Foresight Energy LP

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):

As a result of the NRP Restructuring Support Agreement (see Note 1), the terms and future expected cash flows of the Sugar Camp Sale-Lease were modified such that a gain of $4.5 million was recognized and included in reorganization items, net, on the condensed consolidated statements of operations during the three months ended March 31, 2020.  At March 31, 2020 and December 31, 2019, the carrying value of the Sugar Camp Sale-Leaseback was $51.1 million and $55.3 million, respectively. The effective interest rate on the financing, which is derived from the timing and tons of coal to be mined as set forth in the current mine plan and the related cash payments, was 1.5% and 3.5% at March 31, 2020 and December 31, 2019, respectively. Interest expense was $0.2 million and $1.3 million for the three months ended March 31, 2020 and 2019, respectively.  As of March 31, 2020 and December 31, 2019, interest of $0.0 million and $0.1 million, respectively, was accrued in the consolidated balance sheets for the Sugar Camp Sale-Leaseback.

Liabilities subject to compromise include unsecured or under-secured liabilities incurred prior to the Petition Date.  These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Foresight Chapter 11 Cases and remain subject to future adjustments based on negotiated settlements with claimants, actions of the Bankruptcy Court, rejection of executory contracts, proofs of claims or other events.  Additionally, liabilities subject to compromise also include certain items that may be assumed under a plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.  Generally, actions to enforce or otherwise effect payment of prepetition liabilities are subject to the automatic stay or an approved motion of the Bankruptcy Court, as discussed in Note 1.

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 year. This sector-wide decline has been driven largely by (a) the closure of approximately 93,000 megawatts of coal-fired electric generating capacity in the United States, (b) a record production of inexpensive natural gas, and (c) the growth of wind and solar energy, with gas and renewables, displacing coal used by U.S. power plants.

During its peak in 2007, coal was the power source for half of electricity generation in the United States and by the end of 2019, coal-fired electricity generation fell to approximately 23 percent. These challenges have intensified recently as (i) certain electric utility companies have filed for bankruptcy protection and others have sought, and received, subsidies for their nuclear generation capacity to avoid bankruptcy, at the expense of coal-fired facilities, (ii) domestic natural gas prices hit 20-year lows this past summer, (iii) overall demand for electricity in the United States declined two percent in 2019, and (iv) the recent coronavirus (COVID-19) pandemic has led to declines in commercial and industrial electricity demand. At the same time, demand for U.S. coal from international utilities has been subject to its own set of negative forces, and the European benchmark price for thermal coal has continued its decline since late 2018.