Debt

3 Months Ended

Oct. 31, 2016

Short-term borrowings

Ferrellgas classified a portion of its secured credit facility borrowings as short-term because it was used to fund working capital needs that management had intended to pay down within the 12 month period following each balance sheet date. As of October 31, 2016 and July 31, 2016, $96.8 million and $101.3 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Secured credit facility

On September 27, 2016, Ferrellgas entered into a fifth amendment to our secured credit facility to modify the maximum leverage ratio covenant as follows:



	Maximum leverage ratio	Maximum leverage ratio
Date	(prior to amendments)	(after amendments)
October 31, 2016	5.50	6.05
January 31, 2017	5.50	5.95
April 30, 2017	5.50	5.95
July 31, 2017	5.50	6.05
October 31, 2017	5.50	5.95
January 31, 2018	5.50	5.95
April 30, 2018 & thereafter	5.50	5.50

The leverage ratio is defined as the ratio of total debt of the operating partnership to trailing twelve month EBITDA of the operating partnership (adjusted for certain, defined items), as detailed in Ferrellgas' secured credit facility. Ferrellgas' leverage ratio was 5.81x as of October 31, 2016, which equates to headroom of $78.9 million or 4.0%. Because of this leverage ratio requirement Ferrellgas continues to execute on a strategy to reduce its debt. This strategy may include issuance of equity, issuance of debt not subject to its leverage ratio calculations, asset sales or a further reduction in Ferrellgas' annual distribution, which was reduced during the quarter ended October 31, 2016 from an annualized rate of $2.05 to $0.40 per common unit. We believe that any debt reducing actions taken would likely remain in effect until Ferrellgas' leverage ratio reaches 4.5x or a level that Ferrellgas deems appropriate for its business. However, if weather continues to remain unseasonably warm or our debt reduction initiatives are unsuccessful, Ferrellgas believes it is possible its leverage ratio will exceed 5.95x at the end of the fiscal quarter ending January 31, 2017.

As of October 31, 2016, Ferrellgas had total borrowings outstanding under its secured credit facility of $415.0 million, of which $318.2 million was classified as long-term debt. Ferrellgas had $173.6 million of capacity under our secured credit facility as of October 31, 2016. However, the leverage ratio covenant under this facility limits additional borrowings to $78.9 million as of October 31, 2016. As of July 31, 2016, Ferrellgas had total borrowings outstanding under its secured credit facility of $394.4 million, of which $293.1 million was classified as long-term debt. Ferrellgas had $219.3 million of capacity under our secured credit facility as of July 31, 2016. However, the leverage ratio covenant under this facility limited additional borrowings to $8.1 million as of July 31, 2016. Borrowings outstanding at October 31, 2016 and July 31, 2016 under the secured credit facility had weighted average interest rates of 4.1% and 3.7%, respectively.

The obligations under this credit facility are secured by substantially all assets of Ferrellgas, the general partner and certain subsidiaries of Ferrellgas but specifically excluding (a) assets that are subject to Ferrellgas’ accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interests in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of Ferrellgas.

Letters of credit outstanding at October 31, 2016 totaled $111.4 million and were used primarily to secure insurance arrangements and, to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2016 totaled $86.3 million and were used primarily to secure insurance arrangements and, to a lesser extent, product purchases. At October 31, 2016, Ferrellgas had remaining letter of credit capacity of $88.6 million. At July 31, 2016, Ferrellgas had remaining letter of credit capacity of $113.7 million.

Ferrellgas, L.P. [Member]

Debt

Short-term borrowings

Ferrellgas, L.P. classified a portion of its secured credit facility borrowings as short-term because it was used to fund working capital needs that management had intended to pay down within the 12 month period following each balance sheet date. As of October 31, 2016 and July 31, 2016, $96.8 million and $101.3 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Secured credit facility

On September 27, 2016, Ferrellgas, L.P. entered into a fifth amendment to our secured credit facility to modify the maximum leverage ratio covenant as follows:



	Maximum leverage ratio	Maximum leverage ratio
Date	(prior to amendments)	(after amendments)
October 31, 2016	5.50	6.05
January 31, 2017	5.50	5.95
April 30, 2017	5.50	5.95
July 31, 2017	5.50	6.05
October 31, 2017	5.50	5.95
January 31, 2018	5.50	5.95
April 30, 2018 & thereafter	5.50	5.50

The leverage ratio is defined as the ratio of total debt of the operating partnership to trailing twelve month EBITDA of the operating partnership (adjusted for certain, defined items), as detailed in Ferrellgas, L.P.'s secured credit facility. Ferrellgas, L.P.'s leverage ratio was 5.81x as of October 31, 2016, which equates to headroom of $78.9 million or 4.0%. Because of this leverage ratio requirement Ferrellgas, L.P. continues to execute on a strategy to reduce its debt. This strategy may include issuance of equity, issuance of debt not subject to its leverage ratio calculations, asset sales or a further reduction in Ferrellgas Partners' annual distribution, which was reduced during the quarter ended October 31, 2016 from an annualized rate of $2.05 to $0.40 per common unit. We believe that any debt reducing actions taken would likely remain in effect until Ferrellgas, L.P.'s leverage ratio reaches 4.5x or a level that Ferrellgas, L.P. deems appropriate for its business. However, if weather continues to remain unseasonably warm or our debt reduction initiatives are unsuccessful, Ferrellgas, L.P. believes it is possible its leverage ratio will exceed 5.95x at the end of the fiscal quarter ending January 31, 2017.

As of October 31, 2016, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $415.0 million, of which $318.2 million was classified as long-term debt. Ferrellgas, L.P. had $173.6 million of capacity under our secured credit facility as of October 31, 2016. However, the leverage ratio covenant under this facility limits additional borrowings to $78.9 million as of October 31, 2016. As of July 31, 2016, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $394.4 million, of which $293.1 million was classified as long-term debt. Ferrellgas, L.P. had $219.3 million of capacity under our secured credit facility as of July 31, 2016. However, the leverage ratio covenant under this facility limited additional borrowings to $8.1 million as of July 31, 2016. Borrowings outstanding at October 31, 2016 and July 31, 2016 under the secured credit facility had weighted average interest rates of 4.1% and 3.7%, respectively.

The obligations under this credit facility are secured by substantially all assets of Ferrellgas, L.P., the general partner and certain subsidiaries of Ferrellgas, L.P. but specifically excluding (a) assets that are subject to Ferrellgas, L.P.’s accounts receivable securitization facility, (b) the general partner’s equity interests in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of Ferrellgas, L.P.

Letters of credit outstanding at October 31, 2016 totaled $111.4 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2016 totaled $86.3 million and were used primarily to secure insurance arrangements and, to a lesser extent, product purchases. At October 31, 2016, Ferrellgas, L.P. had remaining letter of credit capacity of $88.6 million. At July 31, 2016 Ferrellgas, L.P. had remaining letter of credit capacity of $113.7 million.