Author Topic: FELP - Foresight Energy  (Read 299032 times)

valcont

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Re: FELP - Foresight Energy
« Reply #710 on: March 09, 2017, 05:35:26 AM »
I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?
Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?


heth247

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Re: FELP - Foresight Energy
« Reply #711 on: March 09, 2017, 08:55:06 AM »
I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?
Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

They are probably going to generate $1/unit or more of DCF after the refinance and you are talking about a $2.30/unit of buyout?  Cline is still the chairman of the board and I don't think the board will approve it.  I think the current depressed share price is still due to the lack of dividend, lack of information about the refinance. Price should rise when they complete the refi and announce the date when they start to pay distribution again.

Green King

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Re: FELP - Foresight Energy
« Reply #712 on: March 10, 2017, 09:23:51 AM »
I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?
Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

One Risk Management and mind set side of things. If you have already made money and you are really worried about blow up risk at this moment in time.

Cut your position in half, look at the cash, take a walk and sleep on it for a day see how you feel than. The future is a set of probability in outcomes. Size your bet accordingly based on your risk tolerance and psychological capabilities.
GK

gadfly

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Re: FELP - Foresight Energy
« Reply #713 on: March 11, 2017, 01:43:22 PM »
I still can't figure out why this will trade at a large premium to MQD+ arrears (~ $4/share ) after the refinance is done. As a GP majority holder, Murray can offer $4 to convert the subs. That will raise his stake to 55% in the LP. What will stop him from buying the LP at say $2.30 (current price - mqd+arrears) now that he holds the majority at both GP and LP level ?
Why will the market value it in the multiples of DCF when the end game is a buy out? Can the conflict committee stop him from doing that?

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

Setup:

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution
-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons
-IDRs don't kick-in until distributions are over $2.203 per year.

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

EBITDA: 350
Maintenance Capex: 50
Interest Expense: 85

DCF :215

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units
« Last Edit: March 11, 2017, 02:35:55 PM by gadfly »

jrallen81

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Re: FELP - Foresight Energy
« Reply #714 on: March 11, 2017, 03:07:51 PM »
is the Reserves group Cline plus anyone else?

Thanks

valcont

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Re: FELP - Foresight Energy
« Reply #715 on: March 12, 2017, 01:49:45 PM »

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

Setup:

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution
-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons
-IDRs don't kick-in until distributions are over $2.203 per year.

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

EBITDA: 350
Maintenance Capex: 50
Interest Expense: 85

DCF :215

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

gadfly

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Re: FELP - Foresight Energy
« Reply #716 on: March 12, 2017, 03:07:09 PM »

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

Setup:

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution
-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons
-IDRs don't kick-in until distributions are over $2.203 per year.

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

EBITDA: 350
Maintenance Capex: 50
Interest Expense: 85

DCF :215

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

No worries, it was just a rough attempt and my interest expense is probably on the low side as well, but we're in the ballpark. Anyway, point is, if the subs turn to commons you're looking at, on the low low low side, $1 distributions for the 140ish million unit holders. In a middle of the road case scenario those commons should be worth 8x or a 12.5 yield. So say this happens at the end of this year, It would be reasonable for a common holder to demand $5.35 + $8 = $13.35. Now, you could argue why would Murray pay $13.35 for a cash flow stream we just said is worth $8? It's like a house with a market value of 500k, but a tax lien that needs to be settled for 100k...you should only pay 400k for such a house, right...

But our situation is different because if Murray never converts his subs to commons, the common holders get outsized returns. Murray would be providing capital to the business, but not receiving anything in return. Using a little Sicilian reasoning...he knows we know that he can't get any money out until he pays us...and thus my assumption that arrears, MQD and conversion money will be paid.

Furthermore, say Murray never tries a buy out or can't afford it. That's still a fine scenario.  All the DCF will come in to the 75 million or so common holders. 140 DCF (as above) /75 common units is plenty of money to convert the subs to commons over a three year period. We would get paid back our $5.35 anyway plus pick up additional $1.35 MQDs along the way (20% yield at current prices) the longer Murray lets it go. After the 3 year period the cash flow stream to 140 unit holders would still be worth $8 to Murray. So it's essentially the same outcome as the buyout except the cash flows are drawn out so the present value of everything is diminished. However, this problem is more than offset by the commons picking up additional MQDs at juicy yields as we wait for the conversion.

And don't forget Deer Run, its capable of something like 10 million tons. If there's a 50% chance that it is running in 3 years that's worth around $2 per share today.
« Last Edit: March 12, 2017, 03:39:03 PM by gadfly »

Patmo

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Re: FELP - Foresight Energy
« Reply #717 on: March 12, 2017, 06:14:01 PM »

Here is a back of the envelope calculation that has me holding on to my shares and very positive about returns going forward (picture of excel sheet included)

Setup:

-Current common unit arrears are $1.86 and go up $.3375 every quarter there is no distribution
-If commons are paid $2.203 per unit after all arrears are paid, the subs convert to commons
-IDRs don't kick-in until distributions are over $2.203 per year.

If you build a simple model that assumes the second half of 2016 will be the run rate of FELP's business and assume the refi will save on interest you get something like:

EBITDA: 350
Maintenance Capex: 50
Interest Expense: 85

DCF :215

If you assume FELP distributes the MQD (1.35) this year to commons and retains the remainder of DCF to fund the $2.203 payment required for sub conversion, it will take until 2019 for Murray's subs to convert. AND DCF of 215 is not enough for any IDRs to be paid to the GP assuming there will be roughly 140 common units in 2019.

If I assume a 10% required rate of return, and no growth in the 215 DCF, this situation makes FELP sub units worth roughly $12 today and common units worth roughly $18

On the other hand, if Murray could somehow come up with the money to take out the LPs, with the 10% required rate the value of FELP's cash flow stream would be worth $15 per share in the above scenario.

(Using a 15% required rate of return gives $12.82 for commons today, $7.45 for subs and $10.60 for the FELP CF stream)

If Murray offered to buyout most public common LP holders, I'm sure they would sell for something like $12, but who knows what the Reserves Group would sell their 46.8 million shares for...And I don't know how Murray would fund a buyout.

This makes me think, if Murray never buys out the common LPs, he's a long way from making money (assuming the 215 DCF number). I guess he could have recently paid 15 million to control the GP in order to save on Murray transportation costs or terminal access or something like that, but if he really thinks the IDRs have value then FELP shares are worth at least 3x their current price at some stage ($2.2 at 10x multiple)

Does anyone know anything about Murray Energy's tax situation? Like does it make sense for Murray, at some stage, to drop down all their assets into this MLP in order to make Murray more tax efficient?

What would be the cynics view of why Murray recently paid 15 million to control the GP, is there anyway he would fleece common holders to recover his original investment where we would be unable to stop it? I seem to doubt it given Reserves Group still has 46.8 million common units

Not to nitpick on your calculations but your EBITDA calc should deduct $30m that they received from the insurance for Hillsboro interruptions.

My point is very simple, if Murray offers to buy this up by paying out the distributions how would you value this entity? You can't do a cash flow valuation on it since the returns have finite period. It will be more like valuing a bond with a near term maturity. So if I buy this today knowing that it'll be eventually bought by Murray in a year, I know I'll receive $1.90(arrears) + $2.02(MQD fees) + $1.35(1 yr distribution)= $5.35 on it but what premium  will I get as a unit owner? Nothing or maybe a small one considering Murray controls the GP and 55% of the LP.

I don't know what the charter of the conflict committee is post refinance? It was created to protect the reserves against dilution by stuffing dropdowns or PIK conversion to equity. In general, as long as the conflict committee don't act in bad faith they are protected against legal liability. Also the GP has no fiduciary duty to protect the best interest of the unit holders.

No worries, it was just a rough attempt and my interest expense is probably on the low side as well, but we're in the ballpark. Anyway, point is, if the subs turn to commons you're looking at, on the low low low side, $1 distributions for the 140ish million unit holders. In a middle of the road case scenario those commons should be worth 8x or a 12.5 yield. So say this happens at the end of this year, It would be reasonable for a common holder to demand $5.35 + $8 = $13.35. Now, you could argue why would Murray pay $13.35 for a cash flow stream we just said is worth $8? It's like a house with a market value of 500k, but a tax lien that needs to be settled for 100k...you should only pay 400k for such a house, right...

But our situation is different because if Murray never converts his subs to commons, the common holders get outsized returns. Murray would be providing capital to the business, but not receiving anything in return. Using a little Sicilian reasoning...he knows we know that he can't get any money out until he pays us...and thus my assumption that arrears, MQD and conversion money will be paid.

Furthermore, say Murray never tries a buy out or can't afford it. That's still a fine scenario.  All the DCF will come in to the 75 million or so common holders. 140 DCF (as above) /75 common units is plenty of money to convert the subs to commons over a three year period. We would get paid back our $5.35 anyway plus pick up additional $1.35 MQDs along the way (20% yield at current prices) the longer Murray lets it go. After the 3 year period the cash flow stream to 140 unit holders would still be worth $8 to Murray. So it's essentially the same outcome as the buyout except the cash flows are drawn out so the present value of everything is diminished. However, this problem is more than offset by the commons picking up additional MQDs at juicy yields as we wait for the conversion.

And don't forget Deer Run, its capable of something like 10 million tons. If there's a 50% chance that it is running in 3 years that's worth around $2 per share today.

I think that Valcont's point is that after truing up the arrears and stuff, Murray will have free reign to pay what he feels like to take out the business, rendering the fair value of the business meaningless.

Ismael

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Re: FELP - Foresight Energy
« Reply #718 on: March 12, 2017, 06:23:42 PM »
@Valcont,it looks like FELP has a fair price charter restriction.

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner will have the right, but not the obligation, to purchase all of the remaining common units 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. Please read “The Partnership Agreement—Limited Call Right.”

see page 17 and 211
https://www.sec.gov/Archives/edgar/data/1540729/000119312514229380/d737973ds1a.htm

gadfly

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Re: FELP - Foresight Energy
« Reply #719 on: March 12, 2017, 06:33:09 PM »
Patmo

I think that would be a pretty cynical view. I guess you never know, but I don't think the GP can just steamroll the LPs to the point where our economic interest going forward would be worth zero after settling up.  If that were the case, Reserves Group wouldn't have been holding on to 46.8 million common units for all these years since the initial Murray investment.  And they wouldn't have fought so hard to keep warrant issuance low during the long drawn out debt restructuring. Finally, if Murray wants to keep this as a public drop-down/yieldco vehicle, it behooves him to keep things above board with LPs
« Last Edit: March 12, 2017, 06:36:24 PM by gadfly »