Debt

12 Months Ended

Jul. 31, 2019

H. Debt

Short-term borrowings

Ferrellgas classifies borrowings on the Revolving Facility portion of its Senior Secured Credit Facility (each, as defined below) as short-term, because they are currently used to fund working capital needs that management intends to pay down within the twelve month period following the balance sheet date. As of July 31, 2019 and 2018, $43.0 million and $32.8 million, respectively, were classified as short-term borrowings. For further discussion see the “Long-term debt — Senior secured credit facilities” section below.

Long-term debt

Long-term debt consists of the following:


	2019		2018
Senior notes
Fixed rate, 6.50%, due 2021 (1)	$	500,000	$	500,000
Fixed rate, 6.75%, due 2023 (2)		500,000		500,000
Fixed rate, 6.75%, due 2022, net of unamortized premium of $1,633 and $2,375 at 2019 and 2018, respectively (3)		476,633		477,375
Fixed rate, 8.625%, due 2020, net of unamortized discount of $1,319 and $3,766 at 2019 and 2018, respectively (4)		355,681		353,234

Senior secured term loan
Variable interest rate, Term Loan, expected to mature May 2023 (5)		275,000		275,000

Notes payable
10.7% and 11.2% weighted average interest rate at July 31, 2019 and 2018, respectively, due 2020 to 2029, net of unamortized discount of $711 and $977 at July 31, 2019 and 2018, respectively		5,962		6,221
Total debt, excluding unamortized debt issuance and other costs		2,113,276		2,111,830
Unamortized debt issuance and other costs		(24,516)		(30,791)
Less: current portion of long-term debt		631,756		2,402
Long-term debt	$	1,457,004	$	2,078,637

(1)

During November 2010, the operating partnership issued $500.0 million in aggregate principal amount of 6.50% senior notes due 2021. These notes are general unsecured senior obligations of the operating partnership and are effectively junior to all existing and future senior secured indebtedness of the operating partnership, to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on May 1 and November 1 of each year. The outstanding principal amount is due on May 1, 2021.

(2)

During June 2015, the operating partnership issued $500.0 million in aggregate principal amount of 6.75% senior notes due 2023. These notes are general unsecured senior obligations of the operating partnership and are effectively junior to all existing and future senior secured indebtedness of the operating partnership, to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on June 15 and December 15 of each year. The operating partnership would incur prepayment penalties if it were to repay the notes prior to June 2021.

(3)

During fiscal 2014, the operating partnership issued $475.0 million in aggregate principal amount of 6.75% senior notes due 2022. These notes are general unsecured senior obligations of the operating partnership and are effectively junior to all existing and future senior secured indebtedness of the operating partnership, to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on January 15 and July 15 of each year. The operating partnership would incur prepayment penalties if it were to repay the notes prior to November 2019.

(4)

During January 2017, Ferrellgas Partners issued $175.0 million in aggregate principal amount of additional 8.625% unsecured senior notes due 2020, issued at 96% of par. Ferrellgas Partners contributed the net proceeds from the offering of approximately $166.1 million to the operating partnership, which used such amounts to repay borrowings under its previous senior secured credit facility. During April 2010, Ferrellgas Partners issued $280.0 million of its fixed rate senior notes. During March 2011, Ferrellgas Partners redeemed $98.0 million of these fixed rate senior notes. These notes are general unsecured senior obligations of Ferrellgas Partners and are structurally subordinated to all existing and future indebtedness and obligations of the operating partnership. The unsecured senior notes bear interest from the date of issuance, payable semi-annually in arrears on June 15 and December 15 of each year.

(5)

The Senior Secured Credit Facility, including the Term Loan, will mature on the earlier of (i) May 4, 2023 and (ii) the date that is 90 days prior to the earliest maturity date of any series of the operating partnership’s outstanding notes after giving effect to any extensions or refinancings thereof. As of this filing, the earliest maturity date of any series of the operating partnership’s outstanding notes is May 1, 2021, except for the reclassification of the Term Loan from long-term to current. See additional discussion below under “Senior secured credit facilities.”

The scheduled annual principal payments on long-term debt are as follows (this reflects the classification of the $275 million Term Loan as current. See additional discussion below under “Senior secured credit facilities”):


	Scheduled annual
For the year ending July 31,	principal payments
2020	$	634,052
2021		501,842
2022		476,187
2023		500,756
2024		292
Thereafter		544
Total	$	2,113,673

Senior secured credit facilities

On May 4, 2018, the operating partnership entered into a new $575.0 million senior secured credit facility (the “Senior Secured Credit Facility”), consisting of a $300.0 million revolving line of credit (the “Revolving Facility”) and a $275.0 million term loan (the “Term Loan”), which mature on the earlier of (i) May 4, 2023 and (ii) the date that is 90 days prior to the earliest maturity date of any series of the operating partnership’s outstanding notes after giving effect to any extensions or refinancings thereof. As of this filing, the earliest maturity date of any series of the operating partnership’s outstanding notes is May 1, 2021. Revolving Facility borrowings bear interest at the Prime Rate + 4.75% and Term Loan borrowings bear interest at LIBOR + 5.75%. The Revolving Facility includes a $125.0 million sublimit for the issuance of letters of credit. Borrowings under the Senior Secured Credit Facility are available for working capital needs, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness and acquisitions, within certain limits.

The Term Loan does not include any scheduled principal payments and the Revolving Facility does not have any scheduled commitment reductions before maturity; however, the Term Loan requires prepayments pursuant to the following: 1) certain asset sales, 2) 50% of any excess cash flow, as defined by the Term Loan, in any fiscal year beginning with fiscal year 2019, 3) certain insurance proceeds, and 4) certain tax refunds.

Disagreement with Agent under Senior Secured Credit Facility:

The financing agreement governing the operating partnership’s Senior Secured Credit Facility requires the operating partnership to deliver certain financial and other information to TPG Specialty Lending, Inc., as administrative agent and collateral agent under the financing agreement (“TPG”). Under these requirements, the operating partnership must, among other matters, deliver certain quarterly unaudited consolidated financial information of the operating partnership and its subsidiaries to TPG within 55 days after the end of each fiscal quarter, including the fourth fiscal quarter, of each fiscal year. The operating partnership failed to deliver certain quarterly financial information for the fiscal quarter ended July 31, 2019, and a related required compliance certificate, to TPG by the applicable deadline of September 24, 2019. TPG delivered a notice of default with respect to these matters on September 25, 2019, and the operating partnership delivered all required financial information and the related compliance certificate to TPG on September 25, 2019. The operating partnership believes that, under applicable law, such delivery cured the event of default under the financing agreement and therefore that no event of default presently exists. TPG, however, has advised the operating partnership of TPG’s belief that the event of default cannot be cured by delivery of the required information after the deadline and therefore that the event of default is continuing and will continue unless and until it is waived under the terms of the financing agreement. The parties have attempted to agree on a waiver of the disputed event of default. However, as of the filing of this Annual Report on Form 10-K, no such agreement has been reached, as the terms proposed by TPG were not acceptable to the operating partnership and, in the operating partnership’s opinion, were not commercially reasonable under the circumstances. As a result of the failure to reach an agreement, the operating partnership and TPG continue to dispute the existence of an event of default under the financing agreement.

Additionally, TPG has advised the operating partnership of TPG’s belief that the audited consolidated financial statements of the operating partnership and its subsidiaries for the fiscal year ended July 31, 2019, as included in this Annual Report on Form 10-K, do not satisfy the requirements set forth in the financing agreement for delivery of annual audited financial statements because the report of our independent registered public accounting firm on such financial statements includes an “explanatory paragraph” regarding substantial doubt as to the operating partnership’s ability to continue as a going concern, notwithstanding that the independent registered public accounting firm’s report expresses an unqualified opinion with respect to such financial statements. The operating partnership disagrees with the position articulated by TPG on this matter and believes that the operating partnership has fully complied with the requirements set forth in the financing agreement with respect to delivery of such financial statements. However, based on the position previously articulated by TPG on this matter, the operating partnership believes that TPG may assert that an event of default has occurred under the financing agreement with respect to the operating partnership’s compliance with the covenant requiring delivery of audited financial statements.

As a result of the notice of default delivered by TPG, the operating partnership has classified the $275 million Senior secured term loan as Current Portion of Long-Term Debt on the Consolidated Balance Sheet.The operating partnership will vigorously defend itself against any remedial action that TPG may take in respect of alleged events of default that the operating partnership does not believe are continuing or have occurred.

The Senior Secured Credit Facility is secured with substantially all of the assets of the operating partnership and its subsidiaries, and Ferrellgas Partners’ and the general partner’s partnership interests in the operating partnership, and 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, 2019, the operating partnership had borrowings of $275.0 million under the Term Loan at an interest rate of 8.16%, which was classified as current (see additional discussion above of the reclassification of the Term Loan from long-term to current), and $43.0 million under the Revolving Facility at a weighted average interest rate of 9.47%, which was classified as short-term borrowings. As of July 31, 2019, the operating partnership had available borrowing capacity under the Revolving Facility of $155.1 million. As of July 31, 2018, the operating partnership had borrowings of $275.0 million under the Term Loan at an interest rate of 7.86%, which was classified as long-term debt and $32.8 million under the Revolving Facility at an interest rate of 9.75%, which was classified as short-term borrowings. As of July 31, 2018, the operating partnership had available borrowing capacity under the Revolving Facility of $159.3 million.

Letters of credit outstanding at July 31, 2019 and 2018 totaled $101.9 million and $107.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At July 31, 2019, Ferrellgas had remaining available letter of credit capacity of $23.1 million. At July 31, 2018, Ferrellgas had remaining available letter of credit capacity of $17.1 million. Ferrellgas incurred commitment fees of $1.0 million, $0.7 million and $1.1 million in fiscal 2019, 2018 and 2017, respectively.

On June 6, 2019, the operating partnership entered into an amendment to the agreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of the fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the agreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation. The operating partnership was in compliance with the fixed charge coverage ratio covenant, as amended, as of July 31, 2019.

Financial covenants

The indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit Ferrellgas Partners’ ability to, among other things, make restricted payments and incur additional indebtedness. The general partner believes that the most restrictive of these covenants are the restricted payments covenants in the indenture governing the outstanding notes of Ferrellgas Partners and the indentures governing the outstanding notes of the operating partnership, which are discussed below.

Ferrellgas Partners, L.P., the master limited partnership

The indenture governing the outstanding notes of Ferrellgas Partners due June 15, 2020 contains a covenant that restricts the ability of Ferrellgas Partners to make certain restricted payments, including distributions on its common units.

Under this covenant, subject to the limited exception described below, Ferrellgas Partners may not make a restricted payment unless its consolidated fixed charge coverage ratio (defined in the indenture generally to mean the ratio of trailing four quarters consolidated EBITDA to consolidated interest expense, both as adjusted for certain, specified items) is at least 1.75x, on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. As of July 31, 2019, Ferrellgas Partners’ consolidated fixed charge coverage ratio was 1.33x.

If the consolidated fixed charge coverage ratio is below 1.75x, Ferrellgas Partners may make restricted payments of up to $50.0 million in total over a sixteen quarter period. As a result of distributions paid to common unitholders in September 2017, December 2017, March 2018, June 2018 and September 2018, while this ratio was less than 1.75x, Ferrellgas Partners has used substantially all of its capacity under the limited exception and therefore is currently restricted by this covenant from making future restricted payments, including distributions to common unitholders. Accordingly, no distributions have been or will be paid to common unitholders for the three months ended July 31, 2019, and, unless this indenture is amended or replaced or Ferrellgas Partners’ consolidated fixed charge coverage ratio improves to at least 1.75x, this covenant will continue to prohibit Ferrellgas Partners from making common unit distributions.

Ferrellgas, L.P., the operating partnership

Similar to the indenture governing the outstanding notes of Ferrellgas Partners, the indentures governing the outstanding notes of the operating partnership contain covenants that restrict the ability of the operating partnership to make certain restricted payments, including distributions to Ferrellgas Partners. Under these covenants, subject to the limited exception described below, the operating partnership may not make a restricted payment unless its consolidated fixed charge coverage ratio (defined in the indentures generally to mean the ratio of trailing four quarters consolidated EBITDA to consolidated interest expense, both as adjusted for certain, specified items) is at least 1.75x on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. As of July 31, 2019, the operating partnership’s consolidated fixed charge coverage ratio was 1.67x.

If the consolidated fixed charge coverage ratio is below 1.75x, the operating partnership may make restricted payments in limited amounts determined under the indentures. Because the operating partnership’s consolidated fixed charge coverage ratio was below 1.75x as of April 30, 2019, the distribution made by the operating partnership on June 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due 2020 was made from capacity under the limited exception to the ratio requirement.

Although the operating partnership believes that its remaining capacity under the limited exception to the ratio requirement under the operating partnership’s indentures, and its ability to comply with the limitations on distributions under our Senior Secured Credit Facility, will allow it to make distributions to Ferrellgas Partners to cover interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 through the maturity of those notes, the restrictions in these debt agreements may prevent the operating partnership from making distributions to Ferrellgas Partners to enable it to pay cash distributions to its unitholders.

Debt and interest expense reduction strategy

Ferrellgas continues to pursue a strategy to further reduce its debt and interest expense. Achievements under this strategy during fiscal 2018 included entering into the new Senior Secured Credit Facility, amending our accounts receivable securitization facility and selling certain assets. Other opportunities include the generation of additional cash flows organically or through accretive acquisitions, restructuring or refinancing existing indebtedness, selling additional assets, maintaining the suspension of Ferrellgas’common unit distributions, issuing equity or executing one or more debt exchanges. Ferrellgas expects to maintain our debt and interest expense reduction strategy until our consolidated leverage ratio reaches a level that we deem appropriate for our business. During fiscal 2019, Ferrellgas engaged Moelis & Company LLC as our financial advisor and the law firm of Squire Patton Boggs LLP to assist with our debt and interest expense reduction strategy.

Termination of interest rate swaps

In May 2012, Ferrellgas entered into a $140.0 million interest rate swap agreement to hedge against changes in fair value on a portion of its $500.0 million 6.5% fixed rate senior notes due 2021. Ferrellgas received 6.5% and paid a one-month LIBOR plus 4.715%, on the $140.0 million swapped. Ferrellgas accounted for this agreement as a fair value hedge. On May 3, 2018, Ferrellgas terminated this swap and paid the counterparty $4.2 million. Since the interest rate swap terminated involves a hedge of an interest-bearing liability, the senior notes due May 1, 2021, Ferrellgas capitalized the fair value of the hedge at termination of $4.2 million and will amortize the balance on a straight-line basis to interest expense over the remaining useful life of the hedged item. See Note L – Derivative instruments and hedging activities for more information.

In May 2012, Ferrellgas entered into a forward interest rate swap agreement to hedge against variability in forecasted interest payments on Ferrellgas’ previous senior secured credit facility and collateralized note payable borrowings under the accounts receivable securitization facility. From August 2015 through July 2017, Ferrellgas paid 1.95% and received variable payments based on one-month LIBOR for the notional amount of $175.0 million. From August 2017 through May 2018, Ferrellgas paid 1.95% and received variable payments based on one-month LIBOR for the notional amount of $100.0 million. Ferrellgas accounted for this agreement as a cash flow hedge. On May 3, 2018, Ferrellgas terminated this interest rate swap. Ferrellgas recorded the immaterial gain immediately to earnings. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows. See Note L – Derivative instruments and hedging activities for more information.

Ferrellgas, L.P. [Member]

Debt Instrument [Line Items]

Debt Disclosure [Text Block]

H. Debt

Short-term borrowings

Ferrellgas, L.P classifies borrowings on the Revolving Facility portion of its Senior Secured Credit Facility (each, as defined below) as short-term, because they are currently used to fund working capital needs that management intends to pay down within the twelve month period following the balance sheet date. As of July 31, 2019 and 2018, $43.0 million and $32.8 million, respectively, were classified as short-term borrowings. For further discussion see the “Long-term debt – Senior secured credit facilities” section below.

Long-term debt

Long-term debt consists of the following:


	2019		2018
Senior notes
Fixed rate, 6.50%, due 2021 (1)	$	500,000	$	500,000
Fixed rate, 6.75%, due 2023 (2)		500,000		500,000
Fixed rate, 6.75%, due 2022, net of unamortized premium of $1,633 and $2,375 at 2019 and 2018, respectively (3)		476,633		477,375

Senior secured term loan
Variable interest rate, Term Loan, expected to mature May 2023 (4)		275,000		275,000

Notes payable
10.7% and 11.2% weighted average interest rate at July 31, 2019 and 2018, respectively, due 2020 to 2029, net of unamortized discount of $711 and $977 at July 31, 2019 and 2018, respectively		5,962		6,221
Total debt, excluding unamortized debt issuance and other costs		1,757,595		1,758,596
Unamortized debt issuance and other costs		(23,562)		(28,057)
Less: current portion of long-term debt		277,029		2,402
Long-term debt	$	1,457,004	$	1,728,137

(1)

During November 2010, Ferrellgas, L.P. issued $500.0 million in aggregate principal amount of new 6.50% senior notes due 2021.These notes are general unsecured senior obligations of Ferrellgas, L.P. and are effectively junior to all existing and future senior secured indebtedness of Ferrellgas, L.P., to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on May 1 and November 1 of each year. The outstanding principal amount is due on May 1, 2021.

(2)

During June 2015, Ferrellgas, L.P. issued $500.0 million in aggregate principal amount of 6.75% senior notes due 2023. These notes are general unsecured senior obligations of Ferrellgas, L.P. and are effectively junior to all existing and future senior secured indebtedness of Ferrellgas, L.P., to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on June 15 and December 15 of each year. Ferrellgas, L.P. would incur prepayment penalties if it were to repay the notes prior to June 2021.

(3)

During fiscal 2014, Ferrellgas, L.P. issued $475.0 million in aggregate principal amount of 6.75% senior notes due 2022. These notes are general unsecured senior obligations of Ferrellgas, L.P. and are effectively junior to all existing and future senior secured indebtedness of Ferrellgas, L.P., to the extent of the value of the assets securing such debt. The senior notes bear interest from the date of issuance, payable semi-annually in arrears on January 15 and July 15 of each year. Ferrellgas, L.P. would incur prepayment penalties if it were to repay the notes prior to November 2019.

(4)


For the year ending July 31,	Scheduled annual principal payments
2020	$	277,052
2021		501,842
2022		476,187
2023		500,756
2024		292
Thereafter		544
Total	$	1,756,673

Senior secured credit facilities

On May 4, 2018, Ferrellgas, L.P. entered into a new $575.0 million senior secured credit facility (the “Senior Secured Credit Facility”) consisting of a $300.0 million revolving line of credit (the “Revolving Facility”) and a $275.0 million term loan (the “Term Loan”), which mature on the earlier of (i) May 4, 2023 and (ii) the date that is 90 days prior to the earliest maturity date of any series of the operating partnership’s outstanding notes after giving effect to any extensions or refinancings thereof. As of this filing, the earliest maturity date of any series of the operating partnership’s outstanding notes is May 1, 2021. Revolving Facility borrowings bear interest at the Prime Rate + 4.75% and Term Loan borrowings bear interest at LIBOR + 5.75%. The Revolving Facility includes a $125.0 million sublimit for the issuance of letters of credit. Borrowings under the Senior Secured Credit Facility are available for working capital needs, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness and acquisitions, within certain limits.

Disagreement with Agent under Senior Secured Credit Facility:

The financing agreement governing the operating partnership’s Senior Secured Credit Facility requires the operating partnership to deliver certain financial and other information to TPG Specialty Lending, Inc., as administrative agent and collateral agent under the financing agreement (“TPG”). Under these requirements, the operating partnership must, among other matters, deliver certain quarterly unaudited consolidated financial information of the operating partnership and its subsidiaries to TPG within 55 days after the end of each fiscal quarter, including the fourth fiscal quarter, of each fiscal year. The operating partnership failed to deliver certain quarterly financial information for the fiscal quarter ended July 31, 2019, and a related required compliance certificate, to TPG by the applicable deadline of September 24, 2019. TPG delivered a notice of default with respect to these matters on September 25, 2019, and the operating partnership delivered all required financial information and the related compliance certificate to TPG on September 25, 2019. The operating partnership believes that, under applicable law, such delivery cured the event of default under the financing agreement and therefore that no event of default presently exists.TPG, however, has advised the operating partnership of TPG’s belief that the event of default cannot be cured by delivery of the required information after the deadline and therefore that the event of default is continuing and will continue unless and until it is waived under the terms of the financing agreement.The parties have attempted to agree on a waiver of the disputed event of default. However, as of the filing of this Annual Report on Form 10-K, no such agreement has been reached, as the terms proposed by TPG were not acceptable to the operating partnership and, in the operating partnership’s opinion, were not commercially reasonable under the circumstances. As a result of the failure to reach an agreement, the operating partnership and TPG continue to dispute the existence of an event of default under the financing agreement.

The Senior Secured Credit Facility is secured with substantially all of the assets of Ferrellgas, L.P. and its subsidiaries, and Ferrellgas Partners’ and the general partner’s partnership interests in Ferrellgas, L.P., and 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, 2019, Ferrellgas, L.P. had borrowings of $275.0 million under the Term Loan at an interest rate of 8.16%, which was classified as current, (see additional discussion above of the reclassification of the Term Loan from long-term to current) and $43.0 million under the Revolving Facility at a weighted average interest rate of 9.47%, which was classified as short-term borrowings. As of July 31, 2019, Ferrellgas, L.P. had available borrowing capacity under the Revolving Facility of $155.1 million. As of July 31, 2018, Ferrellgas, L.P. had borrowings of $275.0 million under the Term Loan at an interest rate of 7.86%, which was classified as long-term debt and $32.8 million under the Revolving Facility at an interest rate of 9.75%, which was classified as short-term borrowings. As of July 31, 2018, Ferrellgas, L.P. had available borrowing capacity under the Revolving Facility of $159.3 million.

Letters of credit outstanding at July 31, 2019 and 2018 totaled $101.9 million and $107.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At July 31, 2019, Ferrellgas, L.P. had remaining available letter of credit capacity of $23.1 million. At July 31, 2018 Ferrellgas, L.P. had remaining available letter of credit capacity of $17.1 million. Ferrellgas, L.P. incurred commitment fees of $1.0 million, $0.7 million and $1.1 million in fiscal 2019, 2018 and 2017, respectively.

On June 6, 2019, Ferrellgas, L.P. entered into an amendment to the agreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of the fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the agreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation. The operating partnership was in compliance with the fixed charge coverage ratio covenant, as amended, as of July 31, 2019.

Financial covenants

The agreements governing the operating partnership’s indebtedness contain various covenants that limit the operating partnership’s ability to, among other things, make restricted payments and incur additional indebtedness. The general partner believes that the most restrictive of these covenants are the restricted payments covenants in the indentures governing the outstanding notes of the operating partnership, which are discussed below.

Similar to the indenture governing the outstanding notes of Ferrellgas Partners, the indentures governing the outstanding notes of the operating partnership contain covenants that restrict the ability of the operating partnership to make certain restricted payments, including distributions to Ferrellgas Partners. Under these covenants, subject to the limited exception described below, the operating partnership may not make a restricted payment unless its consolidated fixed charge coverage ratio (defined in the indentures generally to mean the ratio of trailing four quarters consolidated EBITDA to consolidated interest expense, both as adjusted for certain, specified items) is at least 1.75x , on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. As of July 31, 2019, the operating partnership’s consolidated fixed charge coverage ratio was 1.67x.

Debt and interest expense reduction strategy

Ferrellgas, L.P. continues to pursue a strategy to further reduce its debt and interest expense. Achievements under this strategy during fiscal 2018 included entering into the new Senior Secured Credit Facility, amending our accounts receivable securitization facility and selling certain assets. Other opportunities include the generation of additional cash flows organically or through accretive acquisitions, restructuring or refinancing existing indebtedness, selling additional assets, maintaining the suspension of Ferrellgas Partners’ common unit distributions, issuing equity or executing one or more debt exchanges. Ferrellgas, L.P. expects to maintain our debt and interest expense reduction strategy until the consolidated leverage ratio reaches a level that we deem appropriate for our business. During fiscal 2019, Ferrellgas, L.P. engaged Moelis & Company LLC as our financial advisor and the law firm of Squire Patton Boggs LLP to assist with our debt and interest expense reduction strategy.

Termination of interest rate swaps

In May 2012, Ferrellgas, L.P. entered into a $140.0 million interest rate swap agreement to hedge against changes in fair value on a portion of its $500.0 million 6.5% fixed rate senior notes due 2021. Ferrellgas, L.P. received 6.5% and paid a one-month LIBOR plus 4.715%, on the $140.0 million swapped. The operating partnership accounted for this agreement as a fair value hedge. On May 3, 2018, Ferrellgas, L.P. terminated this swap and paid the counterparty $4.2 million. Since the interest rate swap terminated involves a hedge of an interest-bearing liability, the senior notes due May 2021, Ferrellgas, L.P. capitalized the fair value of the hedge at termination of $4.2 million and will amortize the balance on a straight-line basis to interest expense over the remaining useful life of the hedged item. See Note L – Derivative instruments and hedging activities for more information.

In May 2012, Ferrellgas, L.P. entered into a forward interest rate swap agreement to hedge against variability in forecasted interest payments on Ferrellgas, L.P.’s previous senior secured credit facility and collateralized note payable borrowings under the accounts receivable securitization facility. From August 2015 through July 2017, Ferrellgas, L.P. paid 1.95% and received variable payments based on one-month LIBOR for the notional amount of $175.0 million. From August 2017 through May 2018, Ferrellgas, L.P. paid 1.95% and received variable payments based on one-month LIBOR for the notional amount of $100.0 million. Ferrellgas, L.P. accounted for this agreement as a cash flow hedge. On May 3, 2018, Ferrellgas, L.P. terminated this interest rate swap. Ferrellgas, L.P. recorded the immaterial gain immediately to earnings. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows. See Note L – Derivative instruments and hedging activities for more information.