Ferrellgas Partners, L.P.

About

“Ferrellgas Partners, L.P., (the Parent) through its operating partnership, Ferrellgas, L.P.,(the Company)  and subsidiaries, serves propane customers in all 50 states, the District of Columbia, and Puerto Rico, and provides midstream services to major energy companies in the United States. The Company is the second largest propane distributor in the country with an estimated 8% market share”.

 

 

BDC Credit Reporter View

6/10/2019: BDC exposure is now spread between 3 BDCs. In a category by itself is TPG Specialty (TSLX), which is at the top of the capital structure with an $81mn ABL loan, carried at a premium, probably reflecting projected exit fees. Then there is close to $15mn in three subordinated loans held by non-traded Guggenheim Credit Income Fund and FS Energy & Power. These are valued at 3/31/2019 at anywhere from a premium to par to a (12%) discount. In the case of a bankruptcy or restructuring by the company – which we and other observers consider likely in the next 12 months – there could be a partial or complete write-down of the junior debt. Furthermore, there’s the possibility of at least a temporary interruption of income being received, or approx $7.5m,n annually across all lenders. At this point, though, we remain optimistic that TSLX – at least – would be able to come out whole if Ferrellgas fails.

We admit to being far more pessimistic than the BDC lenders involved about the Company’s ability to avoid a trip to the bankruptcy court, or its equivalent.  TSLX remains positive about the Company’s prospects as well as its own credit status. FS Energy & Power only initiated a position in IVQ 2018, well after the Company’s earnings and balance sheet woes were crystal clear.

Nonetheless, we’ve reduced our Credit Rating to CCR 4, given the high likelihood of some sort of right sizing of the balance sheet within the short to medium term. As a measuring point, the stock price trades at $1.20 at today’s open, down by a third from our prior update on 10/26/2018.

10/26/2018: Given the sharp drop in price, suspension of distribution, we are adding Company to the BDC under-performers list, with an initial Credit Rating of 3 on our 5 point scale.

There are 2 BDCs with exposure to FGP. One is non-traded Guggenheim Credit with subordinated debt dating back to the IVQ 2016. At June 2018, the debt is carried at an increasing – but modest – discount to par. In this case (8%). A more recent lender is TPG Specialty (TSLX), who provided a secured Revolver and Term Loan from May 2018 to assist the Company with its increasingly tight liquidity position. We assume the lien against all the Company’s assets -except those pledged to the accounts receivable securitization – should protect TSLX should FGP stumble. Reviewing the latest 10-K – and after hearing of plans to swap out unsecured debt – that possibility looms ever larger. The transaction fits in with TSLX’s modus operandi of providing debt at the top of the capital structure – typically highly collateralized – of troubled, over leveraged entities. See iHear Communications, Rex Energy and Sears DC. Nonetheless, given the sharp drop in FGP’s current stock price ($1.53 at time of writing); suspension of its dividend and worsening market conditions, we are placing the Company on our Watch List (CCR 3). There may be dramas ahead for the Company, which could greatly reduce the value of the Guggenheim position and cause some concern even at TSLX, although no loss is foreseen. At June 30, 2018 under $90mn was drawn but the total draw could be higher.

The stock price opened today at $1.62.

 

Highlights

4/13/2019: Credit Risk Monitor gives lowest score to Company, projects Chapter 11 within 12 months.

5/14/2018: Company upsizes accounts receivable facility to $250mn, extends maturity.

5/7/2018: Company announces Senior Credit facility

Ferrellgas, L.P. (Ferrellgas), the operating partnership of Ferrellgas Partners, L.P. (NYSE:FGP) (“Ferrellgas” or the “Company”) announced today an agreement with a lending group led by TPG Specialty Lending, Inc. (NYSE:TSLX), the middle-market lending business of TPG Sixth Street Partners (TSSP), to provide Ferrellgas with a new senior secured credit facility. The five-year facility replaces the current $575 million senior secured revolving credit facility that was scheduled to mature in October 2018. The new facility includes a $300 million cash flow revolver supported by commitments from TPG Specialty Lending and PNC Bank, National Association (PNC), as well as a $275 million term loan…The term loan will be used to repay the outstanding amounts on the Company’s terminating bank credit facility, fees, and expenses associated with the new facility, and will result in approximately $75 million of surplus cash on Ferrellgas’ balance sheet… In addition, the Company is evaluating various options related to its near-dated outstanding unsecured bonds.  This includes refinancing, or a transaction to exchange for new bonds, some or all of its bonds due June 2020.

From the 10-K: 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, 2018 , the operating partnership had borrowings of $275.0 million under the Term Loan at a rate of 7.86% , which was classified as long-term debt and $32.8 million under the Revolving Facility at a rate of 9.75% , which was classified as short-term borrowings. As of July 31, 2018, Ferrellgas had available borrowing capacity under its Revolving Facility of $159.3 million.