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Debt
12 Months Ended
Jul. 31, 2011
Debt

H. Debt

 

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 July 31, 2011 and 2010, $64.9 million and $67.2 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

 

Long-term debt

 

Long-term debt consists of the following:

 

2011

 

2010

Senior notes

 

 

 

  Fixed rate, 6.50%, due 2021 (1)

$  500,000

 

$              -

  Fixed rate, 6.75%, due 2014, net of unamortized discount of $21,974 at July 31, 2010  

 

-

 

 

428,026

  Fixed rate, 9.125%, due 2017, net of unamortized discount of $3,472

 

 

 

       and $3,870 at July 31, 2011 and 2010, respectively (2)

296,528

 

296,130

  Fixed rate, 8.625%, due 2020 (3)

182,000

 

280,000

 

 

 

 

Secured credit facility, variable interest rate, expiring November 2012

 

 

 

      (net of $64.9 million and $67.2 million classified as short-term
    borrowings at July 31, 2011 and 2010, respectively)

 

64,573

 

 

99,797

 

 

 

 

Notes payable, 9.2% and 9.5% weighted average interest rate at July 31,  

       2011 and 2010, respectively, due 2011 to 2020, net of unamortized

       discount of $2,805 and $2,876 at July 31, 2011 and 2010, respectively

10,376

 

9,475

 

1,053,477

 

1,113,428

Less:  current portion, included in other current liabilities on the consolidated balance sheets

 

2,557

 

 

2,340

Long-term debt

$1,050,920

 

$1,111,088

 

 

Senior notes

 

During November 2010, the operating partnership issued $500.0 million in aggregate principal amount of new 6.50% senior notes due 2021 at an offering price equal to par. The operating partnership received $491.3 million of net proceeds after deducting expenses of the offering. These proceeds were used to redeem all of its $450.0 million 6.75% fixed rate senior notes due 2014, to fund the related $11.1 million make-whole payments and to pay $2.4 million of accrued interest. The remaining proceeds were used to reduce outstanding indebtedness under the secured credit facility. This debt redemption transaction also resulted in $25.3 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs. During July 2011, the operating partnership completed an offer to exchange $500.0 million principal amount of 6.50% senior notes due 2021, which have been registered under the Securities Act of 1933, as amended, for a like principal amount of their outstanding and unregistered notes which were issued on November 24, 2010.

 

During March 2011, Ferrellgas Partners redeemed $98.0 million of its $280.0 million 8.625% fixed rate senior notes due 2020, paid an $8.4 million make-whole payment and paid $2.4 million of accrued interest. This debt redemption transaction also resulted in $2.2 million of the non-cash write-off of related capitalized debt costs.

 

During August 2009, Ferrellgas made scheduled principal payments of $73.0 million on the 8.87% Series C senior notes. During September 2009, Ferrellgas issued $300.0 million in aggregate principal amount of new 9.125% senior notes due 2017 at an offering price equal to 98.6% of par with the proceeds used to fund the October 2009 note payments discussed below and to reduce borrowings on the unsecured credit facility due April 2010.

 

During October 2009, Ferrellgas prepaid the outstanding principal amount on its $82.0 million 7.24% series D notes due August 1, 2010 and its $70.0 million 7.42% series E notes due August 1, 2013 and the related prepayment premiums of $17.3 million.

 

During April 2010, Ferrellgas Partners completed a public offering of $280.0 million in aggregate principal amount of new 8.625% senior unsecured notes due 2020. Ferrellgas Partners used the net proceeds of approximately $273.4 million to redeem its $268.0 million 8.75% senior notes due 2012 and to pay the related prepayment premiums of $3.4 million.

 

Secured credit facility

 

During November 2009, Ferrellgas closed on a secured credit facility that provides $400.0 million in revolving credit for loans and has a $200.0 million sublimit for letters of credit. This credit facility matures in November 2012.

 

The secured credit facility contains various affirmative and negative covenants and default provisions, as well as requirements with respect to the maintenance of specified financial ratios and limitations on the making of loans and investments.

 

As of July 31, 2011, Ferrellgas had total borrowings outstanding under its secured credit facility of $129.5 million, of which $64.6 million was classified as long-term debt. As of July 31, 2010, Ferrellgas had total borrowings outstanding under its secured credit facility of $167.0 million, of which $99.8 million was classified as long-term debt.

 

Borrowings under the secured credit facility had a weighted average interest rate of 6.53% and 5.91% at July 31, 2011 and 2010, respectively. All borrowings under the secured credit facility bear interest, at Ferrellgas' option, at a rate equal to either:

 

·for Base Rate Loans or Swing Line Loans, the Base Rate, which is defined as the higher of i) the federal funds rate plus 0.50%, ii) Bank of America's prime rate; or iii) the Eurodollar Rate plus 1%; plus a margin varying from 2.50% to 3.25% (as of July 31, 2011 and 2010, the margin was 3.00% and 2.75%, respectively); or

·for Eurodollar Rate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus a margin varying from 3.50% to 4.25% (as of July 31, 2011 and 2010, the margin was 4.00% and 3.75%, respectively).

 

 As of July 31, 2011, the federal funds rate and Bank of America's prime rate were 0.11% and 3.25%, respectively. As of July 31, 2010, the federal funds rate and Bank of America's prime rate were 0.18% and 3.25%, respectively. As of July 31, 2011, the one-month and three-month Eurodollar Rates were 0.22% and 0.34%, respectively. As of July 31, 2010, the one-month and three-month Eurodollar Rates were 0.40% and 0.60%, respectively.

 

In addition, an annual commitment fee is payable at a per annum rate of 0.50% times the actual daily amount by which the facility exceeds the sum of (i) the outstanding amount of revolving credit loans and (ii) the outstanding amount of letter of credit obligations.

 

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

 

Letters of credit outstanding at July 31, 2011 totaled $47.5 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2010 totaled $47.1 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. At July 31, 2011, Ferrellgas had available letter of credit remaining capacity of $152.5 million. At July 31, 2010, Ferrellgas had available letter of credit remaining capacity of $152.9 million. Ferrellgas incurred commitment fees of $1.1 million, $0.9 million and $0.9 million in fiscal 2011, 2010 and 2009, respectively.

 

See Note P – Subsequent events – for discussion about an amendment to the secured credit facility.

 

Covenants

 

The senior notes and the credit facility agreement contain various restrictive covenants applicable to Ferrellgas and its subsidiaries, the most restrictive relating to additional indebtedness. In addition, Ferrellgas Partners is prohibited from making cash distributions of the minimum quarterly distribution if a default or event of default exists or would exist upon making such distribution, or if Ferrellgas fails to meet certain coverage tests. As of July 31, 2011, Ferrellgas is in compliance with all requirements, tests, limitations and covenants related to these debt agreements.

 

The scheduled annual principal payments on long-term debt are as follows:

 

 

 

For the fiscal year ending July 31,

Scheduled annual principal payments

2012

$       2,557       

2013

2,096

2014

2,079

2015

2,028

2016

1,976

Thereafter

1,049,018

Total

$1,059,754

 

See Note P – Subsequent events – for discussion about the effect of an amendment to the secured credit facility on scheduled annual principal payments.

 

The carrying amount of short-term financial instruments approximates fair value because of the short maturity of the instruments. The estimated fair value of Ferrellgas' long-term debt instruments was $1,134.2 million and $1,231.8 million as of July 31, 2011 and 2010, respectively. The fair value is estimated based on quoted market prices.

Ferrellgas, L.P. And Subsidiaries [Member]
 
Debt

H.   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 July 31, 2011 and 2010, $64.9 million and $67.2 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

 

      Long-term debt

 

      Long-term debt consists of the following:

     

     Senior notes

 

During November 2010, Ferrellgas, L.P. issued $500.0 million in aggregate principal amount of new 6.50% senior notes due 2021 at an offering price equal to par. Ferrellgas, L.P. received $491.3 million of net proceeds after deducting expenses of the offering. These proceeds were used to redeem all of its $450.0 million 6.75% fixed rate senior notes due 2014, to fund the related $11.1 million make-whole payments and to pay $2.4 million of accrued interest. The remaining proceeds were used to reduce outstanding indebtedness under the secured credit facility. This debt redemption transaction also resulted in $25.3 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs. During July 2011, Ferrellgas, L.P. completed an offer to exchange $500.0 million principal amount of 6.50% senior notes due 2021, which have been registered under the Securities Act of 1933, as amended, for a like principal amount of their outstanding and unregistered notes which were issued on November 24, 2010.

 

During August 2009, Ferrellgas, L.P. made scheduled principal payments of $73.0 million on the 8.87% Series C senior notes. During September 2009, Ferrellgas, L.P. issued $300.0 million in aggregate principal amount of new 9.125% senior notes due 2017 at an offering price equal to 98.6% of par with the proceeds used to fund the October 2009 note payments discussed below and to reduce borrowings on the unsecured credit facility due April 2010.

 

During October 2009, Ferrellgas, L.P. prepaid the outstanding principal amount on its $82.0 million 7.24% series D notes due August 1, 2010 and its $70.0 million 7.42% series E notes due August 1, 2013 and the related prepayment premiums of $17.3 million.

 

Secured credit facility

 

During November 2009, Ferrellgas, L.P. closed on a secured credit facility that provides $400.0 million in revolving credit for loans and has a $200.0 million sublimit for letters of credit. This credit facility matures in November 2012.

 

The secured credit facility contains various affirmative and negative covenants and default provisions, as well as requirements with respect to the maintenance of specified financial ratios and limitations on the making of loans and investments.

 

As of July 31, 2011, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $129.5 million, of which $64.6 million was classified as long-term debt. As of July 31, 2010, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $167.0 million, of which $99.8 million was classified as long-term debt.

 

Borrowings under the secured credit facility had a weighted average interest rate of 6.53% and 5.91% at July 31, 2011 and 2010, respectively. All borrowings under the secured credit facility bear interest, at Ferrellgas, L.P.'s option, at a rate equal to either:

 

·for Base Rate Loans or Swing Line Loans, the Base Rate, which is defined as the higher of i) the federal funds rate plus 0.50%, ii) Bank of America's prime rate; or iii) the Eurodollar Rate plus 1%; plus a margin varying from 2.50% to 3.25% (as of July 31, 2011 and 2010, the margin was 3.00% and 2.75%, respectively); or

·for Eurodollar Rate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus a margin varying from 3.50% to 4.25% (as of July 31, 2011 and 2010, the margin was 4.00% and 3.75%, respectively).

 

As of July 31, 2011, the federal funds rate and Bank of America's prime rate were 0.11% and 3.25%, respectively. As of July 31, 2010, the federal funds rate and Bank of America's prime rate were 0.18% and 3.25%, respectively. As of July 31, 2011, the one-month and three-month Eurodollar Rates were 0.22% and 0.34%, respectively. As of July 31, 2010, the one-month and three-month Eurodollar Rates were 0.40% and 0.60%, respectively.

 

In addition, an annual commitment fee is payable at a per annum rate of 0.50% times the actual daily amount by which the facility exceeds the sum of (i) the outstanding amount of revolving credit loans and (ii) the outstanding amount of letter of credit obligations.

 

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 interest 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 July 31, 2011 totaled $47.5 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2010 totaled $47.1 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. At July 31, 2011, Ferrellgas, L.P. had available letter of credit remaining capacity of $152.5 million. At July 31, 2010, Ferrellgas, L.P. had available letter of credit remaining capacity of $152.9 million. Ferrellgas, L.P. incurred commitment fees of $1.1 million, $0.9 million and $0.9 million in fiscal 2011, 2010 and 2009, respectively.

 

See Note O – Subsequent events – for discussion about an amendment to the secured credit facility.

 

Covenants

 

The senior notes and the credit facility agreement contain various restrictive covenants applicable to Ferrellgas, L.P. and its subsidiaries, the most restrictive relating to additional indebtedness. In addition, Ferrellgas, L.P. is prohibited from making cash distributions if a default or event of default exists or would exist upon making such distribution, or if Ferrellgas, L.P. fails to meet certain coverage tests. As of July 31, 2011, Ferrellgas, L.P. is in compliance with all requirements, tests, limitations and covenants related to these debt agreements.

 

The scheduled annual principal payments on long-term debt are as follows:

 

 

 

For the fiscal year ending July 31,

Scheduled annual principal payments

2012

$    2,557     

2013

2,096

2014

2,079

2015

2,028

2016

1,976

Thereafter

867,018

Total

$877,754

 

See Note O – Subsequent events – for discussion about the effect of an amendment to the secured credit facility on scheduled annual principal payments.

 

The carrying amount of short-term financial instruments approximates fair value because of the short maturity of the instruments. The estimated fair value of Ferrellgas, L.P.'s long-term debt instruments was $941.3 million and $940.6 million as of July 31, 2011 and 2010, respectively. The fair value is estimated based on quoted market prices.