The failure to make the payment triggered a default, and the St. Louis-based company said in a regulatory filing it was “negotiating an out-of-court restructuring” with certain holders of its notes and other creditors. If it cannot reach an ultimate agreement with lenders, Foresight said it may be necessary to file a voluntary Chapter 11 reorganization petition in a federal bankruptcy court. Most likely, such a filing would be made in the U.S. Bankruptcy Court for the Eastern District of Missouri in St. Louis.
On March 23, Foresight told the federal Securities and Exchange Commission in Washington, D.C., that a forbearance agreement entered into with certain bondholders on December 18, 2015, had been extended again — this time until March 29 — as talks dragged on. The extensions “are intended to provide additional opportunity to engage in discussions and negotiations with the holders of the notes and our secured lenders,” the company said.
Foresight, the largest coal producer in Illinois, is experiencing the same financial pressures that have bedeviled rival domestic coal producers such as Arch Coal and Alpha Natural Resources, both of whom filed for bankruptcy during the past year. They include declining demand for steam coal because of historically low natural gas prices that have resulted in coal-to-gas switching by many electric utilities, coupled with a mild winter and ever-increasing federal government regulations, mainly from the Environmental Protection Agency.
Morgan Stanley said in a March 15 research note it was awaiting more clarity on Foresight’s debt negotiations. Basically, the company had three choices, Morgan Stanley said. It could “announce a settlement with the bondholders that would remove the uncertainty on the way forward; the company could buy more time to negotiate with bondholders, potentially by paying the [February 16] coupon; or the company could file for Chapter 11 restructuring.”
Morgan Stanley said an out-of-court settlement “would probably be in the best interest of all parties.”
Foresight owns four underground mining complexes in Illinois: Deer Run in Montgomery County, M-Class Mining/Sugar Camp Energy in Franklin County, Mach Mining/Pond Creek in Williamson County, and Macoupin Mining/Shay No. 1 in Macoupin County.
Those mines produced a little more than 20 million tons of high-sulfur coal in 2015, down nearly 11% from 22.5 million tons in 2014. Foresight recorded a net loss of $64.3 million, or 44 cents per limited partner unit in 2015, compared to a profit of $31.1 million, or 22 cents per limited partner unit, in 2014.
Foresight received a sharply reduced contribution last year from Deer Run, a longwall operation that was largely idled after March 26, 2015, when it was ordered to shut down by the federal Mine Safety and Health Administration (MSHA) because of elevated carbon monoxide levels.
On March 1, Foresight asked MSHA for permission to temporarily seal the mine in an apparent attempt to “extinguish the combustion event” as described by Ohio-based Murray Energy Corp., which acquired a significant stake in Foresight last year and speaks publicly for the company. There was no word on when, or even if, Deer Run will resume production.
Foresight’s largest customers in 2015 included Southern Co., Dayton Power & Light and EDF Trading, representing about 21.5%, 11.9% and 10.7%, respectfully, of all tons sold. Foresight also sells coal directly or indirectly to foreign customers in Europe, South America and Asia.
Gary Broadbent, Murray Energy’s assistant general counsel and spokesman for both Murray and Foresight, declined to comment on what action Foresight might take if the negotiations with lenders ultimately prove unsuccessful.