FELP - Foresight Energy

[Picasso]

Not much time to get this trade on, but I'm betting they don't take this into bankruptcy.  I'm long.  Even with 50% dilution (all going to Chris Cline) it's cheap and there isn't much float for the shorts to cover.  Probably around $100 million of FCF with a pre-diluted market cap of $220 million. 

Who's with me?

[indirect]

Short trade seems too crowded and i don't think that debtors  want to run the Co..... dont have balls to go long.

[awindenberger]

Not much time to get this trade on, but I'm betting they don't take this into bankruptcy.  I'm long.  Even with 50% dilution (all going to Chris Cline) it's cheap and there isn't much float for the shorts to cover.  Probably around $100 million of FCF with a pre-diluted market cap of $220 million. 

Who's with me?

I've got some shares already from a summer purchase at $8/share, not willing to buy more until I get confirmation they've settled with the bondholders. If they do settle, the stock is going to be worth at least $4 given the subordination agreement in place.

[Picasso]

Not much time to get this trade on, but I'm betting they don't take this into bankruptcy.  I'm long.  Even with 50% dilution (all going to Chris Cline) it's cheap and there isn't much float for the shorts to cover.  Probably around $100 million of FCF with a pre-diluted market cap of $220 million. 

Who's with me?

I've got some shares already from a summer purchase at $8/share, not willing to buy more until I get confirmation they've settled with the bondholders. If they do settle, the stock is going to be worth at least $4 given the subordination agreement in place.

Why not buy more at $1.60?  I spoke with the company today and feel like there's an extremely small chance the bondholders aren't settled out of court.  The term loan is trading in the mid $80's and the unsecured notes in the mid $70's.  Why accelerate and force a bankruptcy, what's the upside/downside on that scenario with that kind of bond/term pricing?  This is a company that is still turning plenty of free cash flow with 80% of the shares in the hands of a couple die hard grinders.  The going concern issue is from the non-existent liquidity if the bondholders accelerate, not because they aren't profitable or well positioned.  There's too much mutually assured destruction that goes on in that kind of scenario. 

Chris Cline owns a bunch of unvested SXCP units plus seller financing that is at risk if he doesn't step in to resolve the issue.  Even their contracts with the Convent terminal appear to be under market at around half the pricing of the revised Cloud Peak take or pays.  They're essentially breakeven on exports so there's free optionality there as well.  Why throw in the towel now?  Market cap went from $3 billion to $200 million in a bit over a year, I don't think the intrinsic value of the business dropped *that* much.  If Cline comes in and dilutes at say 50%, the stock is still really cheap here.  At this point it's in everyone's interest to settle.

The issue (for me) is the Russian roulette. If Cline dies in a freak accident before it's resolved, this is a $0. 

[awindenberger]

Picasso,

I've been debating adding more, as I agree with all of your points. However, my money was being allocated to augmenting my Terraform Global (GLBL) position instead. I did just receive some dividends from it that I'm considering using to buy some more FELP.

My question is, why haven't they managed to come to an agreement with the bondholders yet?

Also, if Cline were to come in with new equity cash and dilute existing holders by 50%, I wonder how the dividend agreements would work. Right now common shares have arrearages of $.51/share already built up. If Cline comes in buying new shares, would they be new common shares? Or perhaps he would buy some preferred shares, giving him lower dividend payments, but before anything on the common.

The other concerning issue is the multiple fires they've been dealing with in their mines. I don't understand enough about coal mining, but it really seems odd to me that it would be so difficult to manage a fire in a mine. After hundreds of years of mining, how have they not developed techniques for this yet?

[Picasso]

The longer it drags on for, the more Cline will be able to dictate his terms.  Based on the last report from Bloomberg it appears that Bob Murray is okay with a wide variety of situations to resolve this.  The bondholders don't want to own a coal company and that mine fire is a great example of this.  Maybe the guy from Blue Mountain wants to put on some overalls and a hardhat and go put out the Deer Run fire.  If it gets resolved over the next month (which it probably will) it's better than going through bankruptcy, period.  Bondholders will make their 50-60% return which is better than can be said for other coal bondholders.  Throw this into bankruptcy with another leg down in coal prices or whatever potential risk seems silly.  Honestly, I feel like Bob Murray would go down the various coal mines and light them all on fire if they were forced in bankruptcy.

As far as the dividend agreements, I think you'll just see increased units to dilute the existing unit holders.  Probably not a ton because Cline needs Murray to survive a bit longer to drop down some other assets.  It's in Cline's interest to see Murray survive as well, but he's not a big Murray fan and it doesn't surprise me to see him pull out a bit of blood.

As far as the mine fires, that's just what happens.  A fire is carbon + oxygen so you have to starve out the oxygen and let it die out.  Sometimes it doesn't die out.  There's that risk but I don't think that's a game killer.  It's just another reason why it doesn't make sense for this to be a loan-to-own. 

[indirect]

what do guys make of filing by felp? risk of common dilution gets less? no response from Mr. Market

[Picasso]

They need to resolve all the default issues before they can issue debt and units under the old shelf filing.  You can still get diluted but it'll be part of the settlement with bondholders. 

[awindenberger]

Well, FELP has officially defaulted on the Bond payment. Curious to see what happens now.

[bigbadwolf]

Mr. Market not responding kindly to 8-K from Friday.  Stock down almost 12% today.   Forbearance agreement lasts until tomorrow.  Any thoughts?