March , 2020 – Foresight Energy LP and 30 affiliated Debtors (OTCQX: FELPU and formerly NYSE: FELP, “Foresight” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of Missouri, lead case number 20-41308. The Debtors, a St. Louis-based producer of thermal coal, are represented by Richard W. Engel of Armstrong Teasdale LLP. Further board-authorized engagements include (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors, (iii) Jefferies LLC as investment bankers and (iv) Prime Clerk as claims agent.
On October 29, 2019, affiliate Murray Energy (and almost 100 affiliated debtors) filed for bankruptcy in the Southern District of Ohio. Subsequently, on February 11, 2020, affiliate Murray Metallurgical (and 5 affiliated debtors) filed for bankruptcy, also in the Southern District of Ohio. Each of these filings is to be administered separately from those of the Foresight Debtors.
The Foresight Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. The Debtors' 10-Q for the quarter ended September 30, 2019 notes $2.386bn of total assets (including $2.09bn of property, plant and equipment) and $1.878bn of liabilities. In 2019, Foresight’s operations generated approximately $834.0mn in revenue related to coal sales and $185.0mn of Adjusted EBITDA.
Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Wilmington Trust National Association ($472.1mn bond debt), (ii) Joy Global Underground Mining LLC ($12.0mn trade debt) and (iii) Jennchem Mid-West ($6.7mn trade debt). 26 of the Debtors' top 30 unsecured claims are in excess of $1.0mn.
in a press release announcing the Chapter 11 filings, the Debtors stated: "The Partnership [ie Foresight Energy LP and its general partner Foresight Energy GP LLC] intends to finance its operations throughout Chapter 11 with cash on hand and access to a $100 million new money debtor-in-possession financing facility (the 'DIP Facility'), subject to Bankruptcy Court approval. Lenders party to the RSA have committed to provide the full amount of the DIP Facility. The proceeds of the DIP Facility will be used to support ordinary course operations and payments to employees and suppliers throughout the restructuring process.
The RSA contemplates that substantially all of the Partnership’s prepetition funded debt will be equitized. In turn, the RSA authorizes providing a reorganized Foresight Energy with a $225 million exit financing facility (the 'Exit Facility') backstopped by the lenders party to the RSA. The Exit Facility is anticipated to provide a reorganized Foresight Energy with funds sufficient to repay the DIP Facility and retain cash on hand to perform in the ordinary course of business upon emergence from its Chapter 11 Cases. The RSA further contemplates that Mr. Robert D. Moore will continue to be Chairman of the Board of a reorganized Foresight Energy."
Restructuring Support Agreements
The Debtors have entered into a series of restructuring support agreements, most importantly an RSA with holders of over 69% of their first lien loans and 82% of their second lien notes (the “Lender RSA”). Further to proposed terms (term sheet attached to the Lender RSA), the restructuring comtemplates a substantial deleveraging of Foresight’s balance sheet by providing, in pertinent part, the
- holders of allowed claims under the First Lien Credit Agreement with 92.75% of the equity in a reorganized Foresight,
- holders of allowed claims under the Second Lien Notes with 7.25% of the equity in a reorganized Foresight, and
- holders of allowed general unsecured claims the right to receive either (i) their pro rata share of a recovery from a fixed cash pool on terms to be specified in the Plan or (ii) convenience class treatment under section 1122 of the Bankruptcy Code with a set amount of recovery to be specified under the Plan. The Debtors have not finalized the Plan or its related disclosure statement for the Restructuring, and accordingly, have not commenced a prepetition solicitation of their impaired creditors.
Additionally, the Debtors have entered separate agreements with counterparties to a variety key contractual arrangements to be amended or modified in connection with the Debtors’ restructuring and Plan (collectively, the “Supporting Contract Parties”).
The Moore Declaration (defined below) sums up: “In pertinent part, the Restructuring seeks to deleverage the Debtors’ balance sheet from approximately $1.33 billion down to $225 million, reducing the Debtors’ debt obligations by over $1 billion. In addition, the Debtors’ will be able to reduce many of their ongoing payment obligations, particularly those under their royalty and leasehold arrangements, with a number of their Supporting Contract Parties under the Counterparty RSAs.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Moore Declaration”) [Docket No. 17], Robert D. Moore, the Debtors' President and Chief Executive Officer detailed the events leading to the Debtors' Chapter 11 filing. Moore details "a race to the bottom" defined by a "heavy competition among coal suppliers for a shrinking customer base, all within a challenging regulatory and legislative atmosphere;" with domestic demand for coal-fired electricity declining in the face of competition from gas and renewables and the ability to compete internationally impacted not only by gas/renewables but also by cheap Russian coal that has helped push the benchmark price for imported thermal coal down by 50% in 2019. Coronaviris also gets a nod, partly for its downward pressure on coal prices, but also implicitly as a factor that saps the Debtors' will and energy to fight on.
The Moore Declaration states: "The thermal coal markets Foresight traditionally serves have been meaningfully challenged over the last decade, both domestically and abroad. These adverse market conditions are driven by changes in legislative priorities; the commercialization of shale gas, wind, solar, and nuclear electric generation subsidies; and low-cost natural gas exports.
In particular, the installed generation base of the U.S. power market has changed dramatically in response to both regulatory and economic forces. Domestic regulation of emissions increased the cost of coal-fired generation, consequently incentivizing the installation of gas and renewables generation. At the same time, technological developments in gas exploration and renewables generation has decreased the cost of alternative sources of electric power. As a result, intrinsic demand for coal-fired electricity or heat generation by electric utilities and industrial manufacturers has fallen in the years leading up to the Petition Date.
For instance, coal-fired installed capacity as a percentage of total installed capacity has fallen from 26 percent in 2013 to 20 percent in 2019, with coal-fired generation as a percentage of total generation falling from 35 percent in 2013 to 27 percent in early 2019. On the other hand, natural gas and renewables installed electricity generation capacity in the United States as a percentage of total installed capacity has increased from 59 percent in 2013 to 67 percent in 2019, and natural gas and renewables generation as a percentage of total generation increased from 42 percent in 2013 to 48 percent in early 2019.
In addition, demand for U.S. thermal coal from international utilities has also been subject to adverse market pressures. The development of liquefied natural gas infrastructure has facilitated the export of cheap U.S. gas to Europe, reducing local utilities’ reliance on Russian-sourced natural gas, and increasing the competitiveness of gas-fired generation as an alternative to coal-fired generation, resulting in reduced demand from European coal-fired generators. Moreover, the increased supply of low-priced Russian thermal coal has increased the supply available to satisfy the aforementioned diminished demand. These challenges are on top of a difficult regulatory environment in Western Europe which, like the United States, has subjected the coal-fired power industry to increased regulations and provided support for renewable energy power sources. As a result of these factors, the European benchmark price for imported thermal coal has halved in the past year.
The foregoing market conditions have created a sort of race to the bottom for the coal industry, with heavy competition among coal suppliers for a shrinking customer base, all within a challenging regulatory and legislative atmosphere. Altogether, these market conditions have caused the price of coal per ton that existing or potential customers are willing to pay to drop in recent years. Recently, the international coal market has come under additional pressure as the result of a slowdown in the global economy due to concerns over the coronavirus (COVID-19), which has rapidly spread to over 100 countries.
As of the Petition date, Foresight has approximately $1.33 billion in total secured debt obligations, consisting of approximately:
- $157.0mn in principal amount outstanding under a revolving first lien credit facility,
- $743.3mn in principal amount outstanding under a first lien term loan facility, and
- $425.0mn in principal amount outstanding under 11.5% second lien notes.
In addition, as of the Petition Date, Foresight had, among other liabilities, approximately
- $56.5mn in asset retirement and mine reclamation obligations,
- $99.8mn in outstanding surety bonds for performance and other bonding obligations,
- $11.3mn in workers’ compensation and “black lung” obligations (including estimates for obligations incurred but not reported), and
- $109.7mn in general accounts payable and trade payable.
About the Debtors
Initially founded in 2006 by Christopher Cline and The Cline Group LLC (the “Cline Group”), Foresight is a leading producer of thermal coal. Foresight employs approximately 790 people and operates four major mining complexes in the Illinois Basin encompassing central and southern Illinois. From its corporate headquarters in St. Louis, Missouri, Foresight has the rights to mine nearly 2.1 billion tons of proven and probable coal reserves strategically located near multiple road, rail, and river transportation access points in the Illinois Basin, including Foresight’s wholly-owned barge-loading river terminal on the Ohio River and separate barge access along the Mississippi River. From this strategic position, Foresight sells its coal primarily to electric utility and industrial companies located in the eastern half of the United States, and exports a substantial amount of coal internationally. Altogether, Foresight’s operations generated approximately $834 million in revenue related to coal sales and $185 million of Adjusted EBITDA in the year 2019.
Foresight Structure Chart
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