Foresight Energy touts March ’17 refinancing deal, eyes dropping leverage to 2.5 times from current 4.05 times

By Paul Deckelman

New York, March 7 – Foresight Energy LP delivered in 2017 company executives said Wednesday and expects strong cash flow to continue to allow it to further bring down debt going forward.

“I see the ability for this company to delever fairly quickly over the next two to three years,” its president and chief executive officer, Robert D. Moore, declared.

Moore told analysts on a conference call following the release of the St. Louis-based thermal coal company’s results for the 2017 fourth-quarter and full-year periods ended Dec. 31 that the leverage ratio of total secured debt as a multiple of EBITDA currently stands at 4.05 times.

During the question-and-answer portion of the conference call following his own formal presentation and that of Foresight’s chief accounting officer, Jeremy Harrison, Moore opined that “ideally, we want to be down around a 2.5 times levered basis on total secured debt.”

He noted that the company has “a lot of principal that we have been paying now related to certain equipment financing arrangements,” – facilities which are scheduled to roll off in 2019, “so that is a considerable amount of principal that is going out right now that ultimately can be shifted to our first-lien and second-lien obligations.”

Moore said that “to be clear – the partnership intends to utilize all excess cash flow, as defined in the March 2017 credit and guaranty agreement for, debt repayment and distribution to our common unit holders.”

Year-ago deal helped cut debt

Last March, Foresight sold $425 million of new 11% senior secured second-lien notes due 2023, with the regularly scheduled forward calendar offering pricing at 99.25 to yield 11.68% after having been downsized from an originally announced $500 million, with the tenor chopped back to six years from seven years originally.

The proceeds, together with those of a concurrently arranged new credit facility, proceeds from an investment by coal sector peer Murray Energy Corp. and cash from its balance sheet, were used to repay and terminate its existing term loan and revolver and redeem its second-lien notes and exchangeable PIK notes.

As part of the new credit agreement the company entered into, it is currently obligated to “sweep” 75% of its excess cash flow, as defined in the credit agreement, to its first-lien holders, with the remainder then available for other purposes, including delivering or paying distributions to the master limited partnership’s common unitholders.

Moore said that “on the strength of our mining operations, Foresight generated $74.2 million of excess cash flow,” as defined in the credit agreement, and under the terms of that accord, will be sweeping to its first-lien lenders 75% of the excess cash flow, or approximately $55.667 million, with the remaining $18.556 million available for distribution this year to the common unit holders.

CFO Harrison said that from an overall cash-flow perspective, during 2017, the company generated operating cash flows of $144.5 million and ended the quarter with a cash balance of nearly $2.2 million, – down sequentially from just under $25 million at the end of the 2017 third quarter on Sept. 30 and well down from year-earlier cash levels of almost $104 million, with most of the cash used as part of the refinancing effort.

Fourth-quarter total liquidity, including borrowing availability, was over $163 million.

Capital expenditures totaled $76.5 million in 2017.

“Since the March refinancing, we have made scheduled repayments of $34 million on our long-term debt and capital lease obligations, and we have paid approximately $9.7 million in distributions to our common unitholders, Harrison said.

Commenting further, Moore noted that the excess cash flow sweeps will drop to 50% from the currently required 75%, once Foresight’s secured leverage ratio drops below 4 times.

Open market repurchases possible

The company ended the quarter with total long-term and current-portion debt and capital lease obligations of $1.31 billion, down sequentially from $1.33 billion at the end of the third quarter and $1.39 billion a year earlier.

Moore told an analyst who asked whether Foresight might further cut debt via open-market repurchases that “we’ll always take a look at that as an option, so I can’t say that we won’t do something like that.

“Our focus right now is to obviously delever, and if there are ways that we can opportunistically do that, then we’ll certainly be doing that.”

He concluded by saying that “I think we have demonstrated with our operations and the efficiency at which we’ve run that these mines are capable of generating strong cash flows year over year, and we’ll utilize that cash to delever, while also recognizing that – we are an MLP – we’re going to do what it is necessary as it relates to our common unit holders.”

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