Debt

6 Months Ended

Jan. 31, 2020

F. 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 primarily used to fund working capital needs that management intends to pay down within the twelve month period following the balance sheet date. As of January 31, 2020 and July 31, 2019, $40.0 million and $43.0 million, respectively, were classified as short-term borrowings. For further discussion see the “Senior secured credit facilities” section below.

Long-term debt

Long-term debt consists of the following:


	January 31, 2020		July 31, 2019
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 $1,280 and $1,633 at January 31, 2020 and July 31, 2019, respectively (3)		476,280		476,633
Fixed rate, 8.625%, due 2020, net of unamortized discount of $0 and $1,319 at January 31, 2020 and July 31, 2019, respectively (4)		357,000		355,681

Senior secured term loan
Variable interest rate, Term Loan, expected to mature May 2023 (5)		283,863		275,000

Notes payable
9.5% and 10.7% weighted average interest rate at January 31, 2020 and July 31, 2019, respectively, due 2020 to 2029, net of unamortized discount of $577 and $711 at January 31, 2020 and July 31, 2019, respectively		5,700		5,962
Total debt, excluding unamortized debt issuance and other costs		2,122,843		2,113,276
Unamortized debt issuance and other costs		(32,489)		(24,516)
Less: current portion of long-term debt		359,157		631,756
Long-term debt	$	1,731,197	$	1,457,004

(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.

(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. The outstanding principal amount is due on June 15, 2020.

(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 July 31, 2019, the earliest maturity date of any series of the operating partnership’s outstanding notes was May 1, 2021, except for the reclassification of the Term Loan from long-term to current. The operating partnership entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility, as discussed below. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity. Also in connection with this event, in a non-cash transaction, the Term Loan portion of the Senior Secured Credit Facility was increased by $8.9 million. This transaction was classified as a capitalized financing cost.

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, as amended, includes a $140.0 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.

On June 6, 2019, the operating partnership entered into a first amendment to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the first 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 during fiscal 2019 of new propane delivery trucks which have historically been leased. The first 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.

On November 7, 2019, the operating partnership entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the Second Amendment (i) increased from $125.0 million to $140.0 million the sub-limit for issuance of letters of credit that exists within the $300.0 million Revolving Facility; and (ii) modified a component of the fixed charge coverage ratio calculation to exclude payments related to the manufacture of vehicles used for propane delivery or related service up to specified amounts if operating lease commitments sufficient to cover such excluded amounts have been obtained and those payments are in fact reimbursed under such operating leases within nine months thereafter. In addition, the Second Amendment provided waivers for any event of default that has or would otherwise arise with respect to the delivery of an unqualified report of Grant Thornton LLP as to going concern with respect to the audited financial statements of Ferrellgas, L.P. and with respect to the timely delivery of financial information for fiscal 2019, thereby resolving the disagreement with the agent under the Senior Secured Credit Facility regarding alleged events of default described in the Annual Report on Form 10-K for fiscal 2019. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity.

On December 5, 2019, the operating partnership entered into an eighth amendment to its accounts receivable securitization facility in order to align certain deliverables under the accounts receivable securitization facility with similar requirements under the second amendment to the financing agreement governing the Senior Secured Credit Facility, noted above.

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 January 31, 2020, the operating partnership had borrowings of $283.9 million under the Term Loan at an interest rate of 7.54%, which was classified as long-term debt, and $40.0 million of borrowings under the Revolving Facility at an interest rate of 7.54%, which was classified as short-term borrowings. As of January 31, 2020, the operating partnership had available borrowing capacity under the Revolving Facility of $139.1 million. 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 then classified as current, and $43.0 million under the Revolving Facility at an 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.

Letters of credit outstanding at January 31, 2020 and July 31, 2019 totaled $120.9 million and $101.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At January 31, 2020, Ferrellgas had remaining available letter of credit capacity of $19.1 million. At July 31, 2019, Ferrellgas had remaining available letter of credit capacity of $23.1 million.

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 and the ability of specified subsidiaries 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 January 31, 2020, Ferrellgas Partners’ consolidated fixed charge coverage ratio was 1.35x.

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 January 31, 2020, and the general partner expects that this covenant will continue to prohibit Ferrellgas Partners from making common unit distributions, unless and until the outstanding notes of Ferrellgas Partners due 2020 are restructured, refinanced or otherwise satisfied.

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 January 31, 2020, the operating partnership’s consolidated fixed charge coverage ratio was 1.68x.

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. The distribution made by the operating partnership on December 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due June 2020 was made from capacity under the limited exception to the ratio requirement.

As described above, Ferrellgas Partners’ unsecured notes due 2020 mature on June 15, 2020, and the outstanding principal amount of those notes is due to be paid on that date, together with accrued interest to the maturity date. Although the operating partnership has some remaining capacity to make distributions under the limited exception to the ratio requirement under the operating partnership’s indentures, this capacity, as well as limitations on distributions under our Senior Secured Credit Facility, will not allow the operating partnership to make distributions to Ferrellgas Partners sufficient to pay the principal of and accrued interest on Ferrellgas Partners’ unsecured senior notes due 2020 due at the maturity of those notes. Additionally, the restrictions in these debt agreements currently 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 and refinancing 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 Senior Secured Credit Facility, amending our accounts receivable securitization facility and selling certain assets. Other opportunities include the generation of additional cash flows 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 its debt and interest expense reduction strategy until its consolidated leverage ratio reaches a level that it deems appropriate for its business. During fiscal 2019, Ferrellgas engaged Moelis & Company LLC as its financial advisor and the law firm of Squire Patton Boggs LLP to assist us in our ongoing process to address our upcoming debt maturities.

Ferrellgas, L.P. [Member]

Debt Instrument [Line Items]

Debt Disclosure [Text Block]

F. 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 primarily used to fund working capital needs that management intends to pay down within the twelve month period following the balance sheet date. As of January 31, 2020 and July 31, 2019, $40.0 million and $43.0 million, respectively, were classified as short-term borrowings. For further discussion see the “Senior secured credit facilities” section below.

Long-term debt

Long-term debt consists of the following:


	January 31, 2020		July 31, 2019
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 $1,280 and $1,633 at January 31, 2020 and July 31, 2019, respectively (3)		476,280		476,633

Senior secured term loan
Variable interest rate, Term Loan, expected to mature May 2023 (4)		283,863		275,000

Notes payable
9.5% and 10.7% weighted average interest rate at January 31, 2020 and July 31, 2019, respectively, due 2020 to 2029, net of unamortized discount of $577 and $711 at January 31, 2020 and July 31, 2019, respectively		5,700		5,962
Total debt, excluding unamortized debt issuance and other costs		1,765,843		1,757,595
Unamortized debt issuance and other costs		(32,489)		(23,562)
Less: current portion of long-term debt		2,157		277,029
Long-term debt	$	1,731,197	$	1,457,004

(1)

During November 2010, Ferrellgas, L.P. issued $500.0 million in aggregate principal amount of 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.

(4)

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 July 31, 2019, the earliest maturity date of any series of the operating partnership’s outstanding notes was May 1, 2021, except for the reclassification of the Term Loan from long-term to current. The operating partnership entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility, as discussed below. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity. Also, in connection with this event, in a non-cash transaction, the Term Loan portion of the Senior Secured Credit Facility was increased by $8.9 million. This transaction was classified as a capitalized financing cost.

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, as amended, includes a $140.0 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.

On June 6, 2019, Ferrellgas, L.P. entered into a first amendment to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the first 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 during fiscal 2019 of new propane delivery trucks which have historically been leased. The first 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.

On November 7, 2019, Ferrellgas, L.P. entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the Second Amendment (i) increased from $125.0 million to $140.0 million the sub-limit for issuance of letters of credit that exists within the $300.0 million Revolving Facility; and (ii) modified a component of the fixed charge coverage ratio calculation to exclude payments related to the manufacture of vehicles used for propane delivery or related service up to specified amounts if operating lease commitments sufficient to cover such excluded amounts have been obtained and those payments are in fact reimbursed under such operating leases within nine months thereafter. In addition, the Second Amendment provided waivers for any event of default that has or would otherwise arise with respect to the delivery of an unqualified report of Grant Thornton LLP as to going concern with respect to the audited financial statements of Ferrellgas, L.P. and with respect to the timely delivery of financial information for fiscal 2019, thereby resolving the disagreement with the agent under the Senior Secured Credit Facility regarding alleged events of default described in the Annual Report on Form 10-K for fiscal 2019. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity.

On December 5, 2019, Ferrellgas, L.P. entered into an eighth amendment to its accounts receivable securitization facility in order to align certain deliverables under the accounts receivable securitization facility with similar requirements under the second amendment to the financing agreement governing the Senior Secured Credit Facility, noted above.

As of January 31, 2020, Ferrellgas, L.P. had borrowings of $283.9 million under the Term Loan at an interest rate of 7.54%, which was classified as long-term debt, and $40.0 million of borrowings under the Revolving Facility, at an interest rate of 7.54%, which was classified as short-term borrowings. As of January 31, 2020, Ferrellgas, L.P. had available borrowing capacity under the Revolving Facility of $139.1 million. 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 then classified as current, and $43.0 million under the Revolving Facility at an 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.

Letters of credit outstanding at January 31, 2020 and July 31, 2019 totaled $120.9 million and $101.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At January 31, 2020, Ferrellgas, L.P. had remaining available letter of credit capacity of $19.1 million. At July 31, 2019, Ferrellgas, L.P. had remaining available letter of credit capacity of $23.1 million.

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 and the ability of specified subsidiaries 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 January 31, 2020, the operating partnership’s consolidated fixed charge coverage ratio was 1.68x.

Debt and interest expense reduction and refinancing 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 Senior Secured Credit Facility, amending our accounts receivable securitization facility and selling certain assets. Other opportunities include the generation of additional cash flows 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 its debt and interest expense reduction strategy until the consolidated leverage ratio reaches a level that it deems appropriate for its business. During fiscal 2019, Ferrellgas, L.P. engaged Moelis & Company LLC as its financial advisor and the law firm of Squire Patton Boggs LLP to assist with its ongoing process to address its upcoming debt maturities.