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Global Credit Research - 03 Aug 2010
Approximately $400 million of rated debt securities affected
New York, August 03, 2010 -- Moody's Investors Service assigned a Caa1 rating to Foresight Energy,
LLC's (Foresight) proposed $400 million senior unsecured
notes. Moody's also assigned a B3 Corporate Family Rating (CFR),
a B3 Probability of Default rating, and an SGL-3 Speculative
Grade Liquidity rating, reflecting adequate liquidity. The
rating outlook is stable. The company intends to use the proceeds
from this offering, together with available cash on hand and borrowings
under its new secured revolving credit facility to repay indebtedness
outstanding, pay fees and expenses, and fund capital expenditures.
This is the first time that Moody's has rated the debt of Foresight.
Moody's ratings for Foresight are constrained by the risks associated
with the start-up nature of the company. At this time,
Foresight is largely reliant on a single underground operation,
the Williamson mine, and few customers. The company is in
the process of expanding production at its Macoupin and Sugar Camp mines
and constructing its fourth mine, Hillsboro. These plans
will triple Foresight's coal production by 2012, but the risks
and costs associated with the expansion, as well as Foresight's
high debt level, are key drivers for Moody's B3 corporate
family rating. Some of these risks include completion and cost
overrun risks associated with the development and expansion of its three
new mines; market risk in finding an outlet for the approximately
14 million additional tons of high-sulfur Illinois Basin coal in
an environment of low natural gas prices and uncertainty regarding "cap
and trade" and greenhouse gas legislation; and permitting and
Foresight's debt is relatively high compared to its earnings and
cash flow generated principally by the Williamson mine. As it continues
to invest in its mines, its debt very likely will increase (and/or
its cash decrease) over the near term. Any adverse impact at this
time in Foresight's development will magnify the risk posed by its
leverage and narrow operating base. The ratings also assume that
a $100 million equity contribution will be made from Foresight
Reserves, LP under Foresight's Contribution Agreement.
Specifically, Moody's assumes that $50 million will
be invested by December 31, 2010 and another $50 million
will be invested by March 31, 2011. Foresight will use the
contribution amount to invest in its coal mining development projects
within its reasonable discretion.
Foresight's strengths include its 3 billion of coal reserves,
the anticipated low cost of its existing and planned mines, insignificant
legacy liabilities, and adequate liquidity over the near term.
The SGL-3 speculative grade liquidity rating reflects Moody's belief
that Foresight will maintain an adequate liquidity profile over the next
12 months. The company plans to arrange a four-year $300
million senior secured revolving credit facility. Availability
will be at least $200 million in 2010 after utilization for capital
expenditures and letters of credit. Cash on hand, the $100
million equity contribution, and revolver availability should be
sufficient to cover all cash requirements and negative free cash during
the next 12 months. The credit facility contains financial covenants
(maximum leverage and minimum interest coverage). Moody's
believes Foresight will be in compliance with the covenants over the rating
The stable outlook is supported by the company's sales strategy,
which includes long-term contracts. The ratings could be
revised upward if Foresight successfully completes its expansion plans
and demonstrates that it can consistently generate positive free cash
flow to service its debt. The ratings could come under pressure
if the company experiences a significant production shortfall from targeted
levels. The ratings also could be lowered from higher than expected
capital expenditures, aggressive debt-financed acquisitions,
impairment of liquidity arrangements, or unanticipated shareholder-friendly
..Issuer: Foresight Energy, LLC
....Corporate Family Rating, Assigned
....Probability of Default Rating, Assigned
....Speculative Grade Liquidity Rating,
....Senior Unsecured Regular Bond/Debenture,
Assigned Caa1 (LGD5, 77%)
The principal methodology used in rating Foresight was Moody's Global
Mining rating methodology, published in May, 2009 and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Based in Palm Beach Gardens, Florida 33410, Foresight Energy,
LLC is a thermal coal producer in the Illinois Basin region of the United
States. For the twelve months ended March 31, 2010,
Foresight produced 6.2 million tons of coal and generated revenues
of $277.6 million
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Caa1 to Foresight's new notes; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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