Foresight Energy loses money in Q1 2016; trying to work out debt defaults

Illinois coal producer Foresight Energy LP (NYSE: FELP) on May 10 reported financial and operating results for the first quarter 2016, which included coal sales revenues of $163.1 million, a net loss attributable to limited partner units of $41.7 million, Adjusted EBITDA of $50.2 million and cash flows from operations of $34.2 million.

Impacting Foresight’s results for first quarter 2016 was a 26.4% decrease in sales volumes and a 7.2% decrease in coal sales prices compared to first quarter 2015. The net loss was also unfavorably impacted by $9.7 million of debt restructuring costs related to the negotiations with Foresight’s secured and unsecured lenders, $5.9 million of transition and reorganization costs related to the Murray Energy transaction and $3.8 million of direct and indirect costs resulting from the Hillsboro mine fire.

Mining operations at Foresight’s Hillsboro complex have been idle since March 2015 due to a combustion event, and in April 2016, the entire mine was temporarily sealed to reduce the oxygen flow paths into the mine. Foresight said it is uncertain as to when production will resume at the Hillsboro mine.

“Our industry continues to be faced with extreme challenges resulting from competition from low cost natural gas, government regulations impacting electric utilities and a reduction in demand for power domestically,” said Robert D. Moore, President and Chief Executive Officer. “Foresight Energy, while dealing with the external industry challenges and matters related to the bondholder litigation, continues to focus on being the safest, lowest cost source of coal supplied from the Illinois Basin, and continues to believe that its cost structure will enable the company to weather the depressed coal market better than its competitors.”

Foresight trying to work out debt defaults

Foresight noted that it remains in default under all of its long-term debt and capital lease obligations, which has prohibited Foresight from accessing borrowings or other extensions of credit under its revolving credit facility. While management is focused on the preservation of liquidity, the lack of access to borrowings or other extensions of credit under its revolving credit facility is having an adverse effect on Foresight’s liquidity.

Liquidity restraints prohibited the payment of $23.6 million of interest owed to the unsecured noteholders in February 2016, which resulted in an additional event of default under its debt agreements. As of March 31, 2016, Foresight had $16.2 million of cash on hand.

Also, the recent losses incurred by Foresight have had a significant negative impact on its compliance with financial debt covenants. As of March 31, 2016, Foresight was not in compliance with its consolidated net senior secured leverage ratio, which constituted an additional event of default.

On April 18, 2016, Foresight entered into a Transaction Support Agreement (the “Lender TSA”), with certain of the lenders (the “Consenting Lenders”) under its credit agreement, under which the Consenting Lenders have agreed, subject to the terms and conditions within the Lender TSA, to support a proposed global restructuring of the Partnership’s indebtedness (the “Restructuring”), including a proposed amendment and restatement (the “Amendment”) of the credit agreement. The proposed Amendment is conditioned upon the successful execution of a series of transactions, which are the subject of ongoing negotiations amongst the various stakeholders.

Foresight has entered into forbearance agreements with certain of its unsecured noteholders and the lenders to its accounts receivable securitization program to forbear from exercising certain rights and remedies to which they may be entitled until May 17, 2016, and July 15, 2016, respectively.

Coal sales fall by 1.3 million tons in the first quarter

Coal sales were $163.1 million for the three months ended March 31, 2016, compared to $238.9 million for the three months ended March 31, 2015. Coal sales decreased $75.8 million from the prior year quarter primarily due to a decline in coal sales volumes of 1.3 million tons as well as a decline in realization per ton sold of $3.39. Coal production last quarter was 4.3 million tons, with sales of 3.8 million tons.

The decline in coal sales volumes is a function of weak market conditions influenced by the mild weather, oversupply in the market and continued lower natural gas prices. The decline in coal sales realization was due to a decline in realization per ton on both domestic and international sales, driven by weak coal market conditions and the expiration of higher priced contracts. The decline in tons sold to the international market resulted in a corresponding decline in transportation expense during the current year period. Therefore, the netback to mine realization per ton sold decreased to a lesser extent than the coal sales realization per ton sold.

Cost of coal produced was $89.2 million in the first quarter, compared to $110.6 million for the same period 2015. The decrease in cost of coal produced during the current quarter was primarily driven by lower sales volumes, offset by higher per ton cash costs. Cash cost per ton sold increased $2.18 per ton and were driven by increased cash costs at Foresight’s Hillsboro and Williamson mines. The direct and indirect costs from the Hillsboro mine fire had a $1.03 unfavorable impact on cash cost per ton sold during the current year quarter. The higher cash cost per ton sold at our Williamson mine was driven by lower production resulting from a longwall move conducted during the quarter and a decline in clean coal recovery related to a decrease in coal seam thickness.

Foresight Energy, founded by coal operator Chris Cline, is a leading producer and marketer of thermal coal controlling over 3 billion tons of coal reserves in the Illinois Basin. Foresight currently owns four mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin), with four longwall systems, and the Sitran river terminal on the Ohio River.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.