FELP - Foresight Energy

[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?

 

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.

 

Yeah I can do that for dividends. The treaty between US and NL causes the US to withhold only 15% which in turn I can deduct from my Dutch taxes. This tax I dont have a place for to deduct and for dividens I can't fill in more than 15%. On top of this they charged it for taxes from a year ago because IB appearently did it wrong ....

 

Anyway, maybe I'll look into this again thanks for the help. My main question here is though: they wont impose taxes like that for a holding like FELP with 0 distributions correct?

[maybe4less]

 

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.”

 

With the covenants in place on the new term loan, I don't see how they can pay any meaningful distributions for a number of years. Maybe a 4-5% distribution at current prices, which I think makes the stock overpriced given all the debt.

 

Of course, if Hillsboro comes back online, that changes things.

 

I spoke with IR last week and there is no additional news on progress for re-opening the mine. They know they are going to need to seal off permanently the problem part of the mine. The question they are grappling with at the moment is whether they will have to abandon the longwall equipment in that section or will they be able to retrieve it safely.

 

Anyone with mining expertise who can make an educated guess as to the timeline of reopening this mine?

[valcont]

 

Anyway, maybe I'll look into this again thanks for the help. My main question here is though: they wont impose taxes like that for a holding like FELP with 0 distributions correct?

 

Not a tax professional but my understanding is that you pay taxes if the ordinary  income on Part III , Line 1 is positive. This increases your cost basis too. The distributions on Line 19 are ROC and are not taxed until cost basis is zero. There are other items that are used to calculate passive losses. If you use a tax software you can just punch in the values and it can determine your liability.

 

Also you will pay taxes if you sold the units for a gain.

[valcont]

 

With the covenants in place on the new term loan, I don't see how they can pay any meaningful distributions for a number of years. Maybe a 4-5% distribution at current prices, which I think makes the stock overpriced given all the debt.

 

Of course, if Hillsboro comes back online, that changes things.

 

I spoke with IR last week and there is no additional news on progress for re-opening the mine. They know they are going to need to seal off permanently the problem part of the mine. The question they are grappling with at the moment is whether they will have to abandon the long wall equipment in that section or will they be able to retrieve it safely.

 

Anyone with mining expertise who can make an educated guess as to the timeline of reopening this mine?

 

Have you done any work on determining the cash flows this year? I just took the last year one to get a rough idea.Curious as to why do you think the stock is overpriced considering the arrearages that the FELP owes.

 

 

[maybe4less]

 

With the covenants in place on the new term loan, I don't see how they can pay any meaningful distributions for a number of years. Maybe a 4-5% distribution at current prices, which I think makes the stock overpriced given all the debt.

 

Of course, if Hillsboro comes back online, that changes things.

 

I spoke with IR last week and there is no additional news on progress for re-opening the mine. They know they are going to need to seal off permanently the problem part of the mine. The question they are grappling with at the moment is whether they will have to abandon the long wall equipment in that section or will they be able to retrieve it safely.

 

Anyone with mining expertise who can make an educated guess as to the timeline of reopening this mine?

 

Have you done any work on determining the cash flows this year? I just took the last year one to get a rough idea.Curious as to why do you think the stock is overpriced considering the arrearages that the FELP owes.

 

I don't have my work with me at the moment, but I based it on annualizing H2 of 2016. With all the required debt paydowns and high interest rates, I see smallish distributions for at least two years (likely more; I didn't extend the model any further) without a significant increase in coal prices or Hillsboro coming back online. We may be entitled to those arrearages, but we are not going to get them for a while. (As an aside, IR said they are most likely going to switch to doing annual distributions, as the excess cash flow convenant that determines how much they can distribute is calculated on an calendar-year basis.)

 

With most other coal MLPs trading at high single digit or even double digit yields, I don't see why this shouldn't trade lower, given the debt and the uncertainty around coal prices. Maybe the market is pricing in a quick re-opening of Hillsboro. I don't know, it's outside of my circle of competence.

[Patmo]

Even at the disappointingly high rates of interest, the annual expense is going to be about par with 2016 though. So the co will generate a floor of 200mil after int, 50 mil to capex, there is still 150mil to split 75/25 debt/distributions, is that roughly where you are at?

[heth247]

So here is my back of napkin calculation: they have $475+825+170=1470MM secured debt, and for 2016, the bottom year, they did ~$320MM in EBITDA. Let's say they direct all of their excess cash flow into repaying the debt in 2017 and end up with $1300MM debt (or less) at 2017 year end, and achieve $350MM EBITDA (or more) for 2017. So at the end of 2017, the secured leverage ratio would be $1300/$350=3.71 (or less). This should qualify us for 50% "retained percentage" of excess cash flow for 2018. And for 65M+6M+9M=80M common units (excluding the sub units), I think we probably can get about $1 distribution per units. Anybody think this estimation is too aggressive?

 

“ Retained Percentage ” means, with respect to an Excess Cash Flow Period, 25%; provided that, commencing with the Excess Cash Flow Period for the fiscal year ending December 31, 2018, such percentage shall be (i) 50% if the Secured Leverage Ratio at the end of such Excess Cash Flow Period is less than or equal to 4.00 to 1.00 and greater than 3.00 to 1.00, (ii) 75% if the Secured Leverage Ratio at the end of such Excess Cash Flow Period is less than or equal to 3.00 to 1.00 and greater than 1.75 to 1.00 and (iii) 100% if the Secured Leverage Ratio at the end of such Excess Cash Flow Period is less than or equal to 1.75 to 1.00.

 

[maybe4less]

Even at the disappointingly high rates of interest, the annual expense is going to be about par with 2016 though. So the co will generate a floor of 200mil after int, 50 mil to capex, there is still 150mil to split 75/25 debt/distributions, is that roughly where you are at?

 

Here is what I see for 2017 without Hillsboro:

 

1) Total Secured Debt currently:

 

Term Loan - $825M

Revolver    - $170M

Second Lien Notes - $425M

Sugarcamp Longwall Financing - $39.22M

Hillsboro Longwall Financing - $41.25M

Capital Leases - $41.5M

 

Total - $1,542M

 

2) Cash Flow:

 

$300M EBITDA by annualizing H2 2016 (after removing $30M of insurance recoveries)

 

less $55M capex

 

less $122M in interest

 

less 4% mandatory annual prepayments to term loan of $33M

 

less principal payments on capital leases of $16M

 

plus stock option expense of $5M

 

= Excess Cash Flow of $79M

 

3) Debt paydown during 2017 of $49M

 

Secured Leverage Ratio at year-end of $1,493/ $300 = 4.98x

 

Required payment to Term Loan = 75% x $79M = $59.25

 

4) $19.75M available to common units

$66.9M diluted shares

 

$0.30 distribution per share

 

at a price of $5.96/share, that is less than 5% yield

 

5) For 2018, assuming the same EBITDA, I get a year-end secured leverage ratio of 4.54x and distributable cash per share of $0.31 cents

 

Assumptions are no Hillsboro, no refinancing, and floating rates don't move much.

 

See attached spreadsheet

 

 

FELP_cash_flow.xlsx

[valcont]

Here is what I see for 2017 without Hillsboro:

 

1) Total Secured Debt currently:

 

Term Loan - $825M

Revolver    - $170M

Second Lien Notes - $425M

Sugarcamp Longwall Financing - $39.22M

Hillsboro Longwall Financing - $41.25M

Capital Leases - $41.5M

 

Total - $1,542M

 

2) Cash Flow:

 

$300M EBITDA by annualizing H2 2016 (after removing $30M of insurance recoveries)

 

less $55M capex

 

less $122M in interest

 

less 4% mandatory annual prepayments to term loan of $33M

 

less principal payments on capital leases of $16M

 

plus stock option expense of $5M

 

= Excess Cash Flow of $79M

 

3) Debt paydown during 2017 of $49M

 

Secured Leverage Ratio at year-end of $1,493/ $300 = 4.98x

 

Required payment to Term Loan = 75% x $79M = $59.25

 

4) $19.75M available to common units

$66.9M diluted shares

 

$0.30 distribution per share

 

at a price of $5.96/share, that is less than 5% yield

 

5) For 2018, assuming the same EBITDA, I get a year-end secured leverage ratio of 4.54x and distributable cash per share of $0.31 cents

 

Assumptions are no Hillsboro, no refinancing, and floating rates don't move much.

 

See attached spreadsheet

 

Thanks for sharing your work. How are you thinking about arrearages? The way I look at it, I am buying $3.90 worth of arrearages for the $6.00 price tag. That eliminate my risk against dilution and my share of the distributions increases as FELP pays out debt. That share would've gone to the IDR/Subs had there were no arrears.

 

So if you think FELP's situation will improve over time as the debt is paid off , then a 5% yielder today is not a bad deal.

 

 

 

[heth247]

 

Here is what I see for 2017 without Hillsboro:

1) Total Secured Debt currently:

 

Term Loan - $825M

Revolver    - $170M

Second Lien Notes - $425M

Sugarcamp Longwall Financing - $39.22M

Hillsboro Longwall Financing - $41.25M

Capital Leases - $41.5M

 

Total - $1,542M

 

From their recent 10K, as of 12/31/2016, they have long-term debt and lease obligations as:

 

2021 Second line Notes    $349,100

2017 Exchange PIK notes  $299,859

Revolver                          $352,500

Term loan                        $295,667

Trade AR                            14,200

5.78% longwall financing      39,217

5.55% longwall financing      41.250

Capital lease                        41,457

Sub total =                    1,433,250

 

So after refinancing, this increases to $1,542M? Where does the extra $100M come from? The only thing I can think of is the $170MM revolver. I think it is unlikely that the $170M revolver will be completely drawn. In addition, they also have $103M cash at hand at 2016 year end. So their actual net leverage ratio is not as high as you calculated.

 

 

[Beardog]

 

So after refinancing, this increases to $1,542M? Where does the extra $100M come from? The only thing I can think of is the $170MM revolver. I think it is unlikely that the $170M revolver will be completely drawn. In addition, they also have $103M cash at hand at 2016 year end. So their actual net leverage ratio is not as high as you calculated.

 

 

 

Agree -- the company said in its 3/1 8-K that they expect the revolver will be completely undrawn, which makes sense considering the cash on the balance sheet plus the additional $60M from Murray.

 

https://www.sec.gov/Archives/edgar/data/1540729/000095014217000446/eh1700349_8k.htm

[maybe4less]

 

So after refinancing, this increases to $1,542M? Where does the extra $100M come from? The only thing I can think of is the $170MM revolver. I think it is unlikely that the $170M revolver will be completely drawn. In addition, they also have $103M cash at hand at 2016 year end. So their actual net leverage ratio is not as high as you calculated.

 

 

 

Agree -- the company said in its 3/1 8-K that they expect the revolver will be completely undrawn, which makes sense considering the cash on the balance sheet plus the additional $60M from Murray.

 

https://www.sec.gov/Archives/edgar/data/1540729/000095014217000446/eh1700349_8k.htm

 

You're right, I missed that. I confirmed with IR too this morning that the revolver is undrawn. So, we are still probably looking at a 30 something cent distribution early next year. Then, if coal prices stay where they are and Hillsboro is still out of commission, the company can probably pay enough debt down to get under 3x leverage by the end of 2018. In which, case 2018's distribution would be around 70 cents a share.

[maybe4less]

Here is what I see for 2017 without Hillsboro:

 

1) Total Secured Debt currently:

 

Term Loan - $825M

Revolver    - $170M

Second Lien Notes - $425M

Sugarcamp Longwall Financing - $39.22M

Hillsboro Longwall Financing - $41.25M

Capital Leases - $41.5M

 

Total - $1,542M

 

2) Cash Flow:

 

$300M EBITDA by annualizing H2 2016 (after removing $30M of insurance recoveries)

 

less $55M capex

 

less $122M in interest

 

less 4% mandatory annual prepayments to term loan of $33M

 

less principal payments on capital leases of $16M

 

plus stock option expense of $5M

 

= Excess Cash Flow of $79M

 

3) Debt paydown during 2017 of $49M

 

Secured Leverage Ratio at year-end of $1,493/ $300 = 4.98x

 

Required payment to Term Loan = 75% x $79M = $59.25

 

4) $19.75M available to common units

$66.9M diluted shares

 

$0.30 distribution per share

 

at a price of $5.96/share, that is less than 5% yield

 

5) For 2018, assuming the same EBITDA, I get a year-end secured leverage ratio of 4.54x and distributable cash per share of $0.31 cents

 

Assumptions are no Hillsboro, no refinancing, and floating rates don't move much.

 

See attached spreadsheet

 

Thanks for sharing your work. How are you thinking about arrearages? The way I look at it, I am buying $3.90 worth of arrearages for the $6.00 price tag. That eliminate my risk against dilution and my share of the distributions increases as FELP pays out debt. That share would've gone to the IDR/Subs had there were no arrears.

 

So if you think FELP's situation will improve over time as the debt is paid off , then a 5% yielder today is not a bad deal.

 

I agree that the arrearages are valuable, but we are still dependent on the cash flows to get those arrearages. I'm not sure I want to wait around for years in a highly levered commodity company before I can get paid.

[bonkers]

On another topic, I suppose also others than me are watching the coal price:

https://www.quandl.com/data/EIA/COAL-US-Coal-Prices-by-Region

 

Even if the prices move pretty closely in tandem, they do not move in the same direction all the time. E.g. for some reason when Central Appalachian price is going nicely upwards, for Illinois Basin the price dropped in Feb some -10 %. Moves like this have happened before, so perhaps the prices generally increase still 1-1½ yrs more if there is such a thing as a cycle.

 

- B

[Patmo]

No lies, I'd rather have flipped my stock to yield pigs ASAP. But the company is only barred from issuing sizable distributions because of financial engineering and an incredulous debt market, not because the business went tits up. So to me it doesn't make sense to value the stock based on this year's yield. Until these covenants are handled, delevering the BS and time value are a pretty good price to pay to lock in a bunch of distributions at the LP level. The cash flow held up very strong in a gritty downturn, and so long as this remains true, I can't justify selling at these prices.

[Patmo]

Even at the disappointingly high rates of interest, the annual expense is going to be about par with 2016 though. So the co will generate a floor of 200mil after int, 50 mil to capex, there is still 150mil to split 75/25 debt/distributions, is that roughly where you are at?

 

Here is what I see for 2017 without Hillsboro:

 

1) Total Secured Debt currently:

 

Term Loan - $825M

Revolver    - $170M

Second Lien Notes - $425M

Sugarcamp Longwall Financing - $39.22M

Hillsboro Longwall Financing - $41.25M

Capital Leases - $41.5M

 

Total - $1,542M

 

2) Cash Flow:

 

$300M EBITDA by annualizing H2 2016 (after removing $30M of insurance recoveries)

 

less $55M capex

 

less $122M in interest

 

less 4% mandatory annual prepayments to term loan of $33M

 

less principal payments on capital leases of $16M

 

plus stock option expense of $5M

 

= Excess Cash Flow of $79M

 

3) Debt paydown during 2017 of $49M

 

Secured Leverage Ratio at year-end of $1,493/ $300 = 4.98x

 

Required payment to Term Loan = 75% x $79M = $59.25

 

4) $19.75M available to common units

$66.9M diluted shares

 

$0.30 distribution per share

 

at a price of $5.96/share, that is less than 5% yield

 

5) For 2018, assuming the same EBITDA, I get a year-end secured leverage ratio of 4.54x and distributable cash per share of $0.31 cents

 

Assumptions are no Hillsboro, no refinancing, and floating rates don't move much.

 

See attached spreadsheet

 

Very detailed work, thx for sharing.

[valcont]

No lies, I'd rather have flipped my stock to yield pigs ASAP. But the company is only barred from issuing sizable distributions because of financial engineering and an incredulous debt market, not because the business went tits up. So to me it doesn't make sense to value the stock based on this year's yield. Until these covenants are handled, delevering the BS and time value are a pretty good price to pay to lock in a bunch of distributions at the LP level. The cash flow held up very strong in a gritty downturn, and so long as this remains true, I can't justify selling at these prices.

 

This is  the lowest cost operator with the highest netbacks among its peers.ILB is hovering in the low 30s, if it goes below 30 a lot of competitor's coal mines will be unprofitable.With the tightening supplies,2018  As bad as these covenants are , they do restrict Murray by preventing drop down stuff ins and unfavorable asset transfer. 

[valcont]

Ocwen kept me busy yesterday, so just checked the SXCP earnings/Presentation today. They are maintaining the distribution which is nice but their CMT numbers caught my eye. They exported record coal volume in Q1 just as the CEO predicted in the last qtr earnings. That's great new for FELP since it uses the terminal for exporting coal. If I remember correctly, FELP exported 5m ton last year and looks like they are on target to add more this year. These incremental tons should be accretive to their top line.

 

"Turning to our Coal Logistics segment on the next slide. In the quarter, we had higher volumes in our coal logistics business year-over-year with approximately 3.4 million tons at KRT in Lake and 2.1 million tons at Convent.

 

On the domestic coal logistics side, volumes were slightly tampered due to mild winter weather, but we are tracking to our 2017 guidance of 15 million tons for the year. At Convent, we earned $11 million of adjusted EBITDA in this first quarter and this does not include the $3.2 million of deferred revenue recognized during the quarter. We are on track to achieve our 2017 guidance of 8.5 million tons at this facility."

[PullTheTrigger]

Here are a couple articles about coal courtesy of Taylor Kuykendall on Twitter:

 

Illinois Basin and Northern Appalachian barge coals contributed to squeezing OTC CAPP barge coal out of the market

 

http://www.platts.com/videos/2017/april/snapshot-us-capp-barge-coal-042017?hootpostid=0dbb67de2fd6148db3e0dc543503c1c3

 

Kansas City Southern reported that its utility coal revenue was up 88% in the first quarter compared to a year ago

 

http://www.snl.com/web/client?auth=inherit#news/article?id=40391716&cdid=A-40391716-13866

 

I was trying to find out if Kansas City Sourthern services FELP. Haven't figured that out, although they have lines into Illinois. I did find a very good article about FELP's access to rail and barge transportation. It's dated, but very detailed if you want to know how well they are set up to transport coal.

 

http://www.coalage.com/features/820-foresight-energy-invests-in-illinois.html#.WPpRs_nyuUk

 

 

[awindenberger]

Ocwen kept me busy yesterday, so just checked the SXCP earnings/Presentation today. They are maintaining the distribution which is nice but their CMT numbers caught my eye. They exported record coal volume in Q1 just as the CEO predicted in the last qtr earnings. That's great new for FELP since it uses the terminal for exporting coal. If I remember correctly, FELP exported 5m ton last year and looks like they are on target to add more this year. These incremental tons should be accretive to their top line.

 

"Turning to our Coal Logistics segment on the next slide. In the quarter, we had higher volumes in our coal logistics business year-over-year with approximately 3.4 million tons at KRT in Lake and 2.1 million tons at Convent.

 

On the domestic coal logistics side, volumes were slightly tampered due to mild winter weather, but we are tracking to our 2017 guidance of 15 million tons for the year. At Convent, we earned $11 million of adjusted EBITDA in this first quarter and this does not include the $3.2 million of deferred revenue recognized during the quarter. We are on track to achieve our 2017 guidance of 8.5 million tons at this facility."

 

Very interesting. Also interesting to see SXCP/SXC down a decent amount from their highs a few months ago. I wonder why that happened.

[heth247]

 

I was trying to find out if Kansas City Sourthern services FELP. Haven't figured that out, although they have lines into Illinois. I did find a very good article about FELP's access to rail and barge transportation. It's dated, but very detailed if you want to know how well they are set up to transport coal.

 

http://www.coalage.com/features/820-foresight-energy-invests-in-illinois.html#.WPpRs_nyuUk

 

Thanks for sharing this, PullTheTrigger. It is a good read. It was good to see that Cline and Bayer had the vision long before anybody else and took the risk to create such a low-cost coal producer in the middle of Illinois basin. Also like the culture they have. That said, I wonder why did Cline and Bayer cash out and give up the grand plan soon after IPO. Maybe they had a feeling that the battle down the road for coal will be a difficult fight? Have to admit that they are very shrewd business man and sold at the top.  I also wonder after Murray take this over, will there be any change to the culture.

 

[Patmo]

Has Chris Cline sold his stake in the company? I must have skipped a beat.

[valcont]

Has Chris Cline sold his stake in the company? I must have skipped a beat.

 

What are you talking about? He still owns 60% of LP. Once the subs are activated , his stake will be 30%.

[heth247]

Has Chris Cline sold his stake in the company? I must have skipped a beat.

 

I was talking about Cline sold 50% stake to Murray in 2015, and give up the FEGP control recently.  Although all of these events are not a surprise, you got to wonder why he is giving up this great company that he and Bayer built from scratch to Murray.

[Patmo]

Exactly, that is why I was puzzled by heth's comment but he clarified what he meant subsequently.

 

Also I was asking not stating, not sure why you are all up in arms