Author Topic: FELP - Foresight Energy  (Read 285194 times)

PullTheTrigger

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Re: FELP - Foresight Energy
« Reply #730 on: March 13, 2017, 09:36:42 AM »
Heth, thanks for clarifying.

I must have read that 10 times and it was stuck in my head the limited call right was 80% of GP instead of 80% of common (probably because Murray is currently contributing $60M to get to 80% of GP currently).

It will be difficult for Murray to get 80% of the common unless Cline sells. Why would he sell now for less? It's currently at a 20% yield not even taking into account the arrears owed.


maybe4less

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Re: FELP - Foresight Energy
« Reply #731 on: March 13, 2017, 09:58:59 AM »
Thanks for the link Ismael. I am not saying that Murray will give the shaft to the unit holders, I am saying that I don't see a reason as to why this stock will be bid up based on the distributions considering there is a chance that Murray will take it private.

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

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

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

So the LP call right only can be exercised when Murray owns 80% of common units (FELP), not FEGP. Given that he only owns 55% (after the sub converts), why worry for now?  I would worry if Cline + Beyer start to sell their remaining 30% of FELP common units.

I think the worry is that Murray could offer a bid for the LP with a minimal premium once he has control of the GP.

My reading of the partnership agreement is that he can do this if the GP's board simply approves the offer. The agreement states he can (but is not obligated to) seek approval from the conflicts committee or from a majority of the outstanding LP common units (excluding the nits owned by the GP or its affiliates).

I think Valcont is right and there is a risk that Murray makes a buyout offer with a minimal premium.

Not sure how easily Murray could come up with the money to do this though.

heth247

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Re: FELP - Foresight Energy
« Reply #732 on: March 13, 2017, 10:07:05 AM »
Heth, thanks for clarifying.

I must have read that 10 times and it was stuck in my head the limited call right was 80% of GP instead of 80% of common (probably because Murray is currently contributing $60M to get to 80% of GP currently).

It will be difficult for Murray to get 80% of the common unless Cline sells. Why would he sell now for less? It's currently at a 20% yield not even taking into account the arrears owed.

I think so too. I would think the resignation of Cline from the FEGP board is expected. They already granted Murray the right to purchase the remaining interest of FEGP in 2015 for $25MM if I remember correctly. Maybe that is all this Murray's talking of "bring Foresight under Murray Energy" about... and he did not really mean to take FELP private. I just don't see how that can be done in the short term given the reserve group's stake.

heth247

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Re: FELP - Foresight Energy
« Reply #733 on: March 13, 2017, 10:21:17 AM »
I think the worry is that Murray could offer a bid for the LP with a minimal premium once he has control of the GP.

My reading of the partnership agreement is that he can do this if the GP's board simply approves the offer. The agreement states he can (but is not obligated to) seek approval from the conflicts committee or from a majority of the outstanding LP common units (excluding the nits owned by the GP or its affiliates).

I think Valcont is right and there is a risk that Murray makes a buyout offer with a minimal premium.

Not sure how easily Murray could come up with the money to do this though.

I don't think so (but here is the disclamer: English is not my first language).  In general, GP can only have impact on the operation of the company, not the economic ownership of the company, which is LP.  Also, when a controlling shareholder acquires the company, due to the conflict of interest, I think there is some law that requires the "majority of the minority shareholder approval".
     https://www.davispolk.com/files/uploads/davis.polk.going.private.pdf


maybe4less

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Re: FELP - Foresight Energy
« Reply #734 on: March 13, 2017, 10:55:12 AM »
I think the worry is that Murray could offer a bid for the LP with a minimal premium once he has control of the GP.

My reading of the partnership agreement is that he can do this if the GP's board simply approves the offer. The agreement states he can (but is not obligated to) seek approval from the conflicts committee or from a majority of the outstanding LP common units (excluding the nits owned by the GP or its affiliates).

I think Valcont is right and there is a risk that Murray makes a buyout offer with a minimal premium.

Not sure how easily Murray could come up with the money to do this though.

I don't think so (but here is the disclamer: English is not my first language).  In general, GP can only have impact on the operation of the company, not the economic ownership of the company, which is LP.  Also, when a controlling shareholder acquires the company, due to the conflict of interest, I think there is some law that requires the "majority of the minority shareholder approval".
     https://www.davispolk.com/files/uploads/davis.polk.going.private.pdf

Generally, you are correct, but the rules are different because we have a partnership, not a corporation. FELP's partnership agreement specifically gives the GP the right to evaluate and accept merger proposals on behalf of LP unitholders.

The limited fiduciary duty typical of most GP-LP relationships in the MLP space has been tested a number of times and the Delaware courts appear to have generally upheld the agreements that give GPs wide discretion.

For example:

https://www.klgatesdelawaredocket.com/2016/04/chancery-court-reaffirms-the-ability-of-limited-partnerships-to-contract-around-fiduciary-duties/

http://www.ncpers.org/files/Conference%20Docs/Public%20Safety/2014%20Handouts/Robert%20Kriner_Tuesday.pdf

heth247

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Re: FELP - Foresight Energy
« Reply #735 on: March 13, 2017, 11:34:49 AM »
I think the worry is that Murray could offer a bid for the LP with a minimal premium once he has control of the GP.

My reading of the partnership agreement is that he can do this if the GP's board simply approves the offer. The agreement states he can (but is not obligated to) seek approval from the conflicts committee or from a majority of the outstanding LP common units (excluding the nits owned by the GP or its affiliates).

I think Valcont is right and there is a risk that Murray makes a buyout offer with a minimal premium.

Not sure how easily Murray could come up with the money to do this though.

I don't think so (but here is the disclamer: English is not my first language).  In general, GP can only have impact on the operation of the company, not the economic ownership of the company, which is LP.  Also, when a controlling shareholder acquires the company, due to the conflict of interest, I think there is some law that requires the "majority of the minority shareholder approval".
     https://www.davispolk.com/files/uploads/davis.polk.going.private.pdf

Generally, you are correct, but the rules are different because we have a partnership, not a corporation. FELP's partnership agreement specifically gives the GP the right to evaluate and accept merger proposals on behalf of LP unitholders.

The limited fiduciary duty typical of most GP-LP relationships in the MLP space has been tested a number of times and the Delaware courts appear to have generally upheld the agreements that give GPs wide discretion.

For example:

https://www.klgatesdelawaredocket.com/2016/04/chancery-court-reaffirms-the-ability-of-limited-partnerships-to-contract-around-fiduciary-duties/

http://www.ncpers.org/files/Conference%20Docs/Public%20Safety/2014%20Handouts/Robert%20Kriner_Tuesday.pdf

Thanks for the links. I think it is good to keep this in mind.  However, if Murray is going to make an offer when he has not yet owned 80% of LP, then I suppose that he will still be obligated to obtain a fairness opinion regarding the value of common units? I did not dig further into those deals in your links, was any of them bought out at 2X~3X DCF?


maybe4less

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Re: FELP - Foresight Energy
« Reply #736 on: March 13, 2017, 12:02:33 PM »
I think the worry is that Murray could offer a bid for the LP with a minimal premium once he has control of the GP.

My reading of the partnership agreement is that he can do this if the GP's board simply approves the offer. The agreement states he can (but is not obligated to) seek approval from the conflicts committee or from a majority of the outstanding LP common units (excluding the nits owned by the GP or its affiliates).

I think Valcont is right and there is a risk that Murray makes a buyout offer with a minimal premium.

Not sure how easily Murray could come up with the money to do this though.

I don't think so (but here is the disclamer: English is not my first language).  In general, GP can only have impact on the operation of the company, not the economic ownership of the company, which is LP.  Also, when a controlling shareholder acquires the company, due to the conflict of interest, I think there is some law that requires the "majority of the minority shareholder approval".
     https://www.davispolk.com/files/uploads/davis.polk.going.private.pdf

Generally, you are correct, but the rules are different because we have a partnership, not a corporation. FELP's partnership agreement specifically gives the GP the right to evaluate and accept merger proposals on behalf of LP unitholders.

The limited fiduciary duty typical of most GP-LP relationships in the MLP space has been tested a number of times and the Delaware courts appear to have generally upheld the agreements that give GPs wide discretion.

For example:

https://www.klgatesdelawaredocket.com/2016/04/chancery-court-reaffirms-the-ability-of-limited-partnerships-to-contract-around-fiduciary-duties/

http://www.ncpers.org/files/Conference%20Docs/Public%20Safety/2014%20Handouts/Robert%20Kriner_Tuesday.pdf

Thanks for the links. I think it is good to keep this in mind.  However, if Murray is going to make an offer when he has not yet owned 80% of LP, then I suppose that he will still be obligated to obtain a fairness opinion regarding the value of common units? I did not dig further into those deals in your links, was any of them bought out at 2X~3X DCF?

I actually don't think he needs a fairness opinion. In fact, it looks like the standard that the partnership agreement holds the GP too ("Good Faith") does not require a transaction to be "fair," just that the GP believes the transaction to be in the best interest of the LP. I think the requirement practically means that it has to be at or above the trading price over the last so-many days or some similar standard. I do not think he can in "good faith" make an offer below the then current stock price.

I don't know what multiples the other companies were bought out for. It is possible that a low valuation would preclude a bid with a minimal premium, if the valuation were so low that unitholders could sue and effectively argue it was in Bad Faith, but I'm not a lawyer.

valcont

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Re: FELP - Foresight Energy
« Reply #737 on: March 13, 2017, 12:03:17 PM »
Thanks for the links. I think it is good to keep this in mind.  However, if Murray is going to make an offer when he has not yet owned 80% of LP, then I suppose that he will still be obligated to obtain a fairness opinion regarding the value of common units? I did not dig further into those deals in your links, was any of them bought out at 2X~3X DCF?

Take a look at what I bolded earlier. They can always issue additional shares to their affiliates and bump up their ownership to 80%.

I am not saying this can happen. In fact Murray has a reputation of not fleecing his debtors so hopefully he'll be fair to the common unit holders too. I am trying to figure out what is the legal protection that an LP have that I can fall back on other than Murray's goodwill. I understood the protections when the PIKs were outstanding but I can't see any clause that protect us post refinance.

On the other side, Cline was buying up FELP shares at $6.75. Why would he do that unless he knows that its undervalued.

And I am not sure why would Murray take it private right off the bat ? I can see him doing that if the market doesn't give any credit to Felp's low cost structure and it trades at higher yield.

So its not as clear cut as "the price will be $12 once the refinancing is done."


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

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

valcont

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Re: FELP - Foresight Energy
« Reply #738 on: March 13, 2017, 12:11:59 PM »
Since this is my 300th post , I'll ask a spiritual question

How do we break Picasso's silent fast?

heth247

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Re: FELP - Foresight Energy
« Reply #739 on: March 13, 2017, 02:08:00 PM »

Take a look at what I bolded earlier. They can always issue additional shares to their affiliates and bump up their ownership to 80%.


The following is what I found out from the prospectus, regarding when the GP can cause LP to issue more common units:

Quote
The holder or holders of our incentive distribution rights may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to the incentive distribution rights, without the approval of the conflicts committee of our general partner’s board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.

The holder or holders of a majority of our incentive distribution rights (initially our general partner) have the right, at any time when there are no subordinated units outstanding and we have made cash distributions in excess of the then-applicable third target distribution for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution levels at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be calculated equal to an amount equal to the prior cash distribution per common unit for the fiscal quarter immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution. If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution for the quarter prior to the reset election equal to the distribution on the incentive distribution rights for the quarter prior to the reset election.

We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per unit without such conversion. However, our general partner may transfer the incentive distribution rights at any time. It is possible that our general partner or a transferee could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when the holders of the incentive distribution rights expect that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, the holders of the incentive distribution rights may be experiencing, or may expect to experience, declines in the cash distributions it receives related to the incentive distribution rights and may therefore desire to be issued our common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience reduction in the amount of cash distributions that they would have otherwise received had we not issued new common units to the holders of the incentive distribution rights in connection with resetting the target distribution levels. Please read “How We Make Distributions To Our Partners—General Partner Interest—Incentive Distribution Right Holders’ Right to Reset Incentive Distribution Levels.”


It is related to resetting of target distribution, and has to be done when there are no sub units anymore and they have made cash distributions in excess of the then-applicable third target distribution for each of the prior four consecutive fiscal quarters.  I would think that, by that time the market would have already valued FELP at a much higher (and fair) price. Is there any other situation where the GP dilute LP? I have to admit that I haven't read the whole prospectus.
« Last Edit: March 13, 2017, 02:10:03 PM by heth247 »