FELP - Foresight Energy

[valcont]

Interesting market action post refinancing. Not sure what has changed fundamentally other than the cap on the distributions. I did see this article on the Motley Fool. You have to take it with a grain of salt since the quality of MF's articles are substandard.

 

https://www.fool.com/investing/2017/04/20/3-terrible-stocks-id-avoid.aspx

 

"Too much debt

Foresight Energy is a lot easier to get your head around. This coal miner has struggled through the coal industry downturn, as all coal miners have. And to its credit, it has managed to avoid bankruptcy -- unlike some of its larger peers. However, it has only managed to do so because its creditors have been working with it to ensure it stays out of bankruptcy court.

 

The big push came in 2016 with what the company called a "global restructuring," but there are still follow-up transactions taking place. To give you an idea of just how bad it is, debt makes up more than 100% of Foresight's capital structure, because there's a limited partner deficit. It's so bad that the partnership no longer pays a distribution, which is kind of a telling sign for a corporate structure that's meant to pass income through to unitholders.

 

There are better options in the coal space if you think the sector is ready for an upturn."

[heth247]

Interesting market action post refinancing. Not sure what has changed fundamentally other than the cap on the distributions. I did see this article on the Motley Fool. You have to take it with a grain of salt since the quality of MF's articles are substandard.

 

https://www.fool.com/investing/2017/04/20/3-terrible-stocks-id-avoid.aspx

 

"Too much debt

Foresight Energy is a lot easier to get your head around. This coal miner has struggled through the coal industry downturn, as all coal miners have. And to its credit, it has managed to avoid bankruptcy -- unlike some of its larger peers. However, it has only managed to do so because its creditors have been working with it to ensure it stays out of bankruptcy court.

 

The big push came in 2016 with what the company called a "global restructuring," but there are still follow-up transactions taking place. To give you an idea of just how bad it is, debt makes up more than 100% of Foresight's capital structure, because there's a limited partner deficit. It's so bad that the partnership no longer pays a distribution, which is kind of a telling sign for a corporate structure that's meant to pass income through to unitholders.

 

There are better options in the coal space if you think the sector is ready for an upturn."

 

This "fool" guy is really a fool.

[Patmo]

And honestly, the cap is so accretive to the commons that I have a hard time believing the stock action is based on that... There has to be something else in play. I am still not clear on the implications of Murray taking control of the GP, there could be something there. Or maybe its just a big dog super dumping their shares?

[PullTheTrigger]

There have been no Form 4s filed, so it's not an insider selling.

[Beardog]

And honestly, the cap is so accretive to the commons that I have a hard time believing the stock action is based on that... There has to be something else in play. I am still not clear on the implications of Murray taking control of the GP, there could be something there. Or maybe its just a big dog super dumping their shares?

 

It could be the former debtholders exercising their warrants (which became exercisable as of 3/28) and selling the units.  After realizing a healthy return on the debt, perhaps some of the holders are not too price sensitive on the sliver of value of their remaining interest in the equity.

[indirect]

my 2c for what it's worth

 

FELP stock is inherently illiquid, so price discovery for large blocks is fuzzy. However, price action on the notes gives you an idea of where do you want to be in the capital structure. 13-15% annual return on notes may be better when you know LP is at most 5% return for next 18 months. I think this is being reflected in the equity action. 

[maybe4less]

my 2c for what it's worth

 

FELP stock is inherently illiquid, so price discovery for large blocks is fuzzy. However, price action on the notes gives you an idea of where do you want to be in the capital structure. 13-15% annual return on notes may be better when you know LP is at most 5% return for next 18 months. I think this is being reflected in the equity action.

 

+1

[Beardog]

my 2c for what it's worth

 

FELP stock is inherently illiquid, so price discovery for large blocks is fuzzy. However, price action on the notes gives you an idea of where do you want to be in the capital structure. 13-15% annual return on notes may be better when you know LP is at most 5% return for next 18 months. I think this is being reflected in the equity action. 

 

My alternate 2 cents fwiw:  I think your and the market's focus on current distributions vs. total shareholder return is one of the reasons why the opportunity exists for the equity double+ over the next 18 months.  At $325M EBITDA, FCF to common units is a ~30% yield.  This year, most of that has to go to debt repayment, but whether it's distributions or debt repayments, the value ultimately accrues to unitholders.

 

[heth247]

My alternate 2 cents fwiw:  I think your and the market's focus on current distributions vs. total shareholder return is one of the reasons why the opportunity exists for the equity double+ over the next 18 months.  At $325M EBITDA, FCF to common units is a ~30% yield.  This year, most of that has to go to debt repayment, but whether it's distributions or debt repayments, the value ultimately accrues to unitholders.

 

+1  ;)

[Guest roark33]

I don't think Picasso will comment on this board anymore, but I will attempt to bring him out. 

 

FELP is an interesting stock because I don't think any equity holders will be able to see any cash flow, ever.  The valuation has swung wildly and that is mainly a function, in my mind, of selling pressure and worry over bankruptcy, however, for the equity to have any value in anything more than a trading sardine sense, the lifetime value of the cash flow will have to exceed the debt, which I just don't think will ever happen.  Coal usage in the US is falling and we are past the point of no return, such that you have to imagine, as an equity holder, how many years the positive cash flow will have to exist for you to be paid. 

 

This is a long-winded way of saying, this is a trading stock, not an owning stock.  People who bought it last year in the 1.5-2.50 area are selling after making 100% on their money (maybe more), people who forget it is a trading stock and hold onto it like a compounder will probably lose a lot of money. 

[Guest roark33]

I am really disappointed, Picasso is probably off starting his own firm or some lay excuse like that.  I am going to have to mull over some better bait all day and will be back with a better post.

[John Hjorth]

I am really disappointed, Picasso is probably off starting his own firm or some lay excuse like that.  I am going to have to mull over some better bait all day and will be back with a better post.

 

That post is not fair towards Picasso. Picasso has specific mentioned that there are boundaries to his communication here on CoBF because of the overall FELP postion size and reporting requirements while he is managing OPM.

 

I have actually followed this topic closely since Picasso started it - with the purpose to learn something. It's actually one of the most interesting investment cases on this board for several years, based on hard core value investing principles.

 

What has kept me away from buying a small position of this to have some kind of skin in the game  [i'm just a whimp] is the tax situation for me for an LP - wachtwoord has posted about it in this topic recently.

 

As a CPA I have it with my tax returns like the car mechanic has it with maintenance of his own car. There are just things that I shy, to keep my self out of missery.

[Guest roark33]

I am just giving picasso a hard time, I know him and he is, in fact, starting his own firm. 

[wachtwoord]

Regarding taxes: I bought it (at 1.75 on average) as there won't be a yield for the foreseeable future and it is my understanding I won't have to pay any US taxes unless there is (of course I have to pay Dutch taxes, nothing changes that, but I want to avoid paying double).

 

It's hard for me to value this stock with any type of exactness but based on the numbers it seems the current share price is very low. Of course I am expecting a yield at some point (otherwise the units would be worth zero). It's too bad Picasso can't post here anymore as he had so much insight into this situation (the insight and the logical reasoning gave me the confidence to buy a full position and hold most of it, I sold 25% at 6.25). I wouldn't mind a PM Picasso  ;D

[valcont]

I think you are projecting near term challenges to the long term trends. EPA expects Illinois Basin coal to grow from 130M tons in 2013 to 200M tons until 2025 and the average price in the $40 range. Look at page 16-17.

 

https://www.eia.gov/outlooks/aeo/workinggroup/coal/pdf/aeo2017_first_coal_working_group_d082916b.pdf

 

FELP is the lowest cost producer in the ILB. ARLP cash cost per ton is in $30-31, Felp's $20. That's a big difference even when you adjust BTU quality. And FELP has lowest transport cost per BTU. Paringa Resources, an Australian company, had just raised an equity funding to start a new mine in ILB.

 

https://www.worldcoal.com/mining/12042017/paringa-resources-secures-funding-required-for-the-development-of-poplar-grove-mine/

 

http://www.paringaresources.com/illinois-coal-basin.html

 

API2 forward for next year is still hovering at $70 , that is $40 netback to FELP. SXCP has expanded terminal volume and we have already seen that they exported 2m tonnes this qtr and are projecting 8m tonnes this year. Don't remember where but I read somewhere that Murray plans to blend this export coal with the low margin coal from one of his other subs. That should provide incremental volume.

 

As levered as FELP is it is still going to create $90m of excess cash flows after paying interest and other costs. I think it can do a lot more this year for all the reasons stated above. But that is still $1.36 per unit. So if the covenants were not that restrictive, and FELP had paid out $1.36. Would it be more valuable with the same leverage?

 

Another way to think about this is in term of unit economics. Murrray's subs wouldn't convert unless FELP pays out $2.90 in arrearages and MQD. So at a  price of $5.35/unit, about 54% of capital return will accrue to the primary unit holders first. That reduces my wait time.

 

And why is the capital structure not accretive? Their cumulative interest rate is 9%. IF they do $150m fcf that is 2x pre dilution and 4x post dilution.

 

As I have said before , FELP was a restructuring story a year ago. Now you have to have an opinion on coal prices and its operating leverage.

 

As to why this is trading like it is. I agree that the small float , sub conversion, MLP , lack of clarity about Murray's plans and no distribution are all creating confusion.On top of that, any debt reductions will add to the net income and a tax burden so you are paying taxes for future flows. But this is where the opportunity is.

 

I do agree with Patmo about Murray's intentions. I kept reading the indentures to see how we can be screwed and all answers go back to Cline. If he didn't have a stake , I wouldn't touch it. But he still owns 60% of LP (30% post activated subs).

[heth247]

I am really disappointed, Picasso is probably off starting his own firm or some lay excuse like that.  I am going to have to mull over some better bait all day and will be back with a better post.

 

That post is not fair towards Picasso. Picasso has specific mentioned that there are boundaries to his communication here on CoBF because of the overall FELP postion size and reporting requirements while he is managing OPM.

 

I have actually followed this topic closely since Picasso started it - with the purpose to learn something. It's actually one of the most interesting investment cases on this board for several years, based on hard core value investing principles.

 

What has kept me away from buying a small position of this to have some kind of skin in the game  [i'm just a whimp] is the tax situation for me for an LP - wachtwoord has posted about it in this topic recently.

 

As a CPA I have it with my tax returns like the car mechanic has it with maintenance of his own car. There are just things that I shy, to keep my self out of missery.

 

Hi, John, since you are a CPA, maybe can you elaborate what specific complication in tax that prevents you from investing in MLP?  First, I thought MLPs are supposed to be tax-advantage for regular taxable account. Second, TurboTax Software does handle K1 forms. When filing taxes, I just enter the numbers from the K1 from boxes into the the software. Is that not enough? Do I need to do any additional book keeping that might be too complicated? Thanks.

 

[Patmo]

I am just giving picasso a hard time, I know him and he is, in fact, starting his own firm.

 

Sweet, congrats are in order.

[valcont]

I am really disappointed, Picasso is probably off starting his own firm or some lay excuse like that.  I am going to have to mull over some better bait all day and will be back with a better post.

 

Sometimes silence is better than thousand words. I will be worried when he starts writing back on this thread because that would mean he sold his stake.

[Green King]

Other than the price nothing has changed from the original thesis as outlined in this thread. Things are playing out. Chill everyone. If you look the at the indicators from their transportation partners things are improving.

 

ST. LOUIS--(BUSINESS WIRE)-- Foresight Energy LP (“Foresight”) (NYSE:FELP), a Delaware limited partnership, will report its first quarter 2017 earnings before the market opens on Thursday, May 11, 2017.

 

http://investor.foresight.com/file/Index?KeyFile=2000283056

[John Hjorth]

I am really disappointed, Picasso is probably off starting his own firm or some lay excuse like that.  I am going to have to mull over some better bait all day and will be back with a better post.

 

That post is not fair towards Picasso. Picasso has specific mentioned that there are boundaries to his communication here on CoBF because of the overall FELP postion size and reporting requirements while he is managing OPM.

 

I have actually followed this topic closely since Picasso started it - with the purpose to learn something. It's actually one of the most interesting investment cases on this board for several years, based on hard core value investing principles.

 

What has kept me away from buying a small position of this to have some kind of skin in the game  [i'm just a whimp] is the tax situation for me for an LP - wachtwoord has posted about it in this topic recently.

 

As a CPA I have it with my tax returns like the car mechanic has it with maintenance of his own car. There are just things that I shy, to keep my self out of missery.

 

Hi, John, since you are a CPA, maybe can you elaborate what specific complication in tax that prevents you from investing in MLP?  First, I thought MLPs are supposed to be tax-advantage for regular taxable account. Second, TurboTax Software does handle K1 forms. When filing taxes, I just enter the numbers from the K1 from boxes into the the software. Is that not enough? Do I need to do any additional book keeping that might be too complicated? Thanks.

 

heth247,

 

I'm not a US [or NA] citizen, but a Danish citizen. So - naturally - I'm tax liable to the Danish State.

 

Tax deferred acounts for me:

 

It's my perception - by reading Danish Tax Law, that I'm not allowed to buy LP units in an US LP. Meaning : It's not about it being a US entity, but being a LP. My perception is, that I can only invest in "real stocks". Thereby meaning entities, that are tax subjects themselves in their home country [to the opposite of "look through" taxation].

 

My broker [Nordnet Bank AB, Sweden, Danish branch] has actually not set up a block on buying FELP in tax deferred accounts. I have tested it. Personally, I think this is a missing block, and I think I should report it to the bank - More about that later in this post.

 

Taxable accounts for me :

 

I can buy FELP there, however I wouldn't dare, for personal reasons.

 

As FELP being a LP, it's - in my universe, as per my perception - so far - I might be wrong - , without digging deep in to it - subject to "look through" taxable earnings  - according to Danish tax rules.

 

This does imply - for me: I would have to do my tax returns of FELP it self - based on on my ownership of FELP, according tp Danish tax rules, based on available information [based on my tentative units in FELP], and getting credit in my Danish taxes for taxes paid in the abroard.

 

I would never get it right, according to Danish tax rules, in details, because of  lack of details in FELP reporting - tax wise, from a Danish tax perspective. It's all about hitting the midle of the road, and at the same time making some money. - But not any longer at any expense. I'm actually dead sure, that I would end  in some tax mess, if I invested in FELP without selling the damn thing within the same calendar year.

 

I don't want to go there.

 

- - - o 0 o  - - -

 

When I was young - and wild - I could not have  enough of arm wrestling with the Danish IRS. Then, there was no better sport than taking on the Dansh IRS - head on - and getting paid - dearly - for doing so.

 

From what I perceive, I ended up with a personal permanent, ever lasting - to my death -  IRS annual tax audit flag. It has been a friggin' nightmare since then - not so much in recent years - the Danish IRS already has it all - at transcation level with regard to stock transactions.

 

Now I think I just need to to file some kind of form about when I got lucky tonight, it's the only part missing from my point of view, with regard to [taxable?] value generation.

 

- - - o 0 o - - -

 

Rant out - back to FELP.

 

 

[heth247]

I see, John. I don't know about Danish taxes, but it certainly seems complicated.  I often heard people saying they want to avoid MLP because they don't like K1. But I don't understand why, since software like TurboTax handles K1 forms without problems. I thought I must have missed something.  In your case, it certainly makes sense.

[valcont]

ARLP reported great earnings on higher revenue. Stock is up 9% on raised guidance. Here is the fool report.

 

https://www.fool.com/investing/2017/05/01/marathon-petroleum-works-through-heavy-maintenance.aspx

[heth247]

ARLP reported great earnings on higher revenue. Stock is up 9% on raised guidance. Here is the fool report.

 

https://www.fool.com/investing/2017/05/01/marathon-petroleum-works-through-heavy-maintenance.aspx

 

The link you gave seems to be wrong. Anyway, I don't give much attention to those "Fool's" report. 

 

I just finished reading ARLP's conference call transcript. Close to the end, Joe Craft, their CEO, projected that Illinois basin coal demand will be 115 million tons for 2017 but decrease by 5 million ton in 2018 (due to less export and close down of some power plants). This really contradicts with the common view that Illinois basin is the only region that has growth. What do you guys think?

[Green King]

ARLP reported great earnings on higher revenue. Stock is up 9% on raised guidance. Here is the fool report.

 

https://www.fool.com/investing/2017/05/01/marathon-petroleum-works-through-heavy-maintenance.aspx

 

The link you gave seems to be wrong. Anyway, I don't give much attention to those "Fool's" report. 

 

I just finished reading ARLP's conference call transcript. Close to the end, Joe Craft, their CEO, projected that Illinois basin coal demand will be 115 million tons for 2017 but decrease by 5 million ton in 2018 (due to less export and close down of some power plants). This really contradicts the common view that Illinois basin is the only region that has growth. What do you guys think?

 

This is most likely noise.

 

Because:

the underpinning nature is the cost of electricity. A derivative of BTU per ton, transportation cost, and conversion efficiency at the plant level. None of that can change since they are dependent on nature in terms of location, in terms of geology and coal characteristics.

 

Unless the cost curve change somehow in term of technology the flow of demand would be towards lowest cost producers. Although nature and its minerals have random characteristics but a large shift in cost curve at this stage of mining is unlikely without significant investment in exploration, development, and luck.

[Beardog]

Murray is shutting one of its ILB mines (New Future) this summer, perhaps permanently.  The industry analyst quoted in the Platts article says FELP could pick up the mine's 6-year 7M ton contract.

 

Source:

https://www.platts.com/latest-news/coal/houston/murray-subsidiary-to-lay-off-255-employees-at-21591147