anyone dealt with this?

 

BTW if its in the IRA then you don't have to worry about filing the taxes since your custodian will take care of this.

 

I have FELP in both taxable account and my Roth IRA, and when I tried to enter the K-1 for Roth account, TurboTax dismissed it after I tell it that it is for a Roth account.

 

For the taxable account K-1, I also have negative income in line 20v. But it does not make any impact on my final tax. So are you saying that we should keep track of this number by ourselves and add it back to the cost basis when we sell FELP in the future?  Isn't our broker or K-1 form issuer (FELP) supposed to track these and report in the K-1 issued in the future?

 

This is my first time to deal with K-1, I am not sure how these negative income matters. We didn't have distribution in 2016, but what I heard is that if there is any distribution in the future, it is supposed to be tax efficient, meaning that it will not be taxed immediately, but will be used to decrease your cost basis, and taxed as capital gain in the future when you sell.  But, I am not sure who is responsible to keep track of this and adjust the cost basis, is it ourselves, FELP, or our broker?

 

 

[valcont]

 

 

For the taxable account K-1, I also have negative income in line 20v. But it does not make any impact on my final tax. So are you saying that we should keep track of this number by ourselves and add it back to the cost basis when we sell FELP in the future?  Isn't our broker or K-1 form issuer (FELP) supposed to track these and report in the K-1 issued in the future?

 

 

Yes , since this is an MLP you can not offset this loss from other passive income sources like other MLPs. This loss should be carried forward to offset future income from Felp. If you still carry excess losses when you sell your units, you can use them to offset the portion of the gain that is taxable as an ordinary income like depreciation recapture.

 

 

This is my first time to deal with K-1, I am not sure how these negative income matters. We didn't have distribution in 2016, but what I heard is that if there is any distribution in the future, it is supposed to be tax efficient, meaning that it will not be taxed immediately, but will be used to decrease your cost basis, and taxed as capital gain in the future when you sell.  But, I am not sure who is responsible to keep track of this and adjust the cost basis, is it ourselves, FELP, or our broker?

 

 

Yes, distributions are not taxed since they are treated as return of capital and are used to lower cost basis. Once the cost basis is zero, distributions are taxable. If you sell, then the depreciation is recaptured at ordinary income rates while the rest is treated as capital gains.

If they are in the IRA , then your custodian is responsible for filing it. Not sure if the broker is responsible for the individual accounts. Either way you are ultimately responsible no matter what.

 

[heth247]

Yes , since this is an MLP you can not offset this loss from other passive income sources like other MLPs. This loss should be carried forward to offset future income from Felp. If you still carry excess losses when you sell your units, you can use them to offset the portion of the gain that is taxable as an ordinary income like depreciation recapture.

 

Will TurboTax automatically carry this loss forward, or do I need to enter this loss into the software next year (when I have positive ordinary income reported in K-1)?

 

Yes, distributions are not taxed since they are treated as return of capital and are used to lower cost basis. Once the cost basis is zero, distributions are taxable. If you sell, then the depreciation is recaptured at ordinary income rates while the rest is treated as capital gains.

If they are in the IRA , then your custodian is responsible for filing it. Not sure if the broker is responsible for the individual accounts. Either way you are ultimately responsible no matter what.

 

In the k-1 form, they do reported my cost basis acquiring those shares, so I wonder if they will track it and adjust the basis based on distributions.

[valcont]

 

Will TurboTax automatically carry this loss forward, or do I need to enter this loss into the software next year (when I have positive ordinary income reported in K-1)?

 

 

Not sure. I use an accountant for my taxes.

[gadfly]

On the day that Foresight closes the refinancing of all their debt, Trump signs an executive order to dismantle CPP, Murray Energy holds their 4Q investor call, and a large cyclone threatens to disrupt global met coal supplies ...FELP closes down!

 

I was looking at the trading of the new 11.5% notes and they are $93 and have been steadily going down. Is that just a convergence of Murray's cost of capital and FELP's now that Murray is about to become the GP? If I remember correctly the notes where initially purchased for $99.25 so some bank or client of some bank is down pretty substantially in just a couple of weeks...

[valcont]

The new 8K is out and looks like FELP will not be able to pay the distributions for some more time.

 

Restrictive Covenants and Other Matters

 

The Indenture includes negative covenants, subject to certain exceptions, restricting or limiting the Issuers’ and their subsidiaries’ ability to, among other things:

 

·                  incur additional indebtedness;

 

·                  pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;

 

Amortization and Prepayments

 

The New Credit Facilities will require scheduled quarterly amortization payments on the Term Loan in an aggregate annual amount equal to 1.0% of the original principal amount of the Term Loan, with the balance to be paid at maturity.

 

In addition, the New Credit Facilities will require us to prepay outstanding borrowings, subject to certain exceptions, with:

 

·                  75% (which percentage will be reduced to 50%, 25% and 0% based on satisfaction of specified net secured leverage ratio tests) of our annual excess cash flow, as defined under the New Credit Facilities;

 

·                  100% of the net cash proceeds of non-ordinary course asset sales and other dispositions of property, in each case subject to certain exceptions and customary reinvestment rights;

 

·                  100% of the net cash proceeds of insurance (other than insurance proceeds relating to the Deer Run mine), in each case subject to certain exceptions and customary reinvestment rights; and

 

·                  100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the New Credit Facilities.

[heth247]

 

Restrictive Covenants and Other Matters

 

The New Credit Facilities will require that, commencing as of the end of the second fiscal quarter in 2017, we comply on a quarterly basis with a maximum net first lien secured leverage ratio of 3.75:1.00, stepping down by 0.25x in each of the first quarters of 2019 and 2021, which financial covenant will be solely for the benefit of the lenders under the Revolving Facility.

 

The New Credit Facilities will contain certain customary affirmative covenants. The negative covenants in the New Credit Facilities will include, among other things, limitations on our ability to do the following, subject to certain exceptions and baskets to be agreed:

·                  incur additional debt;

·                  create liens on certain assets;

·                  make certain loans or investments (including acquisitions);

·                  pay dividends on or make distributions in respect of our capital stock or make other restricted junior payments;

 

I guess it will depend on the net leverage ratio and how fast it comes down. Do you know how close it is to 3.75:1 after refinance?

[Patmo]

The new 8K is out and looks like FELP will not be able to pay the distributions for some more time.

 

Restrictive Covenants and Other Matters

 

The Indenture includes negative covenants, subject to certain exceptions, restricting or limiting the Issuers’ and their subsidiaries’ ability to, among other things:

 

·                  incur additional indebtedness;

 

·                  pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;

 

Amortization and Prepayments

 

The New Credit Facilities will require scheduled quarterly amortization payments on the Term Loan in an aggregate annual amount equal to 1.0% of the original principal amount of the Term Loan, with the balance to be paid at maturity.

 

In addition, the New Credit Facilities will require us to prepay outstanding borrowings, subject to certain exceptions, with:

 

·                  75% (which percentage will be reduced to 50%, 25% and 0% based on satisfaction of specified net secured leverage ratio tests) of our annual excess cash flow, as defined under the New Credit Facilities;

 

·                  100% of the net cash proceeds of non-ordinary course asset sales and other dispositions of property, in each case subject to certain exceptions and customary reinvestment rights;

 

·                  100% of the net cash proceeds of insurance (other than insurance proceeds relating to the Deer Run mine), in each case subject to certain exceptions and customary reinvestment rights; and

 

·                  100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the New Credit Facilities.

 

I was curious about this part, the language suggests limitations and restrictions around dividends/restricted payments, but not necessarily a full-blown blockade. Since it would be kind of game breaking for Murray, I dug a bit. I discovered that I can't read any of that crap. But more seriously, I found a small snippet:

 

Look at 7.06(b) in the credit agreement (exh 10.1), it states the exceptions to the restrictions against making "restricted payments", and (b) says:

 

(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other Equity Interests of such Person or another Subsidiary;

 

 

I am not 100% what this means, but I think only subordinated units and/or the GP can't get distributions. If somebody who can actually read this kind of crap (saying this on a more serious tone this time) could clarify that would be great...

 

[valcont]

 

Look at 7.06(b) in the credit agreement (exh 10.1), it states the exceptions to the restrictions against making "restricted payments", and (b) says:

 

(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other Equity Interests of such Person or another Subsidiary;

 

 

I am not 100% what this means, but I think only subordinated units and/or the GP can't get distributions. If somebody who can actually read this kind of crap (saying this on a more serious tone this time) could clarify that would be great...

 

Well the most restricted covenant will still apply. This one just allows them to make distribution should the excess cash flow exceeds all the covenant ratios.

[valcont]

 

Look at 7.06(b) in the credit agreement (exh 10.1), it states the exceptions to the restrictions against making "restricted payments", and (b) says:

 

(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other Equity Interests of such Person or another Subsidiary;

 

 

I take back my previous comment. This refers to the distribution paid in common stock i.e. if Murray issues additional stock to pay out distribution to the unit holders. Don't know why would he do that.

 

 

I guess it will depend on the net leverage ratio and how fast it comes down. Do you know how close it is to 3.75:1 after refinance?

 

Here is how its defined:

 

Secured Leverage Ratio” means, on any date, the ratio of:

 

(1) the sum, without duplication, of (a) the aggregate principal amount of Secured Debt and Junior Lien Obligations representing Debt for borrowed money (less the amount of unrestricted cash and cash equivalents of the Company and its Restricted Subsidiaries, on a consolidated basis, as of such date) outstanding on such date (and, for this purpose, letters of credit will be deemed to have a principal amount equal to the amount drawn, and not reimbursed thereunder, if any), plus (b) the aggregate principal amount of Attributable Debt in respect of Capital Lease Obligations of the Company and its Restricted Subsidiaries, on a consolidated basis, outstanding on such date, plus © to the extent constituting Debt for borrowed money, the aggregate principal amount of Debt of the Company and its Restricted Subsidiaries Incurred to finance all or a part of the acquisition of any longwall equipment (or other mining equipment acquired after the Issue Date) and that is secured by a Lien on such equipment outstanding on such date, to:

 

(2) the aggregate amount of the Company’s EBITDA for the most recent four-quarter period for which financial statements have been delivered to the Trustee.

 

In addition, the Secured Leverage Ratio will be determined in accordance with such pro forma adjustments as are consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.

and this

 

“Senior Secured Leverage Ratio” means, on any date, the ratio of:

 

(1) the sum, without duplication, of (a) the aggregate principal amount of Priority Lien Debt representing Debt for borrowed money (less the amount of unrestricted cash and cash equivalents of the Company and its Restricted Subsidiaries, on a consolidated basis, as of such date) outstanding on such date (and, for this purpose, letters of credit will be deemed to have a principal amount equal to the amount drawn, and not reimbursed thereunder, if any), plus (b) the aggregate principal amount of Attributable Debt in respect of Capital Lease Obligations of the Company and its Restricted Subsidiaries, on a consolidated basis, outstanding on such date, plus © to the extent constituting Debt for borrowed money, the aggregate principal amount of Debt of the Company and its Restricted Subsidiaries Incurred to finance all or a part of the acquisition of any longwall equipment (or other mining equipment acquired after the Issue Date) and that is secured by a Lien on such equipment outstanding on such date, to

 

(2) the aggregate amount of the Company’s EBITDA for the most recent four-quarter period for which financial statements have been delivered to the Trustee.

 

In addition, the Senior Secured Leverage Ratio will be determined in accordance with such pro forma adjustments as are consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.

 

 

Their 2016 adjusted EBITDA was $306m. The total debt is $425m(notes) , $825m(term) and $170m(revolver) + lease obligations etc(no idea how much that is) = $1420m. I have to check if the revolver is drawn but did I miss anything?

[wachtwoord]

I received a tax form for this (I'm a foreign investor). For MLPs I held in the past my broker (IB) charged me more than a year after receiving distributions very high charges. FELP does not have any distributions, is there a risk I will get charged for something?

 

I don't hold MLPs anymore for this very reason, but though FELP was okay as long as it doesn't distribute anything.

[Patmo]

 

I take back my previous comment. This refers to the distribution paid in common stock i.e. if Murray issues additional stock to pay out distribution to the unit holders. Don't know why would do that.

 

Well it's obvious now that you mention it. Thx

[Patmo]

What is Murray's game plan then? He controls the GP but I think has no reason take it private because he can't even convert his subs to common. And forget about going private, if the common just accrue more distributions for 5 years, his units will be worthless to begin with... This deal would essentially be him nailing his own coffin, no? He wouldnt have let this refi happen if that were the case. What is his angle?

[Green King]

What is Murray's game plan then? He controls the GP but I think has no reason take it private because he can't even convert his subs to common. And forget about going private, if the common just accrue more distributions for 5 years, his units will be worthless to begin with... This deal would essentially be him nailing his own coffin, no? He wouldn't have let this refi happen if that were the case. What is his angle?

 

His game plan is to make money. He thinks this thing he owns is worth more than the market value it. Your questions should be, Is he going to steal from you and how much? Not how is he going to steal from you? How is easy they can always find a way. There are infinite numbers of ways.

[Patmo]

He plans to make money? Damn son that's some insight you got there

 

If the new debt doesnt allow distributions, then Murray's entire stake in the subs is virtually worthless AFAIK. He'd never be able to catch up on arrears. Bob Murray is also not an idiot, so this doesnt add up. This debt should be structured in a way that doesnt straight kill him, otherwise he is better off with any other outcome including staying with the PIK's. AKA this deal would never happen. So what is the crack here, where does he make his money? He has control of the GP so what can he do with it? Does it make sense for him to write off the subs and rely on GP distributions, or plain buy out the outstanding common? Seems far fetched to me

[Green King]

He plans to make money? Damn son that's some insight you got there

 

If the new debt doesnt allow distributions, then Murray's entire stake in the subs is virtually worthless AFAIK. He'd never be able to catch up on arrears. Bob Murray is also not an idiot, so this doesnt add up. This debt should be structured in a way that doesnt straight kill him, otherwise he is better off with any other outcome including staying with the PIK's. AKA this deal would never happen. So what is the crack here, where does he make his money? He has control of the GP so what can he do with it? Does it make sense for him to write off the subs and rely on GP distributions, or plain buy out the outstanding common? Seems far fetched to me

 

Here is the insight

 

" He thinks this thing he owns is worth more than the market value it." ;D

 

Worthless you say ?

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=FMRRE4232108&symbol=MRRE4232108

[valcont]

I received a tax form for this (I'm a foreign investor). For MLPs I held in the past my broker (IB) charged me more than a year after receiving distributions very high charges. FELP does not have any distributions, is there a risk I will get charged for something?

 

I don't hold MLPs anymore for this very reason, but though FELP was okay as long as it doesn't distribute anything.

 

Assuming you hold the MLPs in a taxable account, you shouldn't be charged for the distributions until those exceeds your cost basis. After that some fraction of income is charged at capital gain rates and rest at individual tax rate.

 

If you are holding them at tax efficient accounts, you will only be taxed for UBTI income.

[wachtwoord]

I received a tax form for this (I'm a foreign investor). For MLPs I held in the past my broker (IB) charged me more than a year after receiving distributions very high charges. FELP does not have any distributions, is there a risk I will get charged for something?

 

I don't hold MLPs anymore for this very reason, but though FELP was okay as long as it doesn't distribute anything.

 

Assuming you hold the MLPs in a taxable account, you shouldn't be charged for the distributions until those exceeds your cost basis. After that some fraction of income is charged at capital gain rates and rest at individual tax rate.

 

If you are holding them at tax efficient accounts, you will only be taxed for UBTI income.

 

Thanks for the response. I am a foreign (non-US) investor and hold it in a taxable account. For the MLPs I owned IB withheld 28% (iirc) of the distributions over a year af they occured because they 'forgot' (so irrespective of cost basis). I think I am allowed to ask it back but I dont know how and believe the fees to be higher than the proceeds.

 

Anyway if I understand you correctly I will normally not be charged until there are actual distributions?

[valcont]

What is Murray's game plan then? He controls the GP but I think has no reason take it private because he can't even convert his subs to common. And forget about going private, if the common just accrue more distributions for 5 years, his units will be worthless to begin with... This deal would essentially be him nailing his own coffin, no? He wouldnt have let this refi happen if that were the case. What is his angle?

 

I can only assume he is putting out one fire after the other so far. This refinancing lets him avoid the dilution and gives him control of the GP. He has already raised the management fees last week so that's some money in his pocket. Plus there is Hillsboro. They are inspecting it again and if that becomes operational than distributions will flow.

 

I don't understand the whole deal but I know that Cline still holds a significant amount and he was buying until recently. Unless Murray and Cline cut a deal to screw minority holders, Not sure if Murray will do anything  to screw Cline especially since he bailed him out last year.

[Patmo]

He plans to make money? Damn son that's some insight you got there

 

If the new debt doesnt allow distributions, then Murray's entire stake in the subs is virtually worthless AFAIK. He'd never be able to catch up on arrears. Bob Murray is also not an idiot, so this doesnt add up. This debt should be structured in a way that doesnt straight kill him, otherwise he is better off with any other outcome including staying with the PIK's. AKA this deal would never happen. So what is the crack here, where does he make his money? He has control of the GP so what can he do with it? Does it make sense for him to write off the subs and rely on GP distributions, or plain buy out the outstanding common? Seems far fetched to me

 

Here is the insight

 

" He thinks this thing he owns is worth more than the market value it." ;D

 

Worthless you say ?

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=FMRRE4232108&symbol=MRRE4232108

 

Why are you pointing to bonds when we are talking about the subs...

[Patmo]

What is Murray's game plan then? He controls the GP but I think has no reason take it private because he can't even convert his subs to common. And forget about going private, if the common just accrue more distributions for 5 years, his units will be worthless to begin with... This deal would essentially be him nailing his own coffin, no? He wouldnt have let this refi happen if that were the case. What is his angle?

 

I can only assume he is putting out one fire after the other so far. This refinancing lets him avoid the dilution and gives him control of the GP. He has already raised the management fees last week so that's some money in his pocket. Plus there is Hillsboro. They are inspecting it again and if that becomes operational than distributions will flow.

 

I don't understand the whole deal but I know that Cline still holds a significant amount and he was buying until recently. Unless Murray and Cline cut a deal to screw minority holders, Not sure if Murray will do anything  to screw Cline especially since he bailed him out last year.

 

And Cline can't just dump his stake either even with losing control of GP and resigning from the board, it would take him a year to unload...

 

Good point on Hillsboro, it was 25% of total production  before going up in flames so the incremental cash flows would be pretty significant. Is there anything to read on the current status of this mine?

[valcont]

I received a tax form for this (I'm a foreign investor). For MLPs I held in the past my broker (IB) charged me more than a year after receiving distributions very high charges. FELP does not have any distributions, is there a risk I will get charged for something?

 

I don't hold MLPs anymore for this very reason, but though FELP was okay as long as it doesn't distribute anything.

 

 

Assuming you hold the MLPs in a taxable account, you shouldn't be charged for the distributions until those exceeds your cost basis. After that some fraction of income is charged at capital gain rates and rest at individual tax rate.

 

If you are holding them at tax efficient accounts, you will only be taxed for UBTI income.

 

Thanks for the response. I am a foreign (non-US) investor and hold it in a taxable account. For the MLPs I owned IB withheld 28% (iirc) of the distributions over a year af they occured because they 'forgot' (so irrespective of cost basis). I think I am allowed to ask it back but I dont know how and believe the fees to be higher than the proceeds.

 

Anyway if I understand you correctly I will normally not be charged until there are actual distributions?

 

Oh so it looks like they withheld the taxes on your behalf. Well if you are a US citizen then you can claim the tax credit for that amount when you file. If you are non US , then a lot of countries have tax treaties with US to avoid double taxation. You should be able to get a credit in your home country.

 

 

[valcont]

 

And Cline can't just dump his stake either even with losing control of GP and resigning from the board, it would take him a year to unload...

 

Good point on Hillsboro, it was 25% of total production  before going up in flames so the incremental cash flows would be pretty significant. Is there anything to read on the current status of this mine?

Last update

It has submitted a plan for reentry of the Hillsboro mine and will work with MSHA moving forward, noting that it did not “anticipate any production from Hillsboro in the foreseeable future.”

[Green King]

He plans to make money? Damn son that's some insight you got there

 

If the new debt doesnt allow distributions, then Murray's entire stake in the subs is virtually worthless AFAIK. He'd never be able to catch up on arrears. Bob Murray is also not an idiot, so this doesnt add up. This debt should be structured in a way that doesnt straight kill him, otherwise he is better off with any other outcome including staying with the PIK's. AKA this deal would never happen. So what is the crack here, where does he make his money? He has control of the GP so what can he do with it? Does it make sense for him to write off the subs and rely on GP distributions, or plain buy out the outstanding common? Seems far fetched to me

 

Here is the insight

 

" He thinks this thing he owns is worth more than the market value it." ;D

 

Worthless you say ?

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=FMRRE4232108&symbol=MRRE4232108

 

Why are you pointing to bonds when we are talking about the subs...

 

let's leave it here. There are many layers to this game. Pricing information and volume provides important information if you know how to use them. It is not hard I am just lazy.