ALLIANCE RESOURCE PARTNERS LP 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ​ Commodity Price Risk ​ We have significant long-term sales contracts as evidenced by approximately 93.0% of our sales tonnage being sold under long-term sales contracts in 2020. Most of the long-term sales contracts are subject to price adjustment provisions, which periodically permit an increase or decrease in the contract price, typically to reflect changes in specified indices or changes in production costs resulting from regulatory changes, or both. For additional discussion of coal supply agreements, please see "Item 1. Business—Coal Marketing and Sales" and "Item 8. Financial Statements and 79 Table of Contents Supplementary Data—Note 23 – Concentration of Credit Risk and Major Customers." As of February 1, 2021, our nominal commitment under contract was approximately 24.1 million tons in 2021. ​ Our results of operations are highly dependent upon the prices we receive for our coal, oil and natural gas. Regarding coal, the short-term sales contracts favored by some of our coal customers leave us more exposed to risks of declining coal price periods. Regarding oil & natural gas, as seen in our 2020 results, lower sales price realizations, caused by lower global energy demand during the COVID-19 pandemic and actions of major oil producing countries, had a significant impact on our royalty revenues. Please see discussions above, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information regarding the impact of the COVID-19 pandemic and lower oil and natural gas prices on the results of our operations for 2020. ​ We have exposure to coal and oil & gas sales prices and price risk for supplies that are used directly or indirectly in the normal course of coal and oil & gas production such as steel, electricity and other supplies. We manage our risk for these items through strategic sourcing contracts for normal quantities required by our operations. Historically, we have not utilized any commodity price-hedges or other derivatives related to either our sales price or supply cost risks but may do so in the future. ​ Credit Risk ​ In 2020, approximately 94.2% of our tons sold were purchased by United States electric utilities and 3.3% were sold into the international markets through brokered transactions. Therefore, our credit risk is primarily with domestic electric power generators and reputable global brokerage firms. Our policy is to independently evaluate each customer's creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable against established credit limits. When deemed appropriate by our credit management department, we will take steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps may include obtaining letters of credit or cash collateral, requiring prepayments for shipments or establishing customer trust accounts held for our benefit in the event of a failure to pay. Such credit risks from customers may impact the borrowing capacity of our Securitization Facility. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Debt Obligations – Accounts Receivable Securitization ". ​ Exchange Rate Risk ​ Almost all of our transactions are denominated in United States dollars, and as a result, we do not have material exposure to currency exchange-rate risks. However, because coal is sold internationally in United States dollars, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide our foreign competitors with a competitive advantage. If our competitors' currencies decline against the United States dollar or against foreign purchasers' local currencies, those competitors may be able to offer lower prices for coal to these purchasers. Furthermore, if the currencies of overseas purchasers were to significantly decline in value in comparison to the United States dollar, those purchasers may seek decreased prices for the coal we sell to them. Consequently, currency fluctuations could adversely affect the competitiveness of our coal in international markets. ​ Interest Rate Risk ​ Borrowings under the Revolving Credit Facility and Securitization Facility are at variable rates and, as a result, we have interest rate exposure. Historically, our earnings have not been materially affected by changes in interest rates and we have not utilized interest rate derivative instruments related to our outstanding debt. We had $87.5 million in borrowings under the Revolving Credit Facility and $55.9 million in borrowings under the Securitization Facility at December 31, 2020. A one percentage point increase in the interest rates related to the Revolving Credit Facility and Securitization Facility would result in an annualized increase in interest expense of $1.4 million, based on borrowing levels at December 31, 2020. With respect to our fixed-rate borrowings, we had $400.0 million in borrowings under our Senior Notes and $60.4 million in borrowings under our equipment financings at December 31, 2020. A one percentage point increase in interest rates would result in a decrease of approximately $18.1 million in the estimated fair value of these borrowings. ​ The table below provides information about our market sensitive financial instruments and constitutes a "forward-looking statement." The fair values of long-term debt are estimated using discounted cash flow analyses, based upon our incremental borrowing rates for similar types of borrowing arrangements as of December 31, 2020 and 2019. 80 Table of Contents ​ The carrying amounts and fair values of financial instruments are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Expected Maturity Dates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, as of December 31, 2020 ​ 2021 ​ ​ 2022 ​ ​ 2023 ​ ​ 2024 ​ ​ 2025 ​ ​ Thereafter ​ ​ Total ​ ​ 2020 ​ (dollars in thousands) ​ Fixed rate debt ​ $ 17,299 ​ ​ $ 16,071 ​ ​ $ 24,970 ​ ​ $ 2,040 ​ ​ $ 400,000 ​ ​ $ — ​ ​ $ 460,380 ​ ​ $ 376,781 ​ Weighted-average interest rate ​ ​ 7.23 % ​ ​ 7.31 % ​ ​ 7.40 % ​ 7.50 % ​ 7.50 % ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Variable rate debt ​ $ 55,900 ​ ​ $ — ​ ​ $ — ​ ​ $ 87,500 ​ ​ $ — ​ ​ $ — ​ ​ $ 143,400 ​ ​ $ 141,536 ​ Weighted-average interest rate (1) ​ ​ 2.97 % ​ ​ 3.01 % ​ 3.01 % ​ 3.01 % ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ Expected Maturity Dates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ as of December 31, 2019 ​ 2020 ​ ​ 2021 ​ ​ 2022 ​ ​ 2023 ​ ​ 2024 ​ ​ Thereafter ​ ​ Total ​ ​ 2019 ​ ​ ​ (dollars in thousands) ​ Fixed rate debt ​ $ 13,158 ​ ​ $ 13,847 ​ ​ $ 12,403 ​ ​ $ 21,072 ​ ​ $ — ​ ​ $ 400,000 ​ ​ $ 460,480 ​ ​ $ 407,775 ​ Weighted-average interest rate ​ ​ 7.20 % ​ ​ 7.26 % ​ ​ 7.33 % ​ 7.41 % ​ 7.50 % ​ 7.50 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Variable rate debt ​ $ — ​ ​ $ 328,800 ​ ​ $ — ​ ​ $ — ​ ​ $ — ​ ​ $ — ​ ​ $ 328,800 ​ ​ $ 328,431 ​ Weighted-average interest rate (1) ​ ​ 4.12 % ​ ​ 4.39 % ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Interest rate of variable rate debt equal to the rate effective at December 31, 2020 and 2019, held constant for the remaining term of the outstanding borrowing. ​ 81 Table of Contents