Author Topic: FELP - Foresight Energy  (Read 307884 times)

morob

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Re: FELP - Foresight Energy
« Reply #1080 on: July 18, 2019, 10:13:35 AM »
Wow, today's 2L volume is huge and price halved! I wonder if the company is going to do a debt exchange on the 2L. On the other hand, the ILB price seems to hold well while NAPP and CAPP both dropped a lot. API2 price has bounded back 10%+ from lows. This is puzzling.

What could be the reason for this recent collapse in the bond and stock price in the absence of any (publicly available) news? As you mentioned, coal price slump isn't new and there was actually some stabilization in API2. It has to be the fall-out of Cline's passing.


heth247

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Re: FELP - Foresight Energy
« Reply #1081 on: July 18, 2019, 10:44:57 AM »
Wow, today's 2L volume is huge and price halved! I wonder if the company is going to do a debt exchange on the 2L. On the other hand, the ILB price seems to hold well while NAPP and CAPP both dropped a lot. API2 price has bounded back 10%+ from lows. This is puzzling.

What could be the reason for this recent collapse in the bond and stock price in the absence of any (publicly available) news? As you mentioned, coal price slump isn't new and there was actually some stabilization in API2. It has to be the fall-out of Cline's passing.

Probably, but what took them so long... it has been 2 weeks since Cline's death.

Ismael

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Re: FELP - Foresight Energy
« Reply #1082 on: July 18, 2019, 01:22:00 PM »
Who do you think Bob called first upon learning the news about Cline?
1.   Clines family to give his condolences
2.   His bankers to explore options to take the company private

morob

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Re: FELP - Foresight Energy
« Reply #1083 on: July 26, 2019, 12:11:33 PM »
bottom seems to be falling out on this. A negative earnings report is probably a given as business conditions were generally bad during second quarter and the GP has interest to depress price of common. Pretty incredible how quick things have changed. Is the buyout by Murray practically a given at this point? The fear of such a take out drives the price down and makes the take out even more likely - path dependency.

heth247

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Re: FELP - Foresight Energy
« Reply #1084 on: July 26, 2019, 06:37:28 PM »
bottom seems to be falling out on this. A negative earnings report is probably a given as business conditions were generally bad during second quarter and the GP has interest to depress price of common. Pretty incredible how quick things have changed. Is the buyout by Murray practically a given at this point? The fear of such a take out drives the price down and makes the take out even more likely - path dependency.

Based on today's ARLP call, it is not that bad. They seem to not worried about the export market and are prepared to dump the volume to the domestic market to squeeze out the high cost producers. They even hiked up dividend.

For FELP, the biggest problem is the debt. I still don't buy the idea of buyout of common unit by Murray. If you want to own this company, wouldn't buying up the 2L at 30c right now is the best option?

Ismael

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Re: FELP - Foresight Energy
« Reply #1085 on: July 27, 2019, 09:06:44 AM »
If you want to buy these assets don't you need to convince whoever controls Cline's holdings to sell, whether it be common or 2L?  If you are in control of Cline's holdings why would you sell your 2Ls to Bob?  Wouldn't this incentive Bob to wipe out your common?  Wouldn't you prefer to sell the commons so you can gain on both?   Agree that Bob buying out the common is still a big if due to the financing challenge, but if there is ever a time, it is now.  Whoever is in control of Cline's stake probably doesn't have the stomach he did, and there are probably some estate tax issues that need to be dealt with.  What are the chances Bob can partner to come up with the financing?  He would probably be better off sharing the equity with a partner than dealing with the MQD problem. 

What ILB price sends this into bankruptcy?  How does it go bankrupt at prices above $35?

heth247

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Re: FELP - Foresight Energy
« Reply #1086 on: July 27, 2019, 12:49:53 PM »
What ILB price sends this into bankruptcy?  How does it go bankrupt at prices above $35?

Here is an scenario, just for discussion:

at netback of $35, and a cost of $23, FELP's ebidta margin drops to $12/ton. Assume 20M tons volume, that is $240MM EBITDA (not adjusted ebitda which includes insurance payment).

Against the $240 EBITDA, we have $140MM interest, $60MM CAPEX (maintenance), and $40MM SGA. So FCF drops to zero and no debt paydown and leverage ratio remains the same. This will be an issue when in 2022/2023 when they try to roll the debt. It is very likely that 2L will become the equity at that time.

morob

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Re: FELP - Foresight Energy
« Reply #1087 on: July 27, 2019, 06:01:26 PM »
What ILB price sends this into bankruptcy?  How does it go bankrupt at prices above $35?

Here is an scenario, just for discussion:

at netback of $35, and a cost of $23, FELP's ebidta margin drops to $12/ton. Assume 20M tons volume, that is $240MM EBITDA (not adjusted ebitda which includes insurance payment).

Against the $240 EBITDA, we have $140MM interest, $60MM CAPEX (maintenance), and $40MM SGA. So FCF drops to zero and no debt paydown and leverage ratio remains the same. This will be an issue when in 2022/2023 when they try to roll the debt. It is very likely that 2L will become the equity at that time.

They are doing 20-22 tons now. Don't forget that they will have Hillsboro contributing at a much higher rate at that point.

heth247

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Re: FELP - Foresight Energy
« Reply #1088 on: July 28, 2019, 11:45:36 AM »
What ILB price sends this into bankruptcy?  How does it go bankrupt at prices above $35?

Here is an scenario, just for discussion:

at netback of $35, and a cost of $23, FELP's ebidta margin drops to $12/ton. Assume 20M tons volume, that is $240MM EBITDA (not adjusted ebitda which includes insurance payment).

Against the $240 EBITDA, we have $140MM interest, $60MM CAPEX (maintenance), and $40MM SGA. So FCF drops to zero and no debt paydown and leverage ratio remains the same. This will be an issue when in 2022/2023 when they try to roll the debt. It is very likely that 2L will become the equity at that time.

They are doing 20-22 tons now. Don't forget that they will have Hillsboro contributing at a much higher rate at that point.

I am just trying to think of the worst case and see what is the margin of safety for common units here. 2018 was a record year, with API2 reaching $100/ton, yet FELP's overall margin achieved was $14.22/ton. So I think it is reasonable to assume the margin can go down to $12 or even lower in the next a few years if nat gas price stays low and no recovery in export, and if we got a recession. If demand is not there, I don't know if they can keep the volume at 22 tons, or add another 3~5 tons from Hillsboro without dragging down the margin further. In addition, it is almost August now, and we still have not heard anything about the remaining $60M insurance payment. Without that money, I think it will be difficult for them to restart longwall operation at Hillsboro. 

Look, I think common is cheap here, but not sure about the risk, hence the discussion. Hope @Picasso can share some his views.

 

Ismael

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Re: FELP - Foresight Energy
« Reply #1089 on: July 28, 2019, 04:02:16 PM »
To arrive at today's price the market is putting a high probability on this going to zero (>50%) and not pricing in the optionality around Hillsboro or FELP going private (at a price that is attractive relative to the current trading price).  With Hillsboro up and running it is hard to see how FELP doesn't do well (even in a poor pricing environment), but leaving aside the financing challenge, the problem is that Bob isn't incentivized to invest in Hillsboro in a poor pricing environment because of the MQD problem.   I mean if coal prices go low enough long enough, Bob's best course of action is to light FELP's mines on fire to rationalize supply.  Is the only way to unlock the value in the common to get a favorable pricing environment or buyout offer from Murray?