Sunday, June 28, 2015

Consul Energy's PEU Moves: Screwing Retirees

Consol Energy will raise roughly $150 million in the spinoff of CNX Coal Resources.  The spinoff will occur after the company announced it's eliminating the retiree health benefit.  TribLive reported:

Consol Energy Inc. said Thursday it will stop paying health benefits for about 4,400 retirees and spouses at the end of this year.
Consol's spinoff is worthy of the best private equity underwriter (PEU) in that while the general partner gains, employees lose.  The SEC filing indicated:

Other Post Employment Benefit liability not assumed = $6.7 million   
It wouldn't be a deal with the greed & leverage boys.  Pittsburgh Business Times reported:

In a deal concurrent with the IPO of Consol Energy's coal mine master limited partnership, New York hedge find manager David Einhorn and his Greenlight Capital will acquire between 2 million and 5 million units in CNX Coal Resources, according to a Securities and Exchange Commission filing.
Consul management is monetizing a portion of its Pennsylvannia coal assets, increasing debt for the new venture.
Our entry into a new $400 million revolving credit facility and initial draw of $200 million, the net proceeds of which will be distributed to CONSOL Energy at the closing of this offering.
Consol stands to gain an additional $22 million via this debt distribution.  As far as deal and annual management fees investors were warned in the SEC filing:

The General Partner and its Affiliates may charge any member of the Partnership Group a management fee to the extent necessary to allow the Partnership Group to reduce the amount of any state franchise or income tax or any tax based upon the revenues or gross margin of any member of the Partnership Group if the tax benefit produced by the payment of such management fee or fees exceeds the amount of such fee or fees. 
Pittsburgh Business Times shared:
MLPs provide investors with a cash distribution, and in this case, CNX intends to pay, at minimum, 51 cents per unit.

Consol has had to lower to its expectations for the initial offering. Units were expected to price between $19 and $21, but now are set at $15. The company also had planned to make 10 million units available to the public. That, too, has been reduced, dropping to 8 million.

CNX Coal expects the offering and private placement to net between $141 million and $155.2 million. At the midpoint of the previous price range, it had expected to net $183.5 million.
The new venture will be virtual nonprofit, like other PEUs.  In addition it will operate with less reporting and scrutiny, courtesy of President Obama and Congress.  The SEC filing stated:

As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:
• the presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;
• deferral of the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;
• exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
• exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and
reduced disclosure about executive compensation arrangements.
We may take advantage of these provisions until we are no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue, (iii) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period and (iv) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We have elected to take advantage of all of the applicable JOBS Act provisions, except that we will elect to opt out of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards (this election is irrevocable).
Tax avoiding, retiree benefit dumping CNX Coal Resources will operate as an emerging growth company, courtesy of President Obama and Congress.

Investors may be enticed by the opportunity for Consol to roll more of their assets into this venture:

The master limited partnership is beginning its life with operational control over and a 20 percent undivided interest in Consol's three Pennsylvania longwall mines -- the Bailey, the Harvey and Enlow Fork. There also is potential for the MLP to take Consol's interests in its Baltimore marine terminal, a coalbed methane pipeline system and the Buchanan metallurgical mine. 

Consol is looking at spinning off the Buchanan mine and other metallurgical assets into a separate, publicly held business later this year. If it is successful, CNX Coal's right of first offer for the Buchanan mine will automatically terminate, according to the SEC filing. 
Investors may want to recall the lies Carlyle Group co-founder David Rubenstein told in selling Carlyle Capital Corporation as a sure bet mortgage backed securities bet despite being highly leveraged (36x debt to equity).  Investors may want to recall his right of first offer to the City of Missoula on Carlyle owned Mountain Water.

Watch their actions, not their vacuous words.  They care about money, not people.  It's little consolation to see our elected leaders further the PEU agenda through PPACA and the JOBS act.