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EX-95.1 - EX-95.1 - Foresight Energy LPfelp-ex951_7.htm
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EX-31.2 - EX-31.2 - Foresight Energy LPfelp-ex312_10.htm
EX-31.1 - EX-31.1 - Foresight Energy LPfelp-ex311_6.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number: 001-36503

 

Foresight Energy LP

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

80-0778894

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

211 North Broadway, Suite 2600, Saint Louis, MO

 

63102

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (314) 932-6160

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer           Non-accelerated filer  

  

Smaller reporting company        

 

 

 

 

 

 

 

 

 

  

Emerging growth company  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    

As of May 1, 2020, the registrant had 80,996,773 common units and 64,954,691 subordinated units outstanding.

 

 

 

 


 

 

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets

3

Unaudited Condensed Consolidated Statements of Operations

4

Unaudited Condensed Consolidated Statements of Partners’ Capital

5

Unaudited Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.Controls and Procedures

36

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

37

Item 1A.Risk Factors

37

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.Defaults Upon Senior Securities

37

Item 4.Mine Safety Disclosures

37

Item 5.Other Information

37

Item 6. Exhibits

38

Signatures

39

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

 

Foresight Energy LP

(Debtor-In-Possession)

Unaudited Condensed Consolidated Balance Sheets

(In Thousands)

 

March 31,

 

 

 

December 31,

 

 

2020

 

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

61,300

 

 

 

$

33,905

 

Accounts receivable

 

13,289

 

 

 

 

19,241

 

Due from affiliates, net of reserve

 

16,962

 

 

 

 

23,131

 

Financing receivables - affiliate

 

 

 

 

 

297

 

Inventories, net

 

70,506

 

 

 

 

58,784

 

Deferred longwall costs

 

17,232

 

 

 

 

20,641

 

Other prepaid expenses and current assets

 

17,210

 

 

 

 

13,402

 

Contract-based intangibles

 

516

 

 

 

 

726

 

Total current assets

 

197,015

 

 

 

 

170,127

 

Property, plant, equipment and development, net

 

1,891,564

 

 

 

 

1,923,625

 

Financing receivables - affiliate, net of reserve

 

 

 

 

 

 

Prepaid royalties, net

 

11,382

 

 

 

 

11,382

 

Other assets

 

20,106

 

 

 

 

13,985

 

Total assets

$

2,120,067

 

 

 

$

2,119,119

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

53,586

 

 

 

$

1,317,302

 

Current portion of sale-leaseback financing arrangements

 

2,500

 

 

 

 

12,190

 

Accrued interest

 

390

 

 

 

 

45,885

 

Accounts payable

 

11,395

 

 

 

 

109,909

 

Accrued expenses and other current liabilities

 

47,834

 

 

 

 

58,123

 

Asset retirement obligations

 

3,313

 

 

 

 

3,313

 

Due to affiliates

 

2,325

 

 

 

 

15,836

 

Contract-based intangibles

 

5,918

 

 

 

 

6,268

 

Total current liabilities

 

127,261

 

 

 

 

1,568,826

 

Long-term debt

 

 

 

 

 

 

Sale-leaseback financing arrangements

 

56,608

 

 

 

 

147,915

 

Asset retirement obligations

 

53,372

 

 

 

 

55,643

 

Other long-term liabilities

 

6,853

 

 

 

 

14,480

 

Contract-based intangibles

 

59,307

 

 

 

 

60,624

 

Total liabilities not subject to compromise

 

303,401

 

 

 

 

1,847,488

 

Liabilities subject to compromise

 

1,509,337

 

 

 

 

 

Total liabilities

 

1,812,738

 

 

 

 

1,847,488

 

Limited partners' capital:

 

 

 

 

 

 

 

 

Common unitholders (80,997 units outstanding as of March 31, 2020 and December 31, 2019)

 

217,397

 

 

 

 

197,586

 

Subordinated unitholder (64,955 units outstanding as of March 31, 2020 and December 31, 2019)

 

89,932

 

 

 

 

74,045

 

Total partners' capital

 

307,329

 

 

 

 

271,631

 

Total liabilities and partners' capital

$

2,120,067

 

 

 

$

2,119,119

 

 

See accompanying notes.

 

 

3


 

Foresight Energy LP

(Debtor-In-Possession)

Unaudited Condensed Consolidated Statements of Operations

(In Thousands, Except per Unit Data)

 

 

Three Months Ended

March 31, 2020

 

 

Three Months Ended

March 31, 2019

 

Revenues:

 

 

 

 

 

 

 

Coal sales

$

99,142

 

 

$

267,337

 

Other revenues

 

547

 

 

 

1,735

 

Total revenues

 

99,689

 

 

 

269,072

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of coal produced (excluding depreciation, depletion and amortization)

 

79,985

 

 

 

133,981

 

Cost of coal purchased

 

 

 

 

2,375

 

Transportation

 

1,103

 

 

 

58,834

 

Depreciation, depletion and amortization

 

36,511

 

 

 

46,548

 

Contract amortization

 

(1,456

)

 

 

(1,686

)

Accretion on asset retirement obligations

 

684

 

 

 

551

 

Selling, general and administrative

 

6,582

 

 

 

8,647

 

Other operating (income) expense, net

 

(33

)

 

 

(67

)

Operating (loss) income

 

(23,687

)

 

 

19,889

 

Other expenses

 

 

 

 

 

 

 

Interest expense, net

 

25,204

 

 

 

30,817

 

Interest expense, net - sale-leaseback financing arrangements

 

539

 

 

 

5,893

 

Reorganization items, net

 

(85,128

)

 

 

 

Net income (loss)

$

35,698

 

 

$

(16,821

)

 

 

 

 

 

 

 

 

Net income (loss) available to limited partner units - basic and diluted:

 

 

 

 

 

 

 

Common unitholders

$

19,811

 

 

$

(7,168

)

Subordinated unitholder

$

15,887

 

 

$

(9,653

)

 

 

 

 

 

 

 

 

Net income (loss) per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

Common unitholders

$

0.24

 

 

$

(0.09

)

Subordinated unitholder

$

0.24

 

 

$

(0.15

)

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

Common units

 

80,997

 

 

 

80,915

 

Subordinated units

 

64,955

 

 

 

64,955

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

 

 

$

0.06

 

 

See accompanying notes.

 

4


Foresight Energy LP

(Debtor-In-Possession)

Unaudited Condensed Consolidated Statements of Partners’ Capital

(In Thousands, Except Unit Data)

 

 

Limited Partners

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholder

 

 

Subordinated Units

 

 

Capital

 

Balance at January 1, 2020

$

197,586

 

 

 

80,996,773

 

 

$

74,045

 

 

 

64,954,691

 

 

$

271,631

 

Net income

 

19,811

 

 

 

 

 

 

15,887

 

 

 

 

 

 

35,698

 

Balance at March 31, 2020

$

217,397

 

 

 

80,996,773

 

 

$

89,932

 

 

 

64,954,691

 

 

$

307,329

 

 

 

 

Limited Partners

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholder

 

 

Subordinated Units

 

 

Capital

 

Balance at January 1, 2019

$

377,880

 

 

 

80,844,319

 

 

$

218,835

 

 

 

64,954,691

 

 

$

596,715

 

Net loss

 

(7,168

)

 

 

 

 

 

(9,653

)

 

 

 

 

 

(16,821

)

Cash distributions

 

(4,856

)

 

 

 

 

 

 

 

 

 

 

 

(4,856

)

Conversion of warrants, net

 

 

 

 

10,087

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

233

 

 

 

 

 

 

 

 

 

 

 

 

233

 

Issuance of equity-based awards

 

 

 

 

84,815

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

(25

)

Balance at March 31, 2019

$

366,064

 

 

 

80,939,221

 

 

$

209,182

 

 

 

64,954,691

 

 

$

575,246

 

 

See accompanying notes.

 

 

5


Foresight Energy LP

(Debtor-In-Possession)

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

 

 

Three Months

Ended

March 31, 2020

 

 

Three Months

Ended

March 31, 2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

$

35,698

 

 

$

(16,821

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

36,511

 

 

 

46,548

 

Amortization of debt discount

 

1,025

 

 

 

700

 

Contract amortization

 

(1,456

)

 

 

(1,686

)

Accretion on asset retirement obligations

 

684

 

 

 

551

 

Equity-based compensation

 

 

 

 

233

 

Non-cash reorganization items, net

 

(97,878

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

5,952

 

 

 

4,974

 

Due from/to affiliates, net

 

4,952

 

 

 

9,519

 

Inventories

 

(6,248

)

 

 

(4,228

)

Prepaid expenses and other assets

 

(6,520

)

 

 

(9,235

)

Prepaid royalties

 

 

 

 

5

 

Accounts payable

 

(5,395

)

 

 

17,062

 

Accrued interest

 

20,945

 

 

 

7,380

 

Accrued expenses and other current and long-term liabilities

 

(536

)

 

 

(6,157

)

Other

 

74

 

 

 

322

 

Net cash (used in) provided by operating activities

 

(12,192

)

 

 

49,167

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(9,924

)

 

 

(35,096

)

Return of investment on financing arrangements with Murray Energy (affiliate)

 

297

 

 

 

823

 

Net cash used in investing activities

 

(9,627

)

 

 

(34,273

)

Cash flows from financing activities

 

 

 

 

 

 

 

Borrowings under DIP facility

 

55,000

 

 

 

 

Borrowings under revolving credit facility

 

 

 

 

21,000

 

Payments on revolving credit facility

 

 

 

 

(13,000

)

Payments on long-term debt and finance lease obligations

 

 

 

 

(10,709

)

Distributions paid

 

 

 

 

(4,856

)

Payment of debt issuance costs

 

(1,682

)

 

 

 

Payments on sale-leaseback and short-term financing arrangements

 

(4,104

)

 

 

(4,112

)

Net cash provided by (used in) financing activities

 

49,214

 

 

 

(11,677

)

Net increase in cash and cash equivalents

 

27,395

 

 

 

3,217

 

Cash and cash equivalents, beginning of period

 

33,905

 

 

 

269

 

Cash and cash equivalents, end of period

$

61,300

 

 

$

3,486

 

 

See accompanying notes.

6


Foresight Energy LP

(Debtor-In-Possession)

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization, Nature of Business and Basis of Presentation

 

Foresight Energy LLC (“FELLC”), a perpetual-term Delaware limited liability company, was formed in September 2006 for the development, mining, transportation and sale of coal. Prior to June 23, 2014, Foresight Reserves LP (“Foresight Reserves”) owned 99.333% of FELLC and a member of FELLC’s management owned 0.667%. On June 23, 2014, in connection with the initial public offering (“IPO”) of Foresight Energy LP (“FELP”), Foresight Reserves and a member of management contributed their ownership interests in FELLC to FELP for which they were issued common and subordinated units in FELP. FELP has been managed by Foresight Energy GP LLC (“FEGP”) subsequent to the IPO.

 

On April 16, 2015, Murray Energy Corporation and its subsidiaries and affiliates (“Murray Energy”) and Foresight Reserves completed a transaction whereby Murray Energy acquired a 34% voting interest in FEGP and all of the outstanding subordinated units of FELP, representing a 50% ownership of the Partnership’s limited partner units outstanding at that time. On March 28, 2017, Murray Energy acquired an additional 46% voting interest in FEGP, thereby increasing Murray Energy’s voting interest in FEGP to 80%.

 

As used hereafter in this report, the terms “Foresight Energy LP,” “FELP,” the “Partnership,” “we,” “us” or like terms, refer to the consolidated results of Foresight Energy LP and its consolidated subsidiaries and affiliates, unless the context otherwise requires or where otherwise indicated.

 

The Partnership operates in a single reportable segment and currently has four underground mining complexes in the Illinois Basin: Williamson Energy, LLC (“Williamson”); Sugar Camp Energy, LLC (“Sugar Camp”); Hillsboro Energy, LLC (“Hillsboro”); and Macoupin Energy, LLC (“Macoupin”). Mining operations at our Hillsboro complex had been idled since March 2015 due to a combustion event (the “Hillsboro Combustion Event”). In January 2019, we resumed continuous miner production and development activities at our Hillsboro complex and in March 2020, longwall production at our Hillsboro complex resumed.  In March 2020, mining operations at our Macoupin complex were idled.  Our mined coal is sold to a diverse customer base, including electric utility and industrial companies primarily in the eastern half of the United States, as well as overseas markets.

The accompanying condensed consolidated financial statements contain all significant adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary to present fairly, the Partnership’s condensed consolidated financial position, results of operations and cash flows for all periods presented. In preparing the condensed consolidated financial statements, management used estimates and assumptions that may affect reported amounts and disclosures. To the extent there are material differences between the estimates and actual results, the impact to the Partnership’s financial condition or results of operations could be material. The unaudited condensed consolidated financial statements do not include footnotes and certain financial information as required annually under U.S. generally accepted accounting principles (“U.S. GAAP”) and, therefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the SEC on April 6, 2020. The results of operations for interim periods are not necessarily indicative of results that can be expected for any future period, including the year ending December 31, 2020. Intercompany transactions are eliminated in consolidation.

 

Filing Under Chapter 11 of the Bankruptcy Code, Liquidity, Capital Resources, Debt Obligations, and Going Concern Considerations

The thermal coal markets that we traditionally serve have been meaningfully challenged over the past three to four years and deteriorated significantly in the last several months. The impact of depressed demand and pricing in both domestic and international markets has impacted us significantly in recent months: customers with pre-existing commitments have refused to accept delivery, and with export markets depressed there is no alternative market to place product. As a result, we have suffered recurring operating losses, have a working capital deficiency, and have not complied with certain covenants on our credit facilities, as discussed further below.  These circumstances have required us to seek protection under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). These factors raise substantial doubt about the Partnership’s ability to continue as a going concern.  The Partnership’s ability to continue as a going concern is dependent upon, among other things, its ability to become profitable and maintain profitability, its ability to access sufficient liquidity and its ability to successfully implement its overall Chapter 11 strategy and restructuring, as further discussed below.  The condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that may be required if the Partnership were unable to continue as a going concern.

On March 10, 2020 (the “Petition Date”), the Partnership, including FEGP, FELP, and its direct and indirect subsidiaries (collectively, the “Foresight Debtors”) filed voluntary petitions for relief under chapter 11 (the “Bankruptcy Petitions”) of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri (the “Bankruptcy Court”).  The Foresight Debtors sought, and

7


received, Bankruptcy Court authorization to jointly administer the Chapter 11 cases (the “Foresight Chapter 11 Cases”) under the caption “In re: Foresight Energy LP, et al.” Case No. 20-41308.  The Foresight Debtors will continue to manage their properties and operate their business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provision of the Bankruptcy Code and the orders of the Bankruptcy Court.  

Commencement of the Foresight Chapter 11 Cases constituted an event of default under the Partnership’s credit facilities as well as the indentures governing the Partnership’s debt instruments, as further described in Note 8, and all unpaid principal and accrued and unpaid interest due thereunder became immediately due and payable.  Any efforts to enforce such payment obligations are automatically stayed as a result of the commencement of the Foresight Chapter 11 Cases and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.  

 

On the Petition Date, the Foresight Debtors filed a number of motions with the Bankruptcy Court generally designed to stabilize their operations and facilitate their transition into Chapter 11.  Certain of these motions sought authority from the Bankruptcy Court for the Debtors to make payment upon, or otherwise honor, certain prepetition obligations (e.g., obligations related to certain employee wages, salaries, and benefits; certain vendors and other providers essential to the Foresight Debtors operations; etc.).  The Bankruptcy Court has entered orders approving the relief sought in these motions.

 

Commencement of the Foresight Chapter 11 Cases automatically stayed most actions against the Foresight Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Foresight Debtors property.  Subject to certain exceptions under the Bankruptcy Code, the commencement of the Foresight Chapter 11 Cases also automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Foresight Debtors or their property to recover on, collect, or secure a claim arising prior to the Petition Date or to exercise control over property of the Foresight Debtors bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.  Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

 

The U.S. Trustee for the Eastern District of Missouri filed a notice appointing an official committee of unsecured creditors (the “Unsecured Creditors’ Committee”) on March 17, 2020.  The Unsecured Creditors’ Committee represents all unsecured creditors of the Foresight Debtors and has a right to be heard on all matters that come before the Bankruptcy Court.

 

As a result of the commencement of the Foresight Chapter 11 Cases, the realization of the Foresight Debtors assets and the satisfaction of liabilities are subject to significant uncertainty.  For the Foresight Debtors to emerge successfully from Chapter 11, they must obtain the Bankruptcy Court’s approval of a plan of reorganization (a “Chapter 11 Plan”), which will enable them to transition from Chapter 11 into ordinary course operations as reorganized entities outside of bankruptcy.  A Chapter 11 Plan determines the rights and treatment of claims of various creditors and equity holders, and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which the Chapter 11 Plan is confirmed.

 

On the Petition Date the Foresight Debtors entered into a Restructuring Support Agreement (the “RSA”) with holders of over 69% in aggregate principal amount of the Foresight Debtors outstanding senior secured first-priority credit facility (the “Consenting First Lien Lenders”) and holders of over 82% in aggregate principal amount of the Foresight Debtors outstanding senior secured notes (the “Consenting Second Lien Noteholders” and together with the Consenting First Lien Lenders, the “Consenting Creditors”). As set forth in the RSA, the Foresight Debtors and the Consenting Creditors (collectively, the “RSA Parties”) have agreed to the principal terms of a proposed financial restructuring (the “Restructuring”) of the Partnership. The Restructuring is contemplated to be implemented through the Chapter 11 Plan.

 

The RSA contemplates a comprehensive deleveraging of the Partnership’s balance sheet and an approximately $1.1 billion reduction of the Partnership’s funded debt. Specifically, the RSA provides as follows:

 

 

Subject to dilution as set forth in the RSA, holders of the Partnership’s outstanding senior secured first-priority credit facilities will receive their pro rata share of 92.75% of the equity securities of the reorganized Partnership (the “New Common Equity”).

 

Subject to dilution in the RSA, holders of the Partnership’s Second Lien Notes due 2023 will receive their pro rata share of 7.25% of the New Common Equity.

 

Holders of the Partnership’s general unsecured debt (the “General Unsecured Debt”) will receive their pro rata share of a determined cash pool; provided that the size of the determined cash pool may vary depending on whether holders of General Unsecured Debt, voting as a class, accept or reject the Chapter 11 Plan; provided, further, the Partnership, with the approval of the Consenting First Lien Lenders holding more than 60% in principal amount of the first lien claims held by the Consenting First Lien Lenders in the aggregate as of the time of such determination, may classify any General Unsecured Debt below a certain dollar threshold into a convenience class pursuant to section 1122 of United States Code, 11 U.S.C. §§ 101–1532, with holders of such debt receiving different treatment than holders of other General Unsecured Debt.

8


 

Equity and voting interests in FELP and FEGP (including common units, general partner interests, subordinated units, warrants and options to purchase equity interests) and all incentive distribution rights in FELP and FEGP will be cancelled and will be of no further force or effect. Holders of such interests will receive no recovery on account of such interests.

 

The Foresight Chapter 11 Cases will be funded with the Debtor-in-Possession Credit and Guaranty Agreement (the “DIP Facility”) with a borrowing limit of $175 million, $100 million of which is a new money multi-draw term loan facility, and $75 million of which is a term loan facility that will roll up the claims of the Consenting Creditors. The Consenting Creditors have committed to provide the full amount of the DIP Facility.

 

The DIP Facility will be refinanced by a new $225 million senior secured first-priority term loan facility (the “First Lien Exit Facility”) upon the Partnership’s emergence from the Foresight Chapter 11 Cases. The First Lien Exit Facility will have a 7-year maturity and bear interest at a rate between LIBOR (subject to a 1.50% floor) +800 basis points.

 

An ad hoc group of the Consenting Creditors anticipate entering into a backstop agreement pursuant to which they will backstop the entire amount of the First Lien Exit Facility.

 

The RSA includes certain milestones for the progress of the Foresight Chapter 11 Cases, which include the dates by which the Foresight Debtors are required to, among other things, obtain certain court orders and consummate the Restructuring.  In addition, the RSA Parties will have the right to terminate the RSA (and their support for the Restructuring) under certain circumstances, including, in the case of the Foresight Debtors, if the board of directors, board of managers or such similar governing party of any Foresight Debtors determines in good faith that performance under the RSA would be inconsistent with its fiduciary duties. Accordingly, no assurance can be given that the Restructuring described in the RSA will be consummated.

 

The Foresight Debtors also entered into support agreements with certain of its principal commercial counterparties, including with Natural Resource Partners LP (“NRP”). The NRP support agreement (the “NRP Restructuring Support Agreement”) calls for, among other things, the suspension of all tonnage royalty payments, override royalty payments, wheelage payments, rail loop and loadout fees, rental fees, minimum deficiency payments, and other related amounts due to NRP and its affiliates or subsidiaries for 2020 and 2021 in exchange for a fixed annual amount paid ratably over the same period.  

 

Specific to the Macoupin complex, the NRP Restructuring Support Agreement requires the payment of an annual idling fee from 2020 through 2023 and for FELP to maintain the mine in a manner that preserves the facilities, infrastructure, and equipment.  However, at any time FELP may recommence production at Macoupin with a new lease to be negotiated between FELP and NRP.  Beginning on January 1, 2024, the NRP Restructuring Support Agreement calls for the following (assuming production has not resumed at Macoupin):

 

 

NRP has the option to cause FELP to surrender the Macoupin complex, plus all permits and equipment to support mining operations, and assume all liabilities;

 

FELP may offer to sell the Macoupin complex, plus all permits and equipment to support mining operations, in exchange for one dollar plus the assumption of Macoupin reclamation obligations;

 

FELP may continue to idle the mine in exchange for the payment of the annual idling fee; or

 

FELP may permanently seal the mine and commence reclamation activities at the Macoupin complex.

 

On March 11, 2020 (the “DIP Closing Date”), the Foresight Debtors filed a motion (the “DIP Motion”) seeking authorization to use cash collateral and to approve financing under the DIP Facility by and among FELLC as borrower (the “DIP Borrower”), FELP and certain subsidiaries of the FELLC as guarantors (together with the DIP Borrower, the “DIP Loan Parties”), the Consenting Creditors, and Cortland Capital Market Services LLC as administrative and collateral agent (the “DIP Agent”).  

 

The DIP Facility has a 180-day term unless, prior to the end of such 180-day period, one or more termination events (including the consummation of a Chapter 11 Plan) occurs.

 

The amount committed and made available under the DIP Facility is $175 million, which consists of a $100 million new money multi-draw term loan (with $55 million funded on the DIP Closing Date and $45 million available on a delayed draw basis upon the entry of a final order approving the DIP Facility (the “Final Order”) by the bankruptcy court hearing the Foresight Debtors bankruptcy cases) and, subject to the entry of the Final Order, a $75 million roll-up term loan of the first lien claims of the Consenting Creditors.  The DIP Facility bears interest based on, at the DIP Borrower’s option, an adjusted LIBOR rate plus an applicable margin of 11.00% (subject to a 1.00% floor) or an alternate base rate plus an applicable margin of 10.00% (subject to a 2.00% floor).  In addition to paying interest on outstanding principal under the DIP Facility, the DIP Borrower will be required to pay a commitment fee to the Consenting Creditors in respect of the delayed draw term loan commitment at a rate equal to 1.00% per annum.  The DIP Facility also provides for the payment of cash upfront fees and payment in newly-issued common equity upon consummation of the Foresight Debtors bankruptcy cases of put option premium and exit fees (or, in the event of a termination of the DIP Facility prior thereto, payment of such amounts in cash).  The Final Order was entered on April 9, 2020.

 

The DIP Facility contains certain customary affirmative covenants. The negative covenants in the DIP Facility, include, among other things, limitations on our ability to do the following, subject to certain exceptions and baskets:

9


 

 

incur additional debt;

 

create liens on certain assets;

 

make certain loans or investments (including acquisitions);

 

pay dividends on or make distributions in respect of our capital stock or make other restricted payments;

 

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

sell or otherwise dispose of assets;

 

enter into certain transactions with our affiliates;

 

enter into sale-leaseback transactions;

 

change our lines of business;

 

restrict liens;

 

change our fiscal year; and

 

modify the terms of certain debt or organizational agreements.

 

The DIP Facility has (i) a maximum capital expenditure covenant calculated on a cumulative basis with testing beginning as of March 31, 2020 and continuing thereafter monthly through July 31, 2020 and (ii) a minimum liquidity covenant of (1) $20 million prior to the funding of delayed draw term loans and (2) $40 million on or after the funding of delayed draw term loans.  Moreover, the DIP Facility includes a budget covenant restricting us from (1) realizing aggregate operating receipts, (2) making aggregate operating disbursements (other than certain affiliate payments, payments of interest and payment of professional fees) and (3) making certain affiliate operating disbursements that, in the case of aggregate operating receipts, fail to at least equal a certain percentage of an agreed budgeted amount and, in the case of operating disbursements, exceed by more than a certain percentage an agreed budgeted amount over each applicable two-week or four-week budget testing period.

 

Subject to certain exceptions, the DIP Facility is secured by priming, first-priority liens on substantially all assets of the Foresight Debtors pursuant to an order of the Bankruptcy Court hearing the Foresight Chapter 11 Cases.

 

The DIP Facility contains certain customary events of default, including relating to certain events (which include failure to satisfy agreed milestones) in respect of the Foresight Chapter 11 Cases.  If an event of default occurs and is continuing, the Consenting Creditors under the DIP Facility will be entitled to take various actions, including the acceleration of amounts due under the DIP Facility. Key DIP Facility milestones relating to the Foresight Chapter 11 Cases, the failure of which, if not cured, amended, or waived, would result in an event of default, are as follows:

 

 

no later than 35 days after the Petition Date, the Bankruptcy Court shall have entered the Final Order and the DIP Loan Parties shall have filed the Chapter 11 Plan;

 

no later than 50 days after the Petition Date, the DIP Loan Parties shall have entered into each of renegotiatied contracts / leases (as defined in the RSA), in form and substance acceptable to the DIP Loan Parties (and other parties as defined in the RSA);

 

no later than 70 days after the Petition Date, entry of an order by the Bankruptcy Court approving the acceptable Chapter 11 Plan disclosure statement;

 

no later than 115 days after the Petition Date, entry of an order by the Bankruptcy Court confirming the acceptable Chapter 11 Plan; and

 

no later than 130 days after the Petition Date, effectiveness of the acceptable Chapter 11 Plan.

 

During the three months ended March 31, 2020, we incurred legal and financial advisor professional fees of $12.8 million related to the above issues, which have been recorded within reorganization items, net in the condensed consolidated statements of operations.  We expect legal and financial advisor professional fees to continue to be substantial until such time as the above issues are remediated, if at all.

For periods subsequent to the commencement of the Foresight Chapter 11 Cases, the Partnership applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations, in preparing its condensed consolidated financial statements.  ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the Foresight Chapter 11 Cases from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the Foresight Chapter 11 Cases are recorded in a reorganization line item on the condensed consolidated statements of operations. In addition, the pre-petition obligations that may be impacted by the Foresight Chapter 11 Cases are classified on the condensed consolidated balance sheet as liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, which may differ from the ultimate settlement amounts.

10


2. New Accounting Standards

There are no new accounting standards issued or effective during the current period which are expected to have a material impact on the Partnership’s condensed consolidated financial statements or related disclosures.

 

3. Revenue from Contracts with Customers

 

Significant Accounting Policy

 

Revenue is measured based on consideration specified in a contract with a customer. The Partnership recognizes revenue when it satisfies a performance obligation by transferring control over goods and services to a customer.

 

Shipping and handling costs (e.g., the application of anti-freezing agents) are accounted for as fulfillment costs. The Partnership includes any fulfillment costs billed to customers as reductions to the corresponding expenses included in cost of coal produced and transportation expense.

 

Nature of Goods and Services

 

The Partnership’s primary source of revenue is from the sale of coal to domestic and international customers through short-term and long-term coal sales contracts. Coal sales revenue includes the sale to customers of coal produced and, from time to time, the re-sale of coal purchased from third-parties or from one of our affiliates. Performance obligations, consisting of individual tons of coal, are satisfied at a point in time when control is transferred to a customer.  For domestic coal sales, this generally occurs when coal is loaded onto railcars at the mine or onto barges at terminals.  For coal sales to international markets, this may occur when coal is loaded onto railcars at the mine or loaded onto an ocean vessel.  

 

The Partnership’s coal sales contracts typically range in length from one to three years, however some agreements have terms of as little as one month. Coal sales contracts generally provide for either a fixed base price or a base price determined by a market index. The base price is subject to quality and weight adjustments. Quality and weight adjustments are recorded as necessary based on coal sales contract specifications as a reduction or increase to coal sales revenue. The coal sales contracts also may give the customer the option to vary volumes, subject to certain minimums. Coal sales are generally invoiced upon shipment and payment is due from customers within standard industry credit timeframes.  

 

Disaggregation of Revenue

The following table disaggregates revenue by domestic and international markets:

 

 

Three Months Ended

March 31, 2020

 

 

Three Months Ended

March 31, 2019

 

 

(In Thousands)

 

Coal sales - Domestic

$

81,438

 

 

$

140,949

 

Coal sales - International

 

17,704

 

 

 

126,388

 

Total coal sales

$

99,142

 

 

$

267,337

 

 

Contract Balances

 

The following table provides information about balances associated with contracts with customers:

 

 

March 31,

2020

 

 

December 31,

2019

 

 

(In Thousands)

 

Receivables - Included in 'Accounts receivable'

$

11,249

 

 

$

16,025

 

Receivables - Included in 'Due from affiliates'

 

15,428

 

 

 

21,173

 

Total contract balances

$

26,677

 

 

$

37,198

 

 

Contract Costs

 

The Partnership applies the practical expedient in ASC 340-40-25-4, whereby the Partnership recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Partnership would have recognized is one year or less. These costs are included in selling, general and administrative expenses.

 

11


Other Revenues

 

Other revenues consist primarily of a transport lease and overriding royalty agreements with Murray Energy (see Note 9). These arrangements are accounted for under guidance contained in ASC 310 Receivables, ASC 360 Property, Plant, and Equipment, and ASC 842 Leases and therefore are outside the scope of ASC 606.

 

4. Supplemental Cash Flow Information

 

The following is supplemental information to the condensed consolidated statement of cash flows:

 

 

Three Months

Ended

March 31, 2020

 

 

Three Months

Ended

March 31, 2019

 

 

(In Thousands)

 

Supplemental disclosures of non-cash investing activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization capitalized into development costs

$

1,758

 

 

$

3,180

 

 

 

5. Accounts Receivable

 

Accounts receivable consist of the following:

 

 

March 31,

2020

 

 

 

December 31,

2019

 

 

(In Thousands)

 

Trade accounts receivable

$

11,249

 

 

 

$

16,025

 

Other receivables

 

2,040

 

 

 

 

3,216

 

Total accounts receivable

$

13,289

 

 

 

$

19,241

 

 

 

6. Inventories, Net

Inventories, net consist of the following:

 

 

March 31,

2020

 

 

 

December 31,

2019

 

 

(In Thousands)

 

Parts and supplies

$

14,314

 

 

 

$

14,858

 

Raw coal

 

2,681

 

 

 

 

161

 

Clean coal

 

53,511

 

 

 

 

43,765

 

Total inventories

$

70,506

 

 

 

$

58,784

 

 

 

7. Property, Plant, Equipment and Development, Net

Property, plant, equipment and development, net consist of the following:

 

 

March 31,

2020

 

 

 

December 31,

2019

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

1,652,570

 

 

 

$

1,652,570

 

Machinery and equipment

 

754,396

 

 

 

 

753,965

 

Buildings and structures

 

229,641

 

 

 

 

229,641

 

Development costs

 

105,150

 

 

 

 

93,899

 

Other

 

3,469

 

 

 

 

3,469

 

Property, plant, equipment and development

 

2,745,226

 

 

 

 

2,733,544

 

Less: accumulated depreciation, depletion and amortization

 

(853,662

)

 

 

 

(809,919

)

Property, plant, equipment and development, net

$

1,891,564

 

 

 

$

1,923,625

 

 

 

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8. Long-Term Debt Obligations

Long-term debt obligations consist of the following:

 

 

March 31,

2020

 

 

 

December 31,

2019

 

 

(In Thousands)

 

DIP Facility

$

55,000

 

 

 

$

 

Term Loan due 2022

 

743,286

 

 

 

 

743,286

 

Second Lien Notes due 2023

 

425,000

 

 

 

 

425,000

 

Revolving Credit Facility ($170.0 million capacity)

 

157,000

 

 

 

 

157,000

 

Subtotal - Total long-term debt principal outstanding

 

1,380,286

 

 

 

 

1,325,286

 

Unamortized debt discounts and issuance costs

 

(8,641

)

 

 

 

(7,984

)

Total long-term debt

 

1,371,645

 

 

 

 

1,317,302

 

Less: current portion

 

(53,586

)

 

 

 

(1,317,302

)

Less: liabilities subject to compromise

 

(1,318,059

)

 

 

 

 

Non-current portion of long-term debt

$

 

 

 

$

 

 

DIP Facility

 

The DIP Facility consists of a $100 million new money, multi-draw term loan facility and a $75 million term loan facility which shall roll-up certain first-priority pre-petition claims of the DIP Facility lenders.  The DIP Facility bears interest at LIBOR (subject to a floor of 1.00%) plus 11.00% per annum and is subject to customary fees, covenants, and milestones.  See Note 1 for further details on the terms of the DIP Facility and related borrowings.

 

Term Loan due 2022

 

The Term Loan due 2022 bears interest at the borrower’s option of (a) LIBOR (subject to a LIBOR floor of 1.00%) plus 5.75% per annum; or (b) a base rate plus 4.75% per annum. The Term Loan due 2022 required us to prepay outstanding borrowings (the “Excess Cash Flow Provisions”), subject to certain exceptions. The Excess Cash Flow Provisions are calculated annually and are payable 95 days after year-end.  

 

As a result of the Foresight Chapter 11 Cases, the principal and interest due under the Term Loan due 2022 became immediately due and payable.  As a result, the outstanding principal amounts associated with the Term Loan due 2022 are classified as a liability subject to compromise on the Partnership’s condensed consolidated balance sheet as of March 31, 2020, and as a current liability on the Partnership’s consolidated balance sheet as of December 31, 2019.  However, any efforts to enforce such payment obligations under the Term Loan due 2022 are automatically stayed as a result of the Foresight Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Term Loan due 2022 are subject to the applicable provisions of the Bankruptcy Code.  

 

Second Lien Notes due 2023

 

The Second Lien Notes due 2023 have a maturity date of April 1, 2023 and bear interest at a rate of 11.50% per annum, payable in cash semi-annually on April 1 and October 1.

 

On October 1, 2019, the Issuers elected to exercise the grace period with respect to the interest payment due under the Indenture governing the Second Lien Notes due 2023. The election to exercise the grace period extended the time period the Issuers have to make the approximately $24.4 million interest payment without triggering an event of default under the Indenture.

 

On October 23, 2019, the Issuers sought the consent of the holders of the Second Lien Notes due 2023 (collectively, the “Holders”) to amend (such amendments, the “Amendments”) the Indenture and sought the consent of the Holders to waive (such waiver, the “Waivers”) certain Defaults or Events of Defaults arising under the Indenture, in each case, as more fully described below.

 

As of October 30, 2019, the Issuers received consents to the Amendments from Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due 2023 not owned by the Issuers or their affiliates. As a result, on

October 30, 2019, the Issuers, the guarantors party thereto and Wilmington Trust, National Association, the trustee for the

Second Lien Notes due 2023, entered into a supplemental indenture (the “Supplemental Indenture”) providing for the

Amendments to the Indenture.

 

The Amendments (i) amend Section 6.01(b) of the Indenture to extend the grace period for payment of interest due on the

13


Second Lien Notes due 2023 from 30 days to 90 days and (ii) amend Section 4.03(d) of the Indenture to exclude the fiscal period ended September 30, 2019 from the requirement that the Issuers hold a publicly accessible conference call to discuss the Issuers’ financial information for the relevant fiscal period.

 

As of October 30, 2019, Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due

2023 not owned by the Issuers or their affiliates also delivered Waivers that waived any Default or Event of Default, including under Section 6.01(b) of the Indenture, arising as a result of the Issuers’ failure to make the interest payment that was due to be paid by the Issuers on October 1, 2019. The Waivers did not waive any obligation of the Issuers to make such payment of interest, or the right of any Holder to receive such payment (including as contemplated by Section 6.07 of the Indenture).

 

On December 13, 2019, the Issuers sought the consent of the Holders to further amend (such amendments, the “Second Amendments”) the Indenture as more fully described below.

 

As of December 19, 2019, the Issuers received consents to the Second Amendments from Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due 2023 not owned by the Issuers or their affiliates. As a result, on

December 19, 2019, the Issuers, the guarantors party thereto and Wilmington Trust, National Association, the trustee for the

Second Lien Notes due 2023, entered into a second supplemental indenture (the “Second Supplemental Indenture”) providing for the

Second Amendments to the Indenture.

 

The Second Amendments (i) amend Section 6.01(b) of the Indenture to extend the grace period for payment of interest due on the

Second Lien Notes due 2023 from 90 days to 150 days and (ii) amend Section 4.03(d) of the Indenture to eliminate the requirement that the Issuers hold a publicly accessible conference call to discuss the Issuers’ financial information for the relevant fiscal period.

 

On February 24, 2020, the Issuers sought the consent of the Holders to further amend (such amendment, the “Third Amendment”) the Indenture as more fully described below.

 

As of February 26, 2020, the Issuers received consents to the Third Amendment from Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due 2023 not owned by the Issuers or their affiliates. As a result, on

February 26, 2020, the Issuers, the guarantors party thereto and Wilmington Trust, National Association, the trustee for the

Second Lien Notes due 2023, entered into a third supplemental indenture (the “Third Supplemental Indenture”) providing for the

Third Amendment to the Indenture.

 

The Third Amendment amends Section 6.01(b) of the Indenture to extend the grace period for payment of interest due on the

Second Lien Notes due 2023 from 150 days to 180 days.

 

As a result of the Foresight Chapter 11 Cases, the principal and interest due under the Second Lien Notes due 2023 became immediately due and payable.  As a result, the outstanding principal amounts associated with the Second Lien Notes due 2023 are classified as a liability subject to compromise on the Partnership’s condensed consolidated balance sheet as of March 31, 2020, and as a current liability on the Partnership’s consolidated balance sheet as of December 31, 2019.  However, any efforts to enforce such payment obligations under the Second Lien Notes due 2023 are automatically stayed as a result of the Foresight Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Second Lien Notes due 2023 are subject to the applicable provisions of the Bankruptcy Code.

 

Revolving Credit Facility

 

The Revolving Credit Facility has a total borrowing capacity of $170.0 million and bears interest at the borrower’s option of (a) LIBOR (subject to a floor of zero) plus an applicable margin ranging from 5.25% to 5.50% per annum or (b) a base rate plus an applicable margin ranging from 4.25% to 4.50% per annum. We are required to pay a quarterly commitment fee with respect to the unused portions of our Revolving Credit Facility and customary letter of credit fees. The Revolving Credit Facility requires that we comply on a quarterly basis with a maximum net first lien secured leverage ratio, currently 3.50:1.00 and stepping down by 0.25x in the first quarter of 2021. We were not in compliance with the maximum net first lien secured leverage ratio as of March 31, 2020.

 

As a result of the Foresight Chapter 11 Cases, the principal and interest due under the Revolving Credit Facility became immediately due and payable.  As a result, the outstanding principal amounts associated with the Revolving Credit Facility are classified as a liability subject to compromise on the Partnership’s condensed consolidated balance sheet as of March 31, 2020, and as a current liability on the Partnership’s consolidated balance sheet as of December 31, 2019.  However, any efforts to enforce such payment obligations under the Revolving Credit Facility are automatically stayed as a result of the Foresight Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Revolving Credit Facility are subject to the applicable provisions of the Bankruptcy Code. 

 


14


Contractual Interest Expense

 

The Partnership has not recorded interest expense on the Term Loan due 2022, the Second Lien Note due 2023, and the Revolving Credit Facility since the Petition Date.  The Partnership’s contractual interest obligations totaled $33.4 million for the three months ended March 31, 2020.  However, as a result of the Foresight Chapter 11 Cases, $8.2 million of that amount was automatically stayed.

 

9. Related-Party Transactions

 

Overview

 

Affiliated entities of FELP principally include: (a) Murray Energy, owner of a 80% interest in our general partner, owner of all of the outstanding subordinated limited partner units, and owner of approximately 12% of the outstanding common limited partner units and (b) Foresight Reserves, its affiliates, and other entities owned and controlled by the estate of Chris Cline, the former majority owner and former chairman of our general partner. We routinely engage in transactions in the normal course of business with Murray Energy and its subsidiaries and Foresight Reserves and its affiliates. These transactions include, among others, production royalties, transportation services, administrative arrangements, coal handling and storage services, supply agreements, service agreements, land leases, land purchases, and sale-leaseback financing arrangements. We also acquire mining equipment from subsidiaries of Murray Energy.

 

Limited Partnership Agreement

 

FEGP manages the Partnership’s operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. Murray Energy and Foresight Reserves have the right to select the directors of the general partner. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to reelection by the unitholders. The officers of the general partner manage the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership. No amounts were incurred by the general partner or reimbursed under the partnership agreement from the IPO date to March 31, 2020.

 

Transactions with Murray Energy and Affiliates (including Javelin Global Commodities)

 

Murray Energy Management Services Agreement

 

In April 2015, a management services agreement (“MSA”) was executed between FEGP and Murray American Coal, Inc. (the ”Manager”), a wholly-owned subsidiary of Murray Energy, pursuant to which the Manager provided certain management and administration services to FELP for a quarterly fee of $3.5 million ($14.0 million on an annual basis), subject to contractual adjustments. To the extent that FELP or FEGP directly incurs costs for any services covered under the MSA, then the Manager’s quarterly fee is reduced accordingly. Also, to the extent that the Manager utilizes outside service providers to perform any of the services under the MSA, then the Manager is responsible for those outside service provider costs. The initial term of the MSA extends through December 31, 2022 and is subject to termination provisions. In March 2017, FEGP entered into an amended and restated MSA pursuant to which the quarterly fee for the Manager to provide certain management and administration services to FELP was increased to $5.0 million ($20.0 million on an annual basis) and is subject to future contractual escalations and adjustments (currently $5.2 million per quarter as of March 31, 2020).

 

Murray Energy Transport Lease and Overriding Royalty Agreements

 

In April 2015, American Century Transport LLC (“American Transport”), a subsidiary of the Partnership, entered into a purchase and sale agreement (the “PSA”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy, pursuant to which American Energy sold to American Transport certain mining and transportation assets for $63.0 million. Concurrent with the PSA, American Transport entered into a lease agreement (the “Transport Lease”) with American Energy pursuant to which (i) American Transport leased to American Energy a tract of real property, two coal preparation plants and related coal handling facilities at American Energy’s Century Mine situated in Belmont and Monroe Counties, Ohio and (ii) American Transport receives from American Energy a fee ranging from $1.15 to $1.75 for every ton of coal mined, processed and/or transported using such assets, subject to a quarterly recoupable minimum fee of $1.7 million for an initial term of fifteen years. The Transport Lease is being accounted for as a direct financing lease.  The total remaining minimum payments under the Transport Lease was $71.0 million at March 31, 2020, with unearned income equal to $21.3 million. The unearned income is reflected as other revenue over the term of the lease using the effective interest method. Any amounts in excess of the contractual minimums are recorded as other revenue when earned. As of March 31, 2020, the outstanding Transport Lease financing receivable was $48.8 million, of which the entire amount was reserved owing to the uncertainty arising from the Murray Energy bankruptcy.

 

15


Also, in April 2015, American Century Minerals LLC (“American Century Minerals”), a newly created subsidiary of the Partnership, entered into an overriding royalty agreement (“ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company (collectively, “AEC”), pursuant to which AEC granted to American Century Minerals an overriding royalty interest ranging from $0.30 to $0.50 for each ton of coal mined, removed and sold from certain coal reserves situated near the Century Mine in Belmont and Monroe Counties, Ohio for $12.0 million. The ORRA is subject to a minimum recoupable quarterly fee of $0.5 million and has an initial term of eighteen years. This overriding royalty was accounted for as a financing arrangement.  The total remaining minimum payments under the ORRA was $26.2 million at March 31, 2020, with unearned income equal to $15.1 million. The payments the Partnership receives with respect to the ORRA are reflected partially as a return of the initial investment (reduction in the affiliate financing receivable) and partially as other revenue over the life of the agreement using the effective interest method. Any amounts in excess of the contractual minimums are recorded as other revenue when earned.  As of March 31, 2020, the outstanding ORRA financing receivable was $11.0 million, of which the entire amount was reserved owing to the uncertainty arising from the Murray Energy bankruptcy.

 

Coals Sales and Purchases with Murray Energy and Affiliates

 

We sell coal to Javelin Global Commodities (“Javelin”), which is an international commodities marketing and trading joint venture owned by Murray Energy, Uniper (formerly E.ON Global Commodities SE), and management of Javelin. We incur sales and marketing expenses on export sales to Javelin.  In addition, we are responsible for transportation costs on certain export sales to Javelin.  

 

From time to time, we also purchase and sell coal to Murray Energy and its affiliates to, among other things, meet each of our customer contractual obligations.

 

Murray Energy Transportation Arrangements

 

We had an arrangement with Murray Energy whereby we utilized capacity on a Murray Energy transloading contract with a third-party, thereby allowing Murray Energy to reduce its exposure to certain contractual liquidated damage charges. No capacity was utilized under this arrangement during the three months ended March 31, 2020.  To compensate the Partnership for the reduced contractual liquidated damages, Murray Energy reimbursed the Partnership $1.9 million for the three months ended March 31, 2019. The amounts are included in transportation on the consolidated statements of operations.

 

Other Murray Energy Transactions

 

We regularly purchase equipment, supplies, rebuild, and other services from affiliates of Murray Energy. On occasion, our subsidiaries provide similar services to affiliates of Murray Energy.  We also enter into combined procurement transactions with Murray Energy to combine scale and increase purchasing leverage.  

 

From time to time, we may also reimburse Murray Energy for costs paid by them on our behalf, including certain insurance premiums.

 

Transactions with Foresight Reserves and Affiliates

 

Mineral Reserve Leases

 

Our mines have a series of mineral reserve leases with Colt, LLC and Ruger, LLC (“Ruger”), affiliates of Foresight Reserves. Each of these leases have initial terms of 10 years with six renewal periods at the election of the lessees, and generally require the lessees to pay the greater of a per ton amount or a percentage of the gross sales price, as defined in the respective agreements, of such coal.  

 

We also have overriding royalty agreements with Ruger pursuant to which we pay royalties equal to a percentage of the gross selling prices, as defined in the agreements. Each of these mineral reserve leases generally require a minimum annual royalty payment, which is recoupable only against actual production royalties from future tons mined during the period of ten years following the date on which any such royalty is paid.

 

Other Foresight Reserves Transactions

 

We are party to two surface leases in relation to the coal preparation plant and rail loadout facility at Williamson with New River Royalty, a subsidiary of Foresight Reserves. The primary terms of the leases expire on October 15, 2021, but may be extended by New River Royalty for additional five-year terms under the same terms and conditions until all of the merchantable and mineable coal has been mined and removed from Williamson. Williamson is required to pay aggregate rent of $100,000 per year to New River Royalty under the leases.

 

16


We are party to a surface lease at our Sitran terminal with New River Royalty. The annual lease amount is $50,000 and the primary term of the lease expires on December 31, 2020, but it may be extended at the election of Sitran for successive five year periods.

 

We are also party to various land easements and similar agreements with New River Royalty with varying terms and renewal options. Annual lease amounts on these arrangements are not significant individually or in aggregate.

 

In January 2019, we purchased two tracts of land from New River Royalty for total consideration of $6.1 million.

 

Reserves Investor Group

 

The Reserves Investor Group includes the estate of Christopher Cline, the Cline Resource and Development Company (“CRDC”), the four trusts established for the benefit of Mr. Cline’s children (the “Cline Trust”), and certain other limited liability companies owned or controlled by individuals with limited partner interests in Foresight Reserves through indirect ownership. Concurrent with and subsequent to certain refinancing transactions in March 2017, CRDC and the Cline Trust acquired investments in our Term Loan due 2022 and our Second Lien Notes due 2023 on consistent terms as the unaffiliated owners of these notes. During the three months ended March 31, 2020, CRDC and the Cline Trust divested their holding of our Term Loan due 2022 and our Second Lien Notes due 2023.

 

The Cline Trust is also a holder of 17,556 of FELP’s outstanding warrants as of March 31, 2020.

 

  

 

 


17


The following table summarizes certain affiliate amounts included in our condensed consolidated balance sheets:

 

Affiliated Company

 

Balance Sheet Location

 

March 31,

2020

 

 

 

December 31,

2019

 

 

 

 

 

(In Thousands)

 

Murray Energy

 

Due from affiliates - current

 

$

10,189

 

 

 

$

8,658

 

Javelin

 

Due from affiliates - current

 

 

8,155

 

 

 

 

14,473

 

less: Reserve on amounts due from Murray Energy (1)

 

Due from affiliates - current

 

 

(1,382

)

 

 

 

 

Total - Due from affiliates - current

 

 

 

$

16,962

 

 

 

$

23,131

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy (2)

 

Financing receivables - affiliate - current

 

$

 

 

 

$

297

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy

 

Financing receivables - affiliate - noncurrent

 

$

59,815

 

 

 

$

60,408

 

less: Reserve on amounts due from Murray Energy (1)

 

Financing receivables - affiliate - noncurrent

 

 

(59,815

)

 

 

 

(60,408

)

Total - Financing receivables - affiliate - noncurrent

 

 

 

$

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy

 

Due to affiliates - current

 

$

520

 

 

 

$

6,505

 

Javelin

 

Due to affiliates - current

 

 

385

 

 

 

 

6,364

 

Foresight Reserves and affiliated entities

 

Due to affiliates - current

 

$

1,420

 

 

 

 

2,967

 

Total - Due to affiliates - current

 

 

 

$

2,325

 

 

 

$

15,836

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy

 

Liabilities subject to compromise

 

$

5,877

 

 

 

$

 

Javelin

 

Liabilities subject to compromise

 

 

6,417

 

 

 

 

 

Total - Liabilities subject to compromise

 

 

 

$

12,294

 

 

 

$

 

 

 

(1)

The reserve on amounts due from affiliates, representing amounts invoiced but not yet collected on the Transport Lease and ORRA, and the reserve on financing receivables related to the Transport Lease and ORRA, result from the uncertainty arising from the Murray Chapter 11 Cases (defined below).  

 

(2)

Net financing receivables – affiliate of $0.3 million at December 31, 2019, represent amounts invoiced and collected on the Transport Lease and ORRA in 2020.

 

Murray Energy Bankruptcy

 

On October 29, 2019, Murray Energy Holdings Co. and certain of its direct and indirect subsidiaries (collectively, and excluding FELP and its direct and indirect subsidiaries, the “Murray Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code (the “Murray Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Ohio Western Division (the “Murray Bankruptcy Court”). The Murray Debtors will continue to manage their properties and operate their businesses as a “debtor in possession” under the jurisdiction of the Murray Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Murray Bankruptcy Court.

 

In its filings with the Murray Bankruptcy Court, the Murray Debtors have indicated that they intend to continue performing their obligations under the various agreements with FELP and certain of its direct and indirect subsidiaries during the pendency of the Murray Chapter 11 Cases. On October 31, 2019, the Bankruptcy Court approved an order permitting the Murray Debtors to continue performing their intercompany transactions with FELP. In addition, the board of directors of FELP GP LLC has appointed a conflicts committee composed of independent directors tasked with closely monitoring the Murray Chapter 11 Cases and protecting FELP’s interests with respect to the Murray Debtors.  Although FELP and the Murray Debtors currently intend to continue performing their respective obligations under the agreements among FELP and the Murray Debtors, there can be no assurance that FELP or the Murray Debtors will not, in the future, reject, repudiate, renegotiate or terminate any or all of such agreements. As a result, our ability to receive payments on our arrangements with the Murray Debtors may be impaired pending the outcome of the Murray Chapter 11 Cases, if the operation of any Murray Energy mines were to cease, or if Murray Energy’s creditworthiness was to deteriorate further.  The Partnership would bear the risk for any Murray Energy payment default.

18


 

A summary of (income) expenses incurred with affiliated entities is as follows for the three months ended March 31, 2020 and 2019:

 

Three Months Ended

March 31, 2020

 

 

Three Months Ended

March 31, 2019

 

 

(In Thousands)

 

Transactions with Murray Energy

 

 

 

 

 

 

 

Coal sales (1)

$

(27,128

)

 

$

(15,124

)

Purchased coal (6)

$

 

 

$

2,375

 

Transport Lease revenues (2)

$

(406

)

 

$

(1,215

)

ORRA revenues (2)

$

(141

)

 

$

(520

)

Goods and services purchased (5)

$

1,212

 

 

$

1,772

 

Goods and services provided (8)

$

(12

)

 

$

(25

)

Management services (7)

$

4,290

 

 

$

4,285

 

Transactions with Javelin

 

 

 

 

 

 

 

Coal sales (1)

$

(17,704

)

 

$

(126,388

)

Transportation services on certain export sales (4)

$

235

 

 

$

2,311

 

Sales and marketing expenses (7)

$

223

 

 

$

2,068

 

Transactions with Foresight Reserves and Affiliated Entities

 

 

 

 

 

 

 

Royalty expense (3)

$

5,474

 

 

$

6,507

 

Land leases (3), (4)

$

32

 

 

$

82

 

 

Principal location in the condensed consolidated financial statements:

(1) – Coal sales

(2) – Other revenues

(3) – Cost of coal produced (excluding depreciation, depletion and amortization)

(4) – Transportation  

(5) – Cost of coal produced (excluding depreciation, depletion and amortization) and property, plant and equipment, net, as applicable

(6) – Cost of coal purchased  

(7) – Selling, general and administrative

(8) – Other operating (income) expense, net

 

 

 


19


10. Earnings per Limited Partner Unit

 

We compute earnings per unit (“EPU”) using the two-class method for master limited partnerships as prescribed in ASC 260, Earnings Per Share. The two-class method requires that securities that meet the definition of a participating security be considered for inclusion in the computation of basic EPU. In addition to the common and subordinated units, we have also identified the general partner interest and our incentive distribution rights (“IDR”) as participating securities. Under the two-class method, EPU is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.

 

The Partnership’s net loss is allocated to the limited partners, including the holders of the subordinated units, in accordance with the partnership agreement on their respective ownership percentages, after giving effect to any special income or expense allocations and incentive distributions paid to the general partner, if any. The holders of our IDRs have the right to receive increasing percentages of quarterly distributions from operating surplus after certain distribution levels defined in the partnership agreement have been achieved. The general partner has no obligation to make distributions; therefore, undistributed earnings of the Partnership are not allocated to the IDRs. Basic EPU is computed by dividing net earnings attributable to unitholders by the weighted-average number of units outstanding during each period. Diluted EPU reflects the potential dilution of common equivalent units that could occur if equity participation units are converted into common units.

 

 

The following table illustrates the Partnership’s calculation of net income (loss) per common and subordinated unit for the three month periods indicated:

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Common Units

 

 

Subordinated Units

 

 

Total

 

 

Common Units

 

 

Subordinated Units

 

 

Total

 

 

 

(In Thousands, Except Per Unit Data)

 

 

(In Thousands, Except Per Unit Data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to limited partner units

 

$

19,811

 

 

$

15,887

 

 

$

35,698

 

 

$

(7,168

)

 

$

(9,653

)

 

$