FELP - Foresight Energy

[Guest roark33]

FYI:

 

Misses_1Q17_on_Weak_Realized_Prices__Lowering_Target_Price_to_$4_from_$6_1.pdf

[Candyman1]

FYI:

 

Not sure how much thinking the FBR people put into this. They have the share count wrong and under "The Debate" they list a serious risk of severe dilution in 3 to 6 months. It looks like they forgot to adjust that part to the fact that the PIK has already been refinanced. It is hard to see for me how we get a severe dilution event in that time frame now that the PIK has been refinanced.

 

Also, using the EV/EBITDA multiple is great and all, but it is the equity that has a right to the free cash, not the debt + equity. As long as the interest is paid on the debt then the equity gets the spoils. In addition by the end of the year the common will have arrears of $3.2 per common share. As long as the common is not paid Murray's GP and subordinated shares economic interest is zero.

 

Imagine what happens to the stock if the price of coal per ton goes up by $5 or $10 a ton. The numbers get really crazy really quickly for the equity. Now I do not know what the future looks like exactly, but given the low prices of coal right now, most other operators are having a much harder time generating cash. And you see that in the capex numbers. They are currently below maintenance capex levels. If we do not open new mines we will eventually run out of coal. Now when that will happen is as much a mystery to me as it is to you I guess.

 

Lastly, Murray could still make out pretty well with FELP. If it turns out this is the bottom for coal pricing and he can get $10 more per ton, very soon he will be able to payout $2 a share to the common and the subordinated, at which point he can start working at changing out the subordinated for common and in addition for anything above a $2 annual payout he gets 50% of that. There is a reason why Murray didn't let Foresight go BK and a reason why he spent more money buying common shares and buying the GP.

 

 

[Guest roark33]

I said FYI.....

[Candyman1]

I said FYI.....

 

I know ... don't take it personal. It was just a comment on the report written by FBR, not on a report written by you.

 

Btw. thanks for sharing. Greatly appreciated

[valcont]

FYI:

 

That was a hilarious write up .  Even if you go by his assumptions of coal prices , here is what he has:

 

Total EV Firm 1,910

Less: net debt (end 2017) (1,303)

Equity Value 607

GP Interest  30

LP Interest 576

# units (common + subordinated) 131

Per Unit Value (LP) $4.41

 

 

But wait, the #units are not 131m. They are 66m + subs that won't be activated until $2.90 in arrears are paid out. So lets say they liquidate this for $576m

then the common unit holders will first get  $2.90 (191m)  and the rest will be divided between subs and common  $2.93 (576-191/131) . So the commons should be valued at $5.85.

 

 

"Manner of Adjustments for Gain

The manner of the adjustment for gain is set forth in the partnership agreement. If our liquidation occurs before the end of the subordination period, we will generally allocate any gain to the partners in the following manner:

 

• first, to our general partner to the extent of certain prior losses specially allocated to our general partner;

 

• second, to the common unitholders, pro rata, until the capital account for each common unit is equal to the sum of: (1) the initial unit price; (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution;

 

• third, to the subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of: (1) the initial unit price; and (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

 

• fourth, to all unitholders, pro rata, until we allocate under this bullet an amount per unit equal to: (1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions from operating surplus in excess of the minimum quarterly distribution per unit that we distributed to the unitholders, pro rata, for each quarter of our existence;

 

• fifth, 85.0% to all unitholders, pro rata, and 15.0% to the holders of our incentive distribution rights, until we allocate under this bullet an amount per unit equal to: (1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to the holders of our incentive distribution rights for each quarter of our existence;

 

• sixth, 75.0% to all unitholders, pro rata, and 25.0% to the holders of our incentive distribution rights, until we allocate under this bullet an amount per unit equal to: (1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions from operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to the holders of our incentive distribution rights for each quarter of our existence; and

 

• thereafter, 50.0% to all unitholders, pro rata, and 50.0% to holders of our incentive distribution rights.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the third bullet point above will no longer be applicable."

[Candyman1]

FYI:

 

That was a hilarious write up .  Even if you go by his assumptions of coal prices , here is what he has:

 

Total EV Firm 1,910

Less: net debt (end 2017) (1,303)

Equity Value 607

GP Interest  30

LP Interest 576

# units (common + subordinated) 131

Per Unit Value (LP) $4.41

 

 

But wait, the #units are not 131m. They are 66m + subs that won't be activated until $2.90 in arrears are paid out. So lets say they liquidate this for $576m

then the common unit holders will first get  $2.90 (191m)  and the rest will be divided between subs and common  $2.93 (576-191/131) . So the commons should be valued at $5.85.

 

I looks like there are 140.687 million shares outstanding based on the latest Q. Also that number does not include I think the warrants allocated as part of the original PIK deal. I think that was about 6.6 million warrants at 89 cents. Those warrants were exercisable upon the refinancing transaction and are the reason for the stock to sell off as many of the holders of those warrants could not hold them after the refinancing transaction.

 

Also it looks to me that the common units are owed up til now $2.19375 per share in arrears, not 2.9.

[heth247]

I looks like there are 140.687 million shares outstanding based on the latest Q. Also that number does not include I think the warrants allocated as part of the original PIK deal. I think that was about 6.6 million warrants at 89 cents. Those warrants were exercisable upon the refinancing transaction and are the reason for the stock to sell off as many of the holders of those warrants could not hold them after the refinancing transaction.

 

Also it looks to me that the common units are owned up til now $2.19375 per share in arrear, not 2.9.

 

Correct, Murray got 9M common units (at an average price of ~$6) during the refinancing. And those are not sub units.

[valcont]

Well why should the new units get the arrearages in their capital account? Do you see any note regarding that?

 

You are right about arrearages. Here it is from their latest 10K. I thought they didn't pay out the first two and added them but looks like they did. So they owe : $2.02 + .37 + .38 +.17 = $2.94 $2.19

 

 

 

"

Period                              High              Low         Distribution per Limited Partner Unit      

1st Quarter 2015      $   18.73      $   14.5         $0.37 (declared May 7, 2015, paid May 28, 2015)

2nd Quarter 2015      $   15.9         $   11.92      $0.38 (declared July 30, 2015, paid August 26, 2015)

3rd Quarter 2015      $   12.8         $   5.1         (a)

4th Quarter 2015      $   8.76         $   2.01         None.

1st Quarter 2016      $   3.55         $   1.07         None.

2nd Quarter 2016      $   2.82         $   1.07         None.

3rd Quarter 2016      $   4.84         $   1.5         None.

4th Quarter 2016      $   8.33         $   3.84         None.

 

(a)

On October 29, 2015, we declared a quarterly distribution of $0.17 per unit payable on November 25, 2015 to common unitholders, while suspending the distribution on all subordinated units. Chris Cline and one additional common unitholder elected to forego the $0.17 per common unit distribution (and any arrearage rights related to the $0.17 paid distribution) on their collective 21.2 million common units.

 

All subordinated units are currently held by Murray Energy. The principal difference between our common units and subordinated units is that subordinated unitholders are not entitled to receive a distribution from operating surplus until the holders of common units have received the minimum quarterly distribution (“MQD”) from operating surplus. The MQD is $0.3375 per unit for such quarter plus any cumulative arrearages of previously unpaid MQDs from previous quarters. Subordinated unitholders are not entitled to receive arrearages. The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least $2.025 per unit (150.0% of the MQD on an annualized basis) on the outstanding common and subordinated units and the Partnership has paid the related distribution on the incentive distribution rights, for any four-quarter period and there are no outstanding arrearages on the common unit"

[Candyman1]

Well why should the new units get the arrearages in their capital account? Do you see any note regarding that?

 

You are right about arrearages. Here it is from their latest 10K. I thought they didn't pay out the first two and added them but looks like they did. So they owe : $2.02 + .37 + .38 +.17 = $2.94 $2.19

 

 

 

"

Period                              High              Low        Distribution per Limited Partner Unit     

1st Quarter 2015      $  18.73      $  14.5        $0.37 (declared May 7, 2015, paid May 28, 2015)

2nd Quarter 2015      $  15.9        $  11.92      $0.38 (declared July 30, 2015, paid August 26, 2015)

3rd Quarter 2015      $  12.8        $  5.1        (a)

4th Quarter 2015      $  8.76        $  2.01        None.

1st Quarter 2016      $  3.55        $  1.07        None.

2nd Quarter 2016      $  2.82        $  1.07        None.

3rd Quarter 2016      $  4.84        $  1.5        None.

4th Quarter 2016      $  8.33        $  3.84        None.

 

(a)

On October 29, 2015, we declared a quarterly distribution of $0.17 per unit payable on November 25, 2015 to common unitholders, while suspending the distribution on all subordinated units. Chris Cline and one additional common unitholder elected to forego the $0.17 per common unit distribution (and any arrearage rights related to the $0.17 paid distribution) on their collective 21.2 million common units.

 

All subordinated units are currently held by Murray Energy. The principal difference between our common units and subordinated units is that subordinated unitholders are not entitled to receive a distribution from operating surplus until the holders of common units have received the minimum quarterly distribution (“MQD”) from operating surplus. The MQD is $0.3375 per unit for such quarter plus any cumulative arrearages of previously unpaid MQDs from previous quarters. Subordinated unitholders are not entitled to receive arrearages. The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least $2.025 per unit (150.0% of the MQD on an annualized basis) on the outstanding common and subordinated units and the Partnership has paid the related distribution on the incentive distribution rights, for any four-quarter period and there are no outstanding arrearages on the common unit"

 

From my understanding all the common units will be eligible for the arrears. That is how we read it. Let me know if we are wrong.

[Green King]

Guys, please don't spend your time on things that are immaterial and then fight over a few % of IV.

[Candyman1]

Guys, please don't spend your time on things that are immaterial and then fight over a few % of IV.

 

I guess missing 16 million shares in the count is immaterial. Can I get access to your bank account? Let me lob off 10% a year and since that is immaterial to you I will be eternally great full to you for the cash. I'll even send you some selfies from the travels I take with your money. The reason we are on this board is to get our ideas vetted. If I miss a share count or any other number, please correct me on that ... even if it is immaterial and represents only a few % of the IV.

 

 

[Green King]

Guys, please don't spend your time on things that are immaterial and then fight over a few % of IV.

 

I guess missing 16 million shares in the count is immaterial. Can I get access to your bank account? Let me lob off 10% a year and since that is immaterial to you I will be eternally great full to you for the cash. I'll even send you some selfies from the travels I take with your money. The reason we are on this board is to get our ideas vetted. If I miss a share count or any other number, please correct me on that ... even if it is immaterial and represents only a few % of the IV.

 

I mean since its off by 10% I should sell. you blew up my entire thesis to compound this at 5% for the next 5 years. :D

 

In all seriousness, your inputs were valid. Your introduction of a bit of stress to this thread has clarified this thing in question.

 

I just meant this is not something to get angry over after all life is short have more laughter and less angry moments.

 

Cheers

 

 

 

 

[Candyman1]

Guys, please don't spend your time on things that are immaterial and then fight over a few % of IV.

 

I guess missing 16 million shares in the count is immaterial. Can I get access to your bank account? Let me lob off 10% a year and since that is immaterial to you I will be eternally great full to you for the cash. I'll even send you some selfies from the travels I take with your money. The reason we are on this board is to get our ideas vetted. If I miss a share count or any other number, please correct me on that ... even if it is immaterial and represents only a few % of the IV.

 

I mean since its off by 10% I should sell. you blew up my entire thesis to compound this at 5% for the next 5 years. :D

 

In all seriousness, your inputs were valid. Your introduction of a bit of stress to this thread has clarified this thing in question.

 

I just meant this is not something to get angry over after all life is short have more laughter and less angry moments.

 

Cheers

 

No idea why I would be adding stress to this board? I am just pointing out facts. I assumed that Valcont wanted to be informed about his mistake, the same way I would want valcont to tell me that I made a mistake in my thinking or calculations when I post something wrong which I will undoubtedly do. I would rather be told I am wrong than lose money. Not that I am saying that we are about to lose money on Felp. I think we will kill it and it is a large position for me.

Also trust me, I was and am not angry. You have no idea what happens when I actually do get angry.

 

[valcont]

Candyman,

  I agree we are here to discuss and share notes. I was just trying to make a point about analyst's report that he completely missed the arrears part (including some people on this board , so I'm guessing this is a common theme). Even if the share count has increased by 16m, it doesn't matter much since the arrears are only 17c (considering FELP will opt for cliff MQD of $2.02). Adding more shares just prolonged Murray's goal of privatizing FELP.

 

GreenKing's point is if you think the IV is somewhere near $6-7 then its worth going through this exercise but if the margin of safety is much higher, then its a matter of patience and only focussing on bigger things like mine closures or Murray's takeover. Which makes sense.

 

I am like you though, I do like to dig deeper even though I know it wouldn't matter with the thesis.

[awindenberger]

Candyman,

Even if the share count has increased by 16m, it doesn't matter much since the arrears are only 17c (considering FELP will opt for cliff MQD of $2.02). Adding more shares just prolonged Murray's goal of privatizing FELP.

 

I'm confused about this point. My understanding is that in order for the subordinated shares to convert to common shares, all the arrears would need to be paid ($2.18/sh currently), and then they would need to pay an additional $2.02 over the next year. Yet your statement above seems to say something different.

[valcont]

Candyman,

Even if the share count has increased by 16m, it doesn't matter much since the arrears are only 17c (considering FELP will opt for cliff MQD of $2.02). Adding more shares just prolonged Murray's goal of privatizing FELP.

 

I'm confused about this point. My understanding is that in order for the subordinated shares to convert to common shares, all the arrears would need to be paid ($2.18/sh currently), and then they would need to pay an additional $2.02 over the next year. Yet your statement above seems to say something different.

 

That was my mistake. I was all confused about this paragraph:

 

The MQD is $0.3375 per unit for such quarter plus any cumulative arrearages of previously unpaid MQDs from previous quarters. Subordinated unitholders are not entitled to receive arrearages. The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least $2.025 per unit (150.0% of the MQD on an annualized basis) on the outstanding common and subordinated units and the Partnership has paid the related distribution on the incentive distribution rights, for any four-quarter period and there are no outstanding arrearages on the common unit"

 

I thought the bolded paragraph overrides the previous sentences as a whole, so they can just pay a lumpsum amount of $2.02 overriding the quarterly MQD payment requirement too. And the only arrears are the ones that are not paid in '15 3rd qtr i.e. 17c

 

My lawyer wife read that and told me that  "Notwithstanding the foregoing" always applies to the sentences that are in context. So this should only apply to  this sentence "The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. "

 

If they have to negate all the sentences they have to use "notwithstanding herein to the contrary".

 

I didn't know it will come to all this with this shitty coal investment :)

 

[awindenberger]

Candyman,

Even if the share count has increased by 16m, it doesn't matter much since the arrears are only 17c (considering FELP will opt for cliff MQD of $2.02). Adding more shares just prolonged Murray's goal of privatizing FELP.

 

I'm confused about this point. My understanding is that in order for the subordinated shares to convert to common shares, all the arrears would need to be paid ($2.18/sh currently), and then they would need to pay an additional $2.02 over the next year. Yet your statement above seems to say something different.

 

That was my mistake. I was all confused about this paragraph:

 

The MQD is $0.3375 per unit for such quarter plus any cumulative arrearages of previously unpaid MQDs from previous quarters. Subordinated unitholders are not entitled to receive arrearages. The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least $2.025 per unit (150.0% of the MQD on an annualized basis) on the outstanding common and subordinated units and the Partnership has paid the related distribution on the incentive distribution rights, for any four-quarter period and there are no outstanding arrearages on the common unit"

 

I thought the bolded paragraph overrides the previous sentences as a whole, so they can just pay a lumpsum amount of $2.02 overriding the quarterly MQD payment requirement too. And the only arrears are the ones that are not paid in '15 3rd qtr i.e. 17c

 

My lawyer wife read that and told me that  "Notwithstanding the foregoing" always applies to the sentences that are in context. So this should only apply to  this sentence "The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017 and there are no outstanding arrearages on the common units. "

 

If they have to negate all the sentences they have to use "notwithstanding herein to the contrary".

 

I didn't know it will come to all this with this shitty coal investment :)

 

Man, I need to get myself a lawyer wife! It must be great to show her confusing stuff and get clarification. Notwithstanding the foregoing, I'm very happy with my current one.

[valcont]

Think I have sufficiently harassed the IR team. Response from them about the subordination period. Looks pretty good:

 

"This is the process.

 

1)      Common unitholders need to receive the MQD of $0.3375 per quarter first.

2)      Then, the common unitholders need to receive the arrearage.  Practically, this will likely be done by paying over the MQD to the common unit holders only for some period of time such that the arrearage is worked down.

3)      Then both the common unit holders AND the subordinated unitholders need to receive either (this comes from the S-1):

a.      The MQD for three consecutive, non-overlapping four quarter periods (effectively 3 years), or

b.      A total distribution of $2.025 on an annualized basis.

 

Only after all three of these is satisfied will the subordination period end."

[jrallen81]

So - is MQD minimum quarterly distribution?

 

what is the total arrearage that unitholders receive in addition to the $2.025 -- or is the $2.025 inclusive of that?

[gadfly]

Think I have sufficiently harassed the IR team. Response from them about the subordination period. Looks pretty good:

 

"This is the process.

 

1)      Common unitholders need to receive the MQD of $0.3375 per quarter first.

2)      Then, the common unitholders need to receive the arrearage.  Practically, this will likely be done by paying over the MQD to the common unit holders only for some period of time such that the arrearage is worked down.

3)      Then both the common unit holders AND the subordinated unitholders need to receive either (this comes from the S-1):

a.      The MQD for three consecutive, non-overlapping four quarter periods (effectively 3 years), or

b.      A total distribution of $2.025 on an annualized basis.

 

Only after all three of these is satisfied will the subordination period end."

 

 

Thanks for reaching out to IR to settle that. I didn't realize the subs also had to get the $2.025 distribution. Man, how is Murray ever going to make money on his subs. It would cost around $475 million right now to convert and that grows at roughly $108 a year. $15-20 netbacks on 20-22 million tons aint gonna do it.

 

What do you think has a greater chance of happening over the next 4 years:

 

a) FELP trading below common arrearage

b) The subs converting 

 

?

[valcont]

So - is MQD minimum quarterly distribution?

 

what is the total arrearage that unitholders receive in addition to the $2.025 -- or is the $2.025 inclusive of that?

 

The arrearages are about $2.18 excluding $2.02

[valcont]

 

Thanks for reaching out to IR to settle that. I didn't realize the subs also had to get the $2.025 distribution. Man, how is Murray ever going to make money on his subs. It would cost around $475 million right now to convert and that grows at roughly $108 a year. $15-20 netbacks on 20-22 million tons aint gonna do it.

 

 

What do you mean by "cost around $475m" ? Murray owns the subs.

[gadfly]

Require is a better word I suppose. Meaning it'll take roughly 450 million in total distributions in order for the subs to convert. Granted roughly 170 of that will go to Murray via his subs and commons  and he gets an additional 6 million a year with the new MSA.. Still 450 in distributions is a ton of cash when talking about 300 EBITDA and large interest + principal repayments that are required over the next few years

[gadfly]

Does anyone know anything about Chris Cline's recent (May 9) sale of his 31% stake in NRP's GP?

 

I know NRP is suing FELP for around 61 million dollars and FELP is one of their largest customers. I also believe Cline still owns 500,000 common NRP units (around $14 million)

 

I couldn't find how much Adena Minerals (Cline owned) got for the sale...Anyway, just wondering if this means anything..

[valcont]

Does anyone know anything about Chris Cline's recent (May 9) sale of his 31% stake in NRP's GP?

 

I know NRP is suing FELP for around 61 million dollars and FELP is one of their largest customers. I also believe Cline still owns 500,000 common NRP units (around $14 million)

 

I couldn't find how much Adena Minerals (Cline owned) got for the sale...Anyway, just wondering if this means anything..

 

Not sure what would that mean. If I were a NRP shareholder , I would be alarmed about the lease extension with FELP. How does it impact FELP though?