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FGP Ferrellgas Finance

Filed: 14 Jun 21, 4:48pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file numbers: 001-11331, 333-06693-02, 000-50182 and 000-50183

Ferrellgas Partners, L.P.

Ferrellgas Partners Finance Corp.

Ferrellgas, L.P.

Ferrellgas Finance Corp.

(Exact name of registrants as specified in their charters)

Delaware

43-1698480

Delaware

43-1742520

Delaware

43-1698481

Delaware

14-1866671

(States or other jurisdictions of incorporation or organization)

(I.R.S. Employer Identification Nos.)

7500 College Boulevard,
Suite 1000, Overland Park, Kansas

66210

(Address of principal executive office)

(Zip Code)

Registrants’ telephone number, including area code: (913) 661-1500

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “Large Accelerated Filer,” “Accelerated Filer,” “Smaller Reporting Company,” and “Emerging Growth Company” in Rule 12b-2 of the Exchange Act.

Ferrellgas Partners, L.P.:

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

Ferrellgas Partners Finance Corp, Ferrellgas, L.P. and Ferrellgas Finance Corp.:

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Ferrellgas Partners, L.P. and Ferrellgas, L.P.

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp.

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Ferrellgas Partners, L.P. and Ferrellgas, L.P. Yes  No 

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. Yes  No 

Indicate by check mark whether the registrants have filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. Yes  No 

Ferrellgas, L.P. and Ferrellgas Finance Corp. N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

N/A

N/A

N/A

At May 31, 2021, the registrants had Class A Units, Class B Units or shares of common stock outstanding as follows:

Ferrellgas Partners, L.P.

4,857,605

Class A Units

1,300,000

Class B Units

Ferrellgas Partners Finance Corp.

1,000

Common Stock

Ferrellgas, L.P.

n/a

n/a

Ferrellgas Finance Corp.

1,000

Common Stock

Documents Incorporated by Reference: None

EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND (B) OF FORM 10-Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

FERRELLGAS PARTNERS, L.P.

FERRELLGAS PARTNERS FINANCE CORP.

FERRELLGAS, L.P.

FERRELLGAS FINANCE CORP.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (unaudited)

Ferrellgas Partners, L.P. and Subsidiaries

Condensed Consolidated Balance Sheets – April 30, 2021 and July 31, 2020

3

Condensed Consolidated Statements of Operations – Three and nine months ended April 30, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and nine months ended April 30, 2021 and 2020

5

Condensed Consolidated Statement of Equity – Three and nine months ended April 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows – Nine months ended April 30, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Ferrellgas Partners Finance Corp.

Condensed Balance Sheets – April 30, 2021 and July 31, 2020

33

Condensed Statements of Operations – Three and nine months ended April 30, 2021 and 2020

34

Condensed Statements of Cash Flows – Nine months ended April 30, 2021 and 2020

35

Notes to Condensed Financial Statements

36

Ferrellgas, L.P. and Subsidiaries

Condensed Consolidated Balance Sheets – April 30, 2021 and July 31, 2020

37

Condensed Consolidated Statements of Operations – Three and nine months ended April 30, 2021 and 2020

38

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and nine months ended April 30, 2021 and 2020

39

Condensed Consolidated Statement of Equity – Three and nine months ended April 30, 2021 and 2020

40

Condensed Consolidated Statements of Cash Flows – Nine months ended April 30, 2021 and 2020

41

Notes to Condensed Consolidated Financial Statements

42

Ferrellgas Finance Corp.

Condensed Balance Sheets – April 30, 2021 and July 31, 2020

64

Condensed Statements of Operations – Three and nine months ended April 30, 2021 and 2020

65

Condensed Statements of Cash Flows – Nine months ended April 30, 2021 and 2020

66

Notes to Condensed Financial Statements

67

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

68

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

90

ITEM 4.

CONTROLS AND PROCEDURES

92

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

93

ITEM 1A.

RISK FACTORS

93

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

98

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

98

ITEM 4.

MINE SAFETY DISCLOSURES

98

ITEM 5.

OTHER INFORMATION

98

ITEM 6.

EXHIBITS

99

2

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (unaudited)

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

(unaudited)

    

April 30, 2021

    

July 31, 2020

ASSETS

Current assets:

Cash and cash equivalents (including $11,500 and $95,759 of restricted cash at April 30, 2021 and July 31, 2020, respectively)

$

222,849

$

333,761

Accounts and notes receivable, net (including $103,703 of accounts receivable pledged as collateral at July 31, 2020)

 

170,516

 

101,438

Inventories

 

69,742

 

72,664

Prepaid expenses and other current assets

 

73,984

 

35,944

Total current assets

 

537,091

 

543,807

 

  

 

  

Property, plant and equipment, net

 

582,838

 

591,042

Goodwill, net

 

246,946

 

247,195

Intangible assets (net of accumulated amortization of $429,135 and $423,290 at April 30, 2021 and July 31, 2020, respectively)

 

97,560

 

104,049

Operating lease right-of-use assets

93,341

107,349

Other assets, net

 

86,914

 

74,748

Total assets

$

1,644,690

$

1,668,190

 

  

 

  

LIABILITIES, MEZZANINE AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

54,320

$

33,944

Current portion of long-term debt

1,565

859,095

Current operating lease liabilities

26,669

29,345

Other current liabilities

 

178,514

 

167,466

Total current liabilities

261,068

1,089,850

 

  

 

  

Long-term debt

 

1,443,095

 

1,646,396

Operating lease liabilities

78,498

89,022

Other liabilities

 

51,427

 

51,190

Contingencies and commitments (Note M)

Mezzanine equity:

Senior preferred units, net of issue discount and offering costs (700,000 units outstanding at April 30, 2021)

651,854

Equity:

 

  

 

  

Common unitholders

 

 

Class A (4,857,605 units outstanding at April 30, 2021 and July 31, 2020)

(1,181,241)

(1,126,452)

Class B (1,300,000 units outstanding at April 30, 2021)

388,147

General partner unitholder (49,496 units outstanding at April 30, 2021 and July 31, 2020)

 

(71,840)

 

(71,287)

Accumulated other comprehensive income (loss)

 

31,845

 

(2,303)

Total Ferrellgas Partners, L.P. equity

 

(833,089)

 

(1,200,042)

Noncontrolling interest

 

(8,163)

 

(8,226)

Total equity

 

(841,252)

 

(1,208,268)

Total liabilities, mezzanine and equity

$

1,644,690

$

1,668,190

See notes to condensed consolidated financial statements.

3

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except unit data)

(unaudited)

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

Revenues:

Propane and other gas liquids sales

$

542,036

$

391,745

$

1,351,519

$

1,150,377

Other

 

22,694

20,385

 

67,665

 

65,800

Total revenues

 

564,730

 

412,130

 

1,419,184

 

1,216,177

 

 

  

 

  

 

  

Costs and expenses:

 

 

  

 

 

  

Cost of sales - propane and other gas liquids sales

 

298,386

 

176,265

 

706,790

 

548,136

Cost of sales - other

 

2,985

 

2,740

 

10,156

 

9,774

Operating expense - personnel, vehicle, plant and other

 

124,624

 

121,558

 

348,898

 

364,334

Operating expense - equipment lease expense

6,770

8,075

20,462

 

24,724

Depreciation and amortization expense

 

21,281

 

20,366

 

63,920

 

59,380

General and administrative expense

 

15,205

 

12,560

 

48,760

 

36,447

Non-cash employee stock ownership plan compensation charge

 

811

 

757

 

2,281

 

2,182

Loss on asset sales and disposals

 

1,345

 

1,859

 

2,238

 

6,242

 

 

  

 

  

 

  

Operating income

 

93,323

 

67,950

 

215,679

 

164,958

Interest expense

 

(42,189)

 

(45,703)

 

(149,010)

 

(138,948)

Loss on extinguishment of debt

 

(109,922)

 

(37,399)

 

(109,922)

 

(37,399)

Other income (expense), net

 

553

 

(158)

 

4,169

 

(214)

Reorganization expense - professional fees

(9,007)

(10,207)

Loss before income taxes

 

(67,242)

 

(15,310)

 

(49,291)

 

(11,603)

Income tax expense

 

193

 

161

 

606

 

794

Net loss

 

(67,435)

 

(15,471)

 

(49,897)

 

(12,397)

Net earnings (loss) attributable to noncontrolling interest

 

(641)

 

(78)

 

(308)

 

133

Net loss attributable to Ferrellgas Partners, L.P.

(66,794)

(15,393)

(49,589)

(12,530)

Distribution to preferred unitholders

8,011

8,011

Less: General partner's interest in net loss

 

(748)

 

(154)

 

(576)

 

(125)

Class A unitholders' interest in net loss

$

(74,057)

$

(15,239)

$

(57,024)

$

(12,405)

Basic and diluted net loss per Class A common unit

$

(15.25)

$

(3.14)

$

(11.74)

$

(2.55)

See notes to condensed consolidated financial statements.

4

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

Net loss

$

(67,435)

$

(15,471)

$

(49,897)

$

(12,397)

Other comprehensive income (loss):

Change in value of risk management derivatives

 

20,446

 

(11,501)

 

63,170

 

(36,340)

Reclassification of (gains) losses on derivatives to earnings, net

 

(22,383)

 

14,073

 

(28,674)

 

30,318

Pension liability adjustment

 

 

 

 

(109)

Other comprehensive income (loss)

 

(1,937)

 

2,572

 

34,496

 

(6,131)

Comprehensive loss

 

(69,372)

 

(12,899)

 

(15,401)

 

(18,528)

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

(20)

 

26

 

348

 

148

Comprehensive loss attributable to Ferrellgas Partners, L.P.

$

(69,352)

$

(12,925)

$

(15,749)

$

(18,676)

See notes to condensed consolidated financial statements.

5

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)

    

    

    

    

    

Number of units

Accumulated

Total Ferrellgas

    

General

    

General

other

Partner, L.P.

Class A

Class B

partner

Class A

Class B

partner

comprehensive

partners'

Non-controlling

Total partners'

    

unitholders

    

unitholders

unitholder

    

unitholders

    

unitholders

unitholder

    

income (loss)

    

equity

    

interest

    

equity

Balance at July 31, 2020

 

4,857.6

 

49.5

$

(1,126,452)

$

$

(71,287)

$

(2,303)

$

(1,200,042)

$

(8,226)

$

(1,208,268)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

694

 

 

7

 

 

701

 

7

 

708

Net loss

 

 

 

(45,601)

 

 

(461)

 

 

(46,062)

 

(391)

 

(46,453)

Other comprehensive income

 

 

 

 

 

 

7,837

 

7,837

 

80

 

7,917

Balance at October 31, 2020

 

4,857.6

 

49.5

 

(1,171,359)

 

 

(71,741)

 

5,534

 

(1,237,566)

 

(8,530)

 

(1,246,096)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

746

 

 

8

 

 

754

 

8

 

762

Net earnings

 

 

 

62,634

 

 

633

 

 

63,267

 

724

 

63,991

Other comprehensive income

 

 

 

 

 

 

28,228

 

28,228

 

288

 

28,516

Balance at January 31, 2021

 

4,857.6

 

49.5

(1,107,979)

(71,100)

33,762

(1,145,317)

(7,510)

(1,152,827)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

795

 

 

8

 

 

803

 

8

 

811

Issuance of Class B units

1,300.0

388,147

388,147

388,147

Net earnings allocated to preferred units

 

 

(8,011)

 

 

 

 

(8,011)

 

 

(8,011)

Net loss

 

 

 

(66,046)

 

 

(748)

 

 

(66,794)

 

(641)

 

(67,435)

Other comprehensive loss

 

 

 

 

 

 

(1,917)

 

(1,917)

 

(20)

 

(1,937)

Balance at April 30, 2021

4,857.6

1,300.0

49.5

$

(1,181,241)

$

388,147

$

(71,840)

$

31,845

$

(833,089)

$

(8,163)

$

(841,252)

    

Number of units

    

    

    

Accumulated

    

Total Ferrellgas

    

    

General

General

other

Partner, L.P.

Class A

partner

Class A

partner

comprehensive

partners’

Non-controlling

Total partners’

    

unitholders

    

unitholder

    

unitholders

    

unitholder

    

loss

    

equity

    

interest

    

equity

Balance at July 31, 2019

 

4,857.6

 

989.9

$

(1,046,245)

$

(70,476)

$

(14,512)

$

(1,131,233)

$

(7,705)

$

(1,138,938)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

779

 

8

 

 

787

 

8

 

795

Distributions

 

 

 

 

 

 

 

(1)

 

(1)

Cumulative adjustment for lease accounting standard

 

 

 

(1,347)

 

(14)

 

 

(1,361)

 

(14)

 

(1,375)

Net loss

 

 

 

(44,891)

 

(453)

 

 

(45,344)

 

(373)

 

(45,717)

Other comprehensive loss

 

 

 

 

 

(6,086)

 

(6,086)

 

(62)

 

(6,148)

Balance at October 31, 2019

 

4,857.6

 

989.9

 

(1,091,704)

 

(70,935)

 

(20,598)

 

(1,183,237)

 

(8,147)

 

(1,191,384)

Contributions in connection with non-cash ESOP compensation charges

618

6

624

6

630

Distributions

(157)

(157)

Net earnings

47,725

482

48,207

584

48,791

Other comprehensive loss

(2,528)

(2,528)

(27)

(2,555)

Balance at January 31, 2020

4,857.6

989.9

(1,043,361)

(70,447)

(23,126)

(1,136,934)

(7,741)

(1,144,675)

Contributions in connection with non-cash ESOP compensation charges

741

8

749

8

757

Net earnings

(15,239)

(154)

(15,393)

(78)

(15,471)

Other comprehensive income

2,546

2,546

26

2,572

Balance at April 30, 2020

 

4,857.6

 

989.9

$

(1,057,859)

$

(70,593)

$

(20,580)

$

(1,149,032)

$

(7,785)

$

(1,156,817)

See notes to condensed consolidated financial statements.

6

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

For the nine months ended April 30, 

    

2021

    

2020

Cash flows from operating activities:

  

  

Net loss

$

(49,897)

$

(12,397)

Reconciliation of net loss to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization expense

 

63,920

 

59,380

Non-cash employee stock ownership plan compensation charge

 

2,281

 

2,182

Loss on asset sales and disposals

 

2,238

 

6,242

Loss on extinguishment of debt

 

109,922

 

37,399

Provision for expected credit losses

 

3,479

 

1,586

Deferred income tax expense

 

 

554

Other

 

6,524

 

9,837

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

 

  

Accounts and notes receivable, net of securitization

 

(72,557)

 

(26,942)

Inventories

 

2,922

 

15,245

Prepaid expenses and other current assets

 

(11,273)

 

(6,634)

Accounts payable

 

20,520

 

4,236

Accrued interest expense

 

(12,986)

 

32,708

Other current liabilities

 

31,213

 

(7,949)

Other assets and liabilities

 

6,650

 

363

Net cash provided by operating activities

 

102,956

 

115,810

 

  

 

  

Cash flows from investing activities:

 

  

 

  

Business acquisitions, net of cash acquired

 

 

(6,400)

Capital expenditures

 

(50,470)

 

(57,251)

Proceeds from sale of assets

 

3,707

 

2,510

Cash payments to construct assets in connection with future lease transactions

(603)

(37,042)

Cash receipts in connection with leased vehicles

391

21,995

Net cash used in investing activities

 

(46,975)

 

(76,188)

 

  

 

  

Cash flows from financing activities:

 

  

 

  

Proceeds from sale of preferred units, net of issue discount and offering cost

 

670,429

 

Fees in connection with Class B unit exchange

(1,954)

Proceeds from issuance of long-term debt

 

1,475,000

 

703,750

Payments on long-term debt

 

(1,540)

 

(1,422)

Payment for settlement and early extinguishment of liabilities

 

(2,175,000)

 

(283,863)

Net reductions in short-term borrowings

 

 

(43,000)

Net reductions in collateralized short-term borrowings

 

 

(62,000)

Payment of redemption premium on debt extinguishment

(85,026)

(17,516)

Cash paid for financing costs

 

(43,520)

 

(26,676)

Noncontrolling interest activity

 

 

(158)

Cash payments for principal portion of lease liability

 

(5,282)

 

(944)

Net cash provided by (used in) financing activities

 

(166,893)

 

268,171

 

  

 

  

Net change in cash and cash equivalents

 

(110,912)

 

307,793

Cash and cash equivalents - beginning of period

 

333,761

 

11,054

Cash, cash equivalents and restricted cash - end of period

$

222,849

$

318,847

See notes to condensed consolidated financial statements.

7

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per unit data, unless otherwise designated)

(unaudited)

A.    Partnership organization and formation

Ferrellgas Partners, L.P. (“Ferrellgas Partners”) was formed on April 19, 1994, and is a publicly traded limited partnership, owning an approximate 99% limited partner interest in Ferrellgas, L.P. (the “operating partnership”). Ferrellgas Partners and the operating partnership, collectively referred to as “Ferrellgas,” are both Delaware limited partnerships and are governed by their respective partnership agreements. Ferrellgas Partners was formed to acquire and hold a limited partner interest in the operating partnership. As of April 30, 2021, Ferrell Companies, Inc., a Kansas corporation (“Ferrell Companies”), beneficially owns 1.1 million of Ferrellgas Partners’ outstanding Class A units.

Ferrellgas, Inc. (the “general partner”), a Delaware corporation and a wholly-owned subsidiary of Ferrell Companies, has retained an approximate 1% general partner economic interest in Ferrellgas Partners and also holds an approximate 1% general partner economic interest in the operating partnership, representing an effective 2% general partner economic interest in Ferrellgas on a combined basis. As the sole general partner of Ferrellgas Partners, Ferrellgas, Inc. performs all management functions required by Ferrellgas Partners. Unless contractually provided for, creditors of the operating partnership have no recourse with regards to Ferrellgas Partners.

Ferrellgas Partners is a holding entity that conducts no operations and has 2 subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of any debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners.

Ferrellgas is primarily engaged in the retail distribution of propane and related equipment sales. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico.

Due to seasonality, the results of operations for the nine months ended April 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2021.

The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas’ Annual Report on Form 10-K for fiscal 2020.

Recent Developments

Chapter 11 Bankruptcy Cases

As previously reported, on January 11, 2021, Ferrellgas Partners and Ferrellgas Partners Finance Corp. filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases were jointly administered under the caption and case numbers, In re: Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., Chapter 11 Case Nos. 21-10020 and 21-10021.

On March 5, 2021, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Second Amended Prepackaged Joint Chapter 11 Plan of Reorganization of Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. (the “Plan”).

On March 30, 2021 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied and the Confirmation Order was deemed binding upon Ferrellgas Partners, Ferrellgas Partners Finance Corp. and all other

8

parties affected by the Plan. In satisfying the conditions of the Plan, on the Effective Date, certain restructuring transactions by Ferrellgas Partners and certain financing transactions by the operating partnership were completed, as further described under “–Transactions” below.

Ferrellgas has accounted for the effects of the reorganization and determined that fresh-start accounting does not need to be applied, as a change in control did not occur.

Transactions

Satisfaction of Ferrellgas Partners Notes; Issuance of Class B Units to Holders of Ferrellgas Partners Notes

On the Effective Date, by operation of the Plan, all outstanding indebtedness (including accrued interest) of Ferrellgas Partners and Ferrellgas Partners Finance Corp. under their $357.0 million aggregate principal amount of 8.625% senior unsecured notes due June 2020 (the “Ferrellgas Partners Notes”), as described further in Note F –Debt, were discharged and cancelled.

Pursuant to the Plan, Ferrellgas Partners issued an aggregate of 1.3 million Class B Units to holders of the Ferrellgas Partners Notes in satisfaction of their claims in respect of the Ferrellgas Partners Notes. See Note H – Equity for additional discussion.

Issuance of Preferred Units of the Operating Partnership

On the Effective Date, the operating partnership and the general partner (in its capacity as the general partner of operating partnership) entered into an Investment Agreement (the “Investment Agreement”) with certain purchasers named therein, pursuant to which, on the Effective Date, the operating partnership issued and sold to such purchasers an aggregate of 700,000 Senior Preferred Units (the “Preferred Units”), having an aggregate initial liquidation preference of $700.0 million. The purchase price per Preferred Unit was $1,000 less a 3.0% purchase price discount, for an aggregate purchase price of $679.0 million.

The operating partnership received net proceeds from the issuance and sale of the Preferred Units of approximately $651.8 million, after deducting the purchase price discount and certain expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the 2026 Notes and the 2029 Notes (as defined and described below) and cash on hand, (i) to redeem (or satisfy and discharge and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note G – Preferred units for additional discussion.

Issuance of Senior Unsecured Notes of the Operating Partnership

On the Effective Date, 2 wholly-owned subsidiaries of the operating partnership (the “Escrow Issuers”) issued $650.0 million aggregate principal amount of 5.375% senior notes due 2026 (the “2026 Notes”) and $825.0 million aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”), in each case, at an offering price equal to 100% of the principal amount thereof. On the Effective Date and immediately after the issuance of the 2026 Notes and the 2029 Notes by the Escrow Issuers, (i) the Escrow Issuers were merged into the operating partnership and Ferrellgas Finance Corp., respectively, and the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes, and (ii) the general partner and certain subsidiaries of the operating partnership guaranteed the 2026 Notes and the 2029 Notes.

The operating partnership received aggregate net proceeds from the issuance and sale of the 2026 Notes and the 2029 Notes of approximately $1,446.5 million, after deducting the initial purchaser’s discount and offering expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the Preferred Units and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note F – Debt for additional discussion.

9

Redemption of Previously Issued Senior Notes of the Operating Partnership

Prior to the Effective Date, the operating partnership delivered notices of redemption of all its previously issued and outstanding 10.00% senior secured notes due 2025 (the “2025 Notes”), 6.50% senior unsecured notes due 2021 (the “2021 Notes”), 6.75% senior unsecured notes due 2022 (the “2022 Notes”) and 6.75% senior unsecured notes due 2023 (the “2023 Notes”), in the aggregate combined principal amount for all such notes of $2,175.0 million, pursuant the terms of the indentures governing those notes, with a redemption date of March 30, 2021 for the 2025 Notes and April 5, 2021 for the 2021 Notes, the 2022 Notes and the 2023 Notes.

On the Effective Date, the operating partnership redeemed all of the issued and outstanding 2025 Notes. Also on the Effective Date, the operating partnership (i) satisfied and discharged the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes by irrevocably depositing with the applicable trustees under such indentures funds in an amount sufficient to pay the redemption price for all of such notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the applicable trustees to apply such funds to the redemption of such notes on April 5, 2021. As a result, as of the Effective Date, the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2021 Notes, 2022 Notes and 2023 Notes were redeemed on April 5, 2021.

The aggregate redemption price for the 2021 Notes, the 2022 Notes, the 2023 Notes and the 2025 Notes was approximately $2,320.9 million, consisting of principal, redemption premium (in the case of the 2023 Notes and the 2025 Notes) and accrued and unpaid interest to the applicable redemption date. See Note F – Debt for additional discussion.

Credit Agreement

On the Effective Date, the operating partnership, the general partner and certain of the operating partnership’s subsidiaries entered into a Credit Agreement, which provides for a four-year revolving credit facility in an aggregate principal amount of up to $350.0 million, including a sublimit not to exceed $225.0 million for the issuance of letters of credit for a period of 60 days after March 30, 2021, reducing to $200.0 million thereafter. See Note F – Debt for additional discussion.

Termination of Accounts Receivable Securitization Facility

On the Effective Date, the operating partnership and its receivables subsidiary repaid all of the outstanding obligations and fees under the then-existing accounts receivable securitization facility and terminated that facility. See Note E – Accounts and notes receivable, net for additional discussion.

Amended Partnership Agreements of Ferrellgas Partners and the Operating Partnership

On the Effective Date, the general partner executed the Sixth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the “Amended Ferrellgas Partners LPA”), which amended and restated in its entirety the Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. Among other matters, the Amended Ferrellgas Partners LPA provided for the restructuring of Ferrellgas Partners in accordance with the Plan, including (i) effecting a reverse unit split of Ferrellgas Partners’ then-outstanding common units pursuant to which the holders of the common units received one Class A Unit for every twenty common units held, and (ii) providing for the issuance of Class B Units to the holders of the Ferrellgas Partners Notes in exchange for such holders’ contribution of the Ferrellgas Partners Notes as a capital contribution to Ferrellgas Partners and in satisfaction of such holders’ claims in respect of the Ferrellgas Partners Notes. See Note H – Equity for additional discussion.

Also on the Effective Date, the general partner executed (i) the Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. (the “Amended OpCo LPA”), which amended and restated in its entirety the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas L.P., and (ii) a First Amendment to the Amended OpCo LPA (the “OpCo LPA First Amendment”), which sets forth the preferences, rights, privileges and other terms of the Preferred Units.

10

B.    Summary of significant accounting policies

(1) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for expected credit losses, fair value of reporting units, fair value of Class B units, recoverability of long-lived assets, assumptions used to value business combinations, determination of incremental borrowing rate used to measure right-of-use asset and lease liability, fair values of derivative contracts and stock-based compensation calculations.

Update to accounting estimates:

On August 1, 2020 Ferrellgas adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). As a result, we updated our significant accounting policies for the measurement of expected credit losses below.

Allowance for expected credit losses

Ferrellgas closely monitors accounts receivable balances and estimates the allowance for expected credit losses. The estimate is primarily based on historical collection experience and other factors, including those related to current market conditions and events. The expected credit losses associated with accounts receivable have not historically been material and the adoption impact on Ferrellgas’ allowance for expected credit losses was immaterial as of April 30, 2021.

(2) New accounting standards:

FASB Accounting Standard Update No. 2016-13

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas adopted the amended guidance effective August 1, 2020. The adoption of this standard did not have a material impact on the condensed consolidated financial statements.

11

C. Leases

The following table provides the operating and financing ROU assets and lease liabilities as of April 30, 2021 and July 31, 2020:

Leases

Classification

April 30, 2021

July 31, 2020

Assets

Operating lease assets

Operating lease right-of-use assets

$

93,341

$

107,349

Financing lease assets

Other assets, net

36,747

41,426

Total leased assets

$

130,088

$

148,775

Liabilities

Current

Operating

Current operating lease liabilities

$

26,669

$

29,345

Financing

Other current liabilities

7,460

6,955

Noncurrent

Operating

Operating lease liabilities

78,498

89,022

Financing

Other liabilities

29,559

33,473

Total leased liabilities

$

142,186

$

158,795

12

The following table provides the lease expenses for the three and nine months ended April 30, 2021 and 2020:

For the three months ended April 30, 

For the nine months ended April 30, 

Leases expense

    

Classification

2021

2020

2021

2020

Operating lease expense

Operating expense - personnel, vehicle, plant and other

$

1,846

$

1,946

$

5,126

$

5,351

Operating expense - equipment lease expense

6,373

7,602

19,328

23,365

Cost of sales - propane and other gas liquids sales

461

370

1,479

1,083

General and administrative expense

(169)

528

307

1,491

Total operating lease expense

8,511

10,446

26,240

31,290

Short-term expense

Operating expense - personnel, vehicle, plant and other

2,003

1,512

5,908

5,478

General and administrative expense

111

123

475

374

Total short-term expense

2,114

1,635

6,383

5,852

Variable lease expense

Operating expense - personnel, vehicle, plant and other

784

751

2,328

2,097

Operating expense - equipment lease expense

397

473

1,134

1,359

Total variable lease expense

1,181

1,224

3,462

3,456

Finance lease expense:

Amortization of leased assets

Depreciation and amortization expense

2,229

754

6,583

1,229

Interest on lease liabilities

Interest expense

933

183

2,841

543

Total finance lease expense

3,162

937

9,424

1,772

Total lease expense (a)

$

14,968

$

14,242

$

45,509

$

42,370

(a)For the three and nine months ended April 30, 2021 Ferrellgas also recognized $0.1 million and $0.4 million, respectively, of expense related to the accretion of lease exit costs associated with a crude oil storage agreement that is no longer being utilized, primarily due to various Midstream dispositions, and for which Ferrellgas does not anticipate any future economic benefit.

Minimum annual payments under existing operating and finance lease liabilities as of April 30, 2021 are as follows:

Maturities of lease liabilities

Operating leases

Finance leases

Total

2021

$

10,376

$

3,391

$

13,767

2022

28,860

10,148

39,008

2023

36,674

8,149

44,823

2024

19,782

7,564

27,346

2025

13,943

7,577

21,520

Thereafter

21,931

11,559

33,490

Total lease payments

$

131,566

$

48,388

$

179,954

Less: Imputed interest

26,399

11,369

37,768

Present value of lease liabilities

$

105,167

$

37,019

$

142,186

13

The following table represents the weighted-average remaining lease term and discount rate as of April 30, 2021:

As of April 30, 2021

Lease type

Weighted-average remaining lease term (years)

Weighted-average discount rate

Operating leases

4.9

8.3%

Finance leases

5.4

8.8%

Cash flow information is presented below:

For the nine months ended April 30, 

2021

2020

Cash paid for amounts included in the measurement of lease liabilities for operating leases:

Operating cash flows

$

26,454

$

32,104

Cash paid for amounts included in the measurement of lease liabilities for financing leases:

Operating cash flows

$

2,571

$

543

Financing cash flows

$

5,282

$

944

D.    Supplemental financial statement information

Inventories consist of the following:

    

April 30, 2021

    

July 31, 2020

Propane gas and related products

$

56,369

$

58,733

Appliances, parts and supplies, and other

 

13,373

 

13,931

Inventories

$

69,742

$

72,664

In addition to inventories on hand, Ferrellgas enters into contracts to take delivery of propane for supply procurement purposes with terms that generally do not exceed 36 months. Most of these contracts call for payment based on market prices at the date of delivery. As of April 30, 2021, Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately 11.6 million gallons of propane at fixed prices.

Prepaid expenses and other current assets consist of the following:

    

April 30, 2021

    

July 31, 2020

Broker margin deposit assets

$

14,972

$

14,398

Price risk management asset

29,612

2,846

Other

 

29,400

 

18,700

Prepaid expenses and other current assets

$

73,984

$

35,944

Other current liabilities consist of the following:

    

April 30, 2021

    

July 31, 2020

Accrued interest

$

7,754

$

53,841

Customer deposits and advances

 

29,296

 

32,257

Accrued payroll

 

22,646

 

18,375

Accrued insurance

 

11,305

 

14,796

Broker margin deposit liability

34,581

510

Other

 

72,932

 

47,687

Other current liabilities

$

178,514

$

167,466

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Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

    

Operating expense - personnel, vehicle, plant and other

$

56,989

$

54,664

$

161,242

$

167,666

Depreciation and amortization expense

 

3,347

 

2,007

 

9,828

 

5,883

Operating expense - equipment lease expense

 

5,551

 

8,308

 

17,227

 

23,934

$

65,887

$

64,979

$

188,297

$

197,483

Cash and cash equivalents consist of the following:

    

April 30, 2021

    

July 31, 2020

Cash and cash equivalents

$

211,349

$

238,002

Restricted cash (1)

 

11,500

 

95,759

Cash, cash equivalents and restricted cash

$

222,849

$

333,761

(1)As of April 30, 2021, restricted cash includes an $11.5 million cash deposit made with the administrative agent under the operating partnership’s senior secured credit facility that was terminated in April 2020, which may be used by the administrative agent to pay contingent obligations arising under the financing agreement that governed the terminated senior secured credit facility. As of July 31, 2020, the $95.8 million of restricted cash includes $78.2 million of pledged cash collateral for letters of credit outstanding, the $11.5 million cash deposit made with the administrative agent under the terminated senior secured credit facility and $6.1 million of additional pledged collateral. For additional discussion see Note F – Debt.

For purposes of the condensed consolidated statements of cash flows, Ferrellgas considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less.  Certain cash flow and significant non-cash activities are presented below:

For the nine months ended April 30, 

    

2021

    

2020

Cash paid for:

 

  

 

  

Interest

$

154,834

$

96,418

Income taxes

$

438

$

50

Non-cash investing and financing activities:

  

 

  

Liability incurred in connection with Financing Agreement amendment

$

$

8,863

Change in accruals for property, plant and equipment additions

$

(48)

$

486

Lease liabilities arising from operating right-of-use assets

$

7,315

$

20,886

Lease liabilities arising from finance right-of-use assets

$

1,904

$

21,156

Accrued fees relating to senior preferred units

$

18,575

$

Accrued senior preferred units distributions

$

8,011

$

E.    Accounts and notes receivable, net

Accounts and notes receivable, net consist of the following:

    

April 30, 2021

    

July 31, 2020

Accounts receivable (a)

$

175,510

$

102,914

Note receivable

 

13,648

 

12,648

Less: Allowance for expected credit losses

 

(18,642)

 

(14,124)

Accounts and notes receivable, net

$

170,516

$

101,438

(a)At July 31, 2020, $103.7 million was pledged as collateral under the terminated accounts receivable securitization facility, discussed below.

15

On March 30, 2021, Ferrellgas terminated the agreement governing the accounts receivable securitization facility, initially dated as of January 19, 2012 and as subsequently amended from time to time (the “Accounts Receivables Facility”). In connection with the termination of the Accounts Receivables Facility, Ferrellgas repaid all of the outstanding obligations and fees thereunder.

F.    Debt

Long-term debt

Long-term debt consists of the following:

    

April 30, 2021

    

July 31, 2020

Unsecured senior notes

 

  

 

  

Fixed rate, 6.50%, due 2021 (1)

$

$

500,000

Fixed rate, 6.75%, due 2023 (2)

 

 

500,000

Fixed rate, 6.75%, due 2022, net of unamortized premium of $937 at July 31, 2020 (3)

 

 

475,937

Fixed rate, 8.625%, due 2020 (4)

 

 

357,000

Fixed rate, 5.375%, due 2026 (5)

650,000

Fixed rate, 5.875%, due 2029 (5)

825,000

Secured senior notes

 

  

 

  

Fixed rate, 10.00%, due 2025, net of unamortized premium of $3,573 at July 31, 2020 (6)

703,573

Notes payable

 

  

 

  

7.7% and 9.4% weighted average interest rate at April 30, 2021 and July 31, 2020, respectively, due 2021 to 2029, net of unamortized discount of $296 and $537 at April 30, 2021 and July 31, 2020, respectively

 

3,063

 

4,564

Total debt, excluding unamortized debt issuance and other costs

 

1,478,063

 

2,541,074

Unamortized debt issuance and other costs

 

(33,403)

 

(35,583)

Less: current portion of long-term debt

 

1,565

 

859,095

Long-term debt

$

1,443,095

$

1,646,396

(1)During November 2010, the operating partnership issued $500.0 million aggregate principal amount of 6.50% senior notes due 2021 (referred to herein as the 2021 Notes). The outstanding principal amount of the 2021 Notes was due on May 1, 2021. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2021 Notes pursuant the terms of the indenture governing the 2021 Notes, with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2021 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2021 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2021 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2021 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2021 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2021 Notes was $513.9 million, consisting of principal and accrued and unpaid interest to the redemption date.
(2)During June 2015, the operating partnership issued $500.0 million aggregate principal amount of 6.75% senior notes due 2023 (referred to herein as the 2023 Notes). The outstanding principal amount of the 2023 Notes was due June 15, 2023. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2023 Notes pursuant the terms of the indenture governing the 2023 Notes, with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2023 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2023 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2023 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2023 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2023 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2023 Notes was $518.8 million, consisting of principal, redemption premium and accrued and unpaid interest to the redemption date.

16

(3)During fiscal 2014, the operating partnership issued $475.0 million aggregate principal amount of 6.75% senior notes due 2022 (referred to herein as the 2022 Notes), $325.0 million of which was issued at par and $150.0 million of which was issued at 104% of par. The outstanding principal amount of the 2022 Notes was due January 15, 2022. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2022 Notes pursuant the terms of the indenture governing the 2022 Notes with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2022 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2022 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2022 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2022 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2022 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2022 Notes was $482.0 million, consisting of principal and accrued and unpaid interest to the redemption date.
(4)During April 2010, Ferrellgas Partners issued $280.0 million aggregate principal amount of 8.625% unsecured senior notes due 2020 (referred to herein as the Ferrellgas Partners Notes). During March 2011, Ferrellgas Partners redeemed $98.0 million of the Ferrellgas Partners Notes. During January 2017, Ferrellgas Partners issued $175.0 million aggregate principal amount of additional Ferrellgas Partners Notes at 96% of par. The outstanding principal amount of the Ferrellgas Partners Notes was due on June 15, 2020, but had not been repaid and was classified as current on the consolidated balance sheet as of July 31, 2020. On the Effective Date, by operation of the Plan, all outstanding indebtedness under the Ferrellgas Partners Notes was discharged and cancelled. Pursuant to the Plan, Ferrellgas Partners issued an aggregate of 1.3 million Class B Units to holders of the Ferrellgas Partners Notes in satisfaction of their claims in respect of the Ferrellgas Partners Notes.
(5)On the Effective Date, 2 wholly-owned subsidiaries of the operating partnership (referred to herein as the Escrow Issuers) issued $650.0 million aggregate principal amount of 5.375% senior notes due 2026 (referred to herein as the 2026 Notes) and $825.0 million aggregate principal amount of 5.875% senior notes due 2029 (referred to herein as the 2029 Notes). On the Effective Date and immediately after the issuance of the 2026 Notes and 2029 Notes by the Escrow Issuers, (i) the Escrow Issuers were merged into the operating partnership and Ferrellgas Finance Corp., respectively, and the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes, and (ii) the general partner and certain subsidiaries of the operating partnership guaranteed the 2026 Notes and the 2029 Notes. The 2026 Notes and 2029 Notes bear interest from the date of issuance, payable semi-annually in arrears on October 1 and April 1 of each year. The 2026 Notes will mature on April 1, 2026, and the 2029 Notes will mature on April 1, 2029. See “–Senior unsecured notes” below for additional discussion.
(6)During April 2020, the operating partnership issued $700.0 million aggregate principal amount of 10.00% senior secured notes due 2025 (referred to herein as the 2025 Notes), $575.0 million of which was issued at par and $125.0 million of which was issued at 103% of par. The outstanding principal amount of the 2025 Notes was due on April 15, 2025. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2025 Notes pursuant the terms of the indenture governing the 2025 Notes, with a redemption date of March 30, 2021, and all of the issued and outstanding 2025 Notes were redeemed on the Effective Date. The aggregate redemption price for the 2025 Notes was $806.2 million, consisting of principal, redemption premium and accrued and unpaid interest to the redemption date.

Senior secured revolving credit facility

On the Effective Date, the operating partnership, the general partner and certain of the operating partnership’s subsidiaries entered into a Credit Agreement (the “Credit Agreement”), which provides for a four-year revolving credit facility (the “Credit Facility”) in an aggregate principal amount of up to $350.0 million, including a sublimit not to exceed $225.0 million for the issuance of letters of credit for a period of 60 days after March 30, 2021, reducing to $200.0 million thereafter.

All borrowings under the Credit Facility are guaranteed by the general partner and the direct and indirect subsidiaries of the operating partnership (other than Ferrellgas Finance Corp. and Ferrellgas Receivables, LLC) and a limited-recourse guaranty from Ferrellgas Partners (limited to its equity interests in the operating partnership). Additionally, all

17

borrowings are secured, on a first priority basis, by substantially all of the assets of the operating partnership and its subsidiaries and all of the equity interests in the operating partnership held by the general partner and Ferrellgas Partners.

Availability under the Credit Facility is, at any time, an amount equal to (a) the lesser of the revolving commitment (initially $350.0 million) and the Borrowing Base (as defined below) minus (b) the sum of the aggregate outstanding amount of borrowings under Credit Facility plus the undrawn amount of outstanding letters of credit under the Credit Facility plus unreimbursed drawings in respect of letters of credit (unless otherwise converted into revolving loans). The "Borrowing Base" equals the sum of: (a) $200.0 million, plus (b) 80% of the eligible accounts receivable of the operating partnership and its subsidiaries, plus (c) 70% of the eligible propane inventory of the operating partnership and its subsidiaries, valued at weighted average cost, less (d) certain reserves, as determined and subject to certain modifications by the administrative agent in its permitted discretion.

Amounts borrowed under the Credit Facility bear interest, at the operating partnership's option, at either (a) for base rate loans, (i) a base rate determined by reference to the highest of (A) the rate of interest last quoted by The Wall Street Journal in the U.S. as the prime rate in effect, (B) the NYFRB Rate from time to time plus 0.50% per annum and (C) the Adjusted LIBO Rate for a one-month interest period plus 1.00% per annum plus (ii) a margin of 1.50% to 2.00% per annum depending on total net leverage or (b) for Eurodollar rate loans, (i) a rate determined by reference to the Adjusted LIBO Rate plus (ii) a margin of 2.50% to 3.00% per annum depending on total net leverage. The operating partnership will be required to pay an undrawn fee to the lenders on the average daily unused amount of the Credit Facility at a rate of 0.375% to 0.50% per annum depending on total net leverage.

The Credit Agreement contains customary representations, warranties, covenants and events of default.

The financial covenants in the Credit Agreement require the operating partnership to maintain: (1) a minimum interest coverage ratio (defined generally as the ratio of adjusted EBITDA to cash interest expense) of 2.50 to 1.00, (2) a maximum secured leverage ratio (defined generally as the ratio of total first priority secured indebtedness to adjusted EBITDA) of 2.50 to 1.00, and (3) a maximum total net leverage ratio (defined generally as the ratio of total indebtedness (net of unrestricted cash, subject to certain limits) to adjusted EBITDA) of 5.50 to 1.00 initially. The maximum total net leverage ratio adjusts to 5.25 to 1.00 starting with the quarter ending April 30, 2022, 5.00 to 1.00 starting with the quarter ending October 31, 2022, and 4.75 to 1.00 starting with the quarter ending April 30, 2023.

In addition to the financial covenants, the Credit Agreement includes covenants that may (or if not met will) restrict the ability of the operating partnership to, among other things: incur indebtedness or liens; effect certain fundamental changes, including mergers, consolidations, liquidations, dissolutions and changes in line of business; make certain restricted payments, including distributions to holders of Preferred Units, Ferrellgas Partners and the general partner and redemptions of Preferred Units; make investments, loans or advances; dispose of assets; effect sale and leaseback transactions; enter into swap agreements; make optional payments and modifications of subordinated and other debt instruments; enter into transactions with affiliates; agree to negative pledge clauses and burdensome agreements; and effect amendments to organizational documents.

In particular, under these covenants, subject to certain exceptions and additional requirements, the operating partnership is permitted to make cash distributions to holders of Preferred Units, Ferrellgas Partners and the general partner, redemptions of Preferred Units and other restricted payments (i) only in limited amounts specified in the Credit Agreement and (ii) only if availability under the Credit Facility exceeds the greater of $50.0 million and 15% of the Borrowing Base and the operating partnership’s total net leverage ratio is not greater than 5.0 to 1.0 (or 4.75 to 1.0 starting on April 30, 2023).

On June 11, 2021, Ferrellgas entered into the First Amendment to the Credit Agreement. See Note O – Subsequent events for further discussion.

Senior unsecured notes

As discussed above, on the Effective Date, (i) the Escrow Issuers issued $650.0 million aggregate principal amount of 2026 Notes and $825.0 million aggregate principal amount of 2029 Notes, and (ii) the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes upon the merger of the Escrow Issuers into the operating partnership and Ferrellgas Finance Corp., respectively. The operating partnership received aggregate net proceeds from the issuance and sale of the 2026 Notes and the 2029

18

Notes of approximately $1,446.5 million, after deducting the initial purchaser’s discount and estimated offering expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the Preferred Units, as discussed in Note G – Preferred units, and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the issued and outstanding 2021 Notes, 2022 Notes, 2023 Notes and 2025 Notes, as described above, and (ii) to repay all outstanding obligations under the Accounts Receivable Facility in connection with the termination of that facility, as described in Note E – Accounts and notes receivable, net.

The 2026 Notes and 2029 Notes are the senior unsecured obligations of the operating partnership and Ferrellgas Finance Corp. and are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the general partner and all domestic subsidiaries of the operating partnership other than Ferrellgas Finance Corp. and Ferrellgas Receivables, LLC.

The 2026 Notes may be redeemed prior to April 1, 2023 and the 2029 Notes may be redeemed prior to April 1, 2024 at the issuer’s option, in whole or in part, at a redemption price of par plus the applicable make-whole premium and accrued and unpaid interest. On and after April 1, 2023 and April 1, 2024, the 2026 Notes and the 2029 Notes, respectively, may be redeemed at the issuer’s option, in whole or in part, at the redemption prices set forth in the respective indenture governing such notes, plus accrued and unpaid interest. Beginning on April 1, 2025 and April 1, 2026, the 2026 Notes and 2029 Notes, respectively, may be redeemed at par plus accrued and unpaid interest.

The indentures governing the 2026 Notes and 2029 Notes contain customary affirmative and negative covenants restricting, among other things, the ability of the operating partnership and its restricted subsidiaries to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions (including distributions to holders of Preferred Units, Ferrellgas Partners and the general partner) or repurchase or redeem their equity interests (including redemptions of Preferred Units); repurchase or redeem certain debt; make certain other restricted payments or investments; sell assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the operating partnership’s subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially of their assets. The indentures also restrict the ability of the general partner to engage in certain activities.

In particular, under these covenants, subject to certain exceptions and additional requirements, the operating partnership is permitted to make cash distributions to holders of Preferred Units, Ferrellgas Partners and the general partner, redemptions of Preferred Units and other restricted payments (i) only in limited amounts specified in the indentures and (ii) only if the operating partnership’s net leverage ratio (defined generally to mean the ratio of consolidated total net debt to trailing 4 quarters consolidated EBITDA, both as adjusted for certain, specified items) is not greater than 5.0 to 1.0, on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. Further, if the operating partnership’s consolidated fixed charge coverage ratio (defined generally to mean the ratio of trailing 4 quarters consolidated EBITDA to consolidated fixed charges, both as adjusted for certain, specified items) is equal to or less than 1.75 to 1.00 (on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events), the amount of distributions and other restricted payments the operating partnership is permitted to make under the indentures is further limited.

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

Scheduled

Payment due by fiscal year

    

principal payments

2021

$

580

2022

 

1,335

2023

 

899

2024

 

329

2025

 

199

Thereafter

 

1,475,019

Total

$

1,478,361

Letters of credit outstanding at April 30, 2021 and July 31, 2020 totaled $138.2 million and $126.0 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. As of April 30, 2021, Ferrellgas had available borrowing capacity under its Credit Facility of $211.8 million, which included remaining available letter of credit capacity of $86.8 million. At July 31, 2020, Ferrellgas did not have in place a credit facility providing for the issuance of letters of credit and had $78.2 million of restricted cash pledged as cash collateral for letters

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of credit outstanding. Additionally, at July 31, 2020, Ferrellgas also issued letters of credit of $50.0 million by utilizing our liquidity available on the terminated Accounts Receivable Facility.

G.    Preferred units

On the Effective Date, pursuant to the Investment Agreement, the operating partnership issued an aggregate of 700,000 Preferred Units, having an aggregate initial liquidation preference of $700.0 million. The purchase price per Preferred Unit was $1,000 less a 3.0% purchase price discount, for an aggregate purchase price of $679.0 million. The operating partnership received net proceeds from the issuance and sale of the Preferred Units of approximately $651.8 million, after deduction of the purchase price discount and certain expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the 2026 Notes and the 2029 Notes and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the issued and outstanding 2021 Notes, 2022 Notes, 2023 Notes and 2025 Notes, as described in Note F - Debt, and (ii) to repay all outstanding obligations under the Accounts Receivable Facility in connection with the termination of that facility, as described in Note E – Accounts and notes receivable, net.

The following table summarizes the changes in the number of the Preferred Units:

    

Preferred Units

Balance at January 31, 2021

 

Preferred units issued

 

700,000

Balance at April 30, 2021

 

700,000

The preferences, rights, privileges and other terms of the Preferred Units are set forth in the OpCo LPA Amendment entered into by the general partner on the Effective Date (along with the Amended OpCo LPA) and are described below.

Issuer Redemption Right

The operating partnership has the right to redeem all or a portion of the Preferred Units for cash, pro rata and at any time and from time to time, including in connection with a Change of Control (as defined in the OpCo LPA Amendment), at an amount per Preferred Unit (the “Redemption Price”) equal to, without duplication, the sum of (a) the greater of (i) the amount necessary to result in a MOIC (as defined below) of 1.47x in respect of the purchase price, before discount, of such Preferred Unit, which is $1,000 per Preferred Unit (the “Purchase Price”), and (ii) the amount necessary to result in the applicable internal rate of return equal to 12.25%, which is increased by 150 basis points if the operating partnership has elected to pay more than four Quarterly Distributions (as defined below) in PIK Units (as defined below) and (b) the accumulated but unpaid Quarterly Distributions to the date of redemption, if any. A partial redemption of the Preferred Units is permitted only in the event the aggregate amount to be paid in respect of all Preferred Units included in such partial redemption is at least $25.0 million.

MOIC” means, with respect to a Preferred Unit, a multiple on invested capital equal to the quotient determined by dividing (A) the sum of (x) the aggregate amount of all distributions made in cash with respect to such Preferred Unit prior to the applicable date of determination, with certain exclusions, plus (y) each Redemption Price paid in cash in respect of such Preferred Unit, on or prior to the applicable date of determination, by (B) the Purchase Price of such Preferred Unit.

Investor Redemption Right

In the event that (i) any Class B Units are outstanding, or (ii) (x) 0 Class B Units are outstanding and (y) no more than 233,300 Preferred Units are outstanding, at any time on and after the tenth anniversary of the Effective Date the Required Holders may elect, by delivery of written notice, to have the operating partnership fully redeem each remaining outstanding Preferred Unit for an amount in cash equal to the Redemption Price. “Required Holders” refers to both (i) holders owning at least 33.3% of the total Preferred Units outstanding at any time and (ii) certain initial affiliated purchasers, for so long as such initial affiliated purchasers collectively own at least 25% of the Preferred Units outstanding at such time.

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In the event that (i) 0 Class B Units are outstanding and (ii) more than 233,300 Preferred Units are outstanding, the Required Holders will have the right to trigger a sale of the operating partnership after the tenth anniversary of the Effective Date. If the operating partnership fails to consummate a sale that would pay the Redemption Price in full within 180 days of written notice requiring such sale, the Required Holders will have the right to appoint a majority of the members of the Board of Directors of the general partner and initiate a sale of the operating partnership.

Change of Control

Upon a Change of Control (as defined in the OpCo LPA Amendment), the Required Holders will have the option to require the redemption of all or a portion of the Preferred Units in cash in an amount equal to the Redemption Price; provided, that such Redemption Price shall not be payable unless the operating partnership shall have first made any required change of control offer pursuant to the indentures governing the 2026 Notes and the 2029 Notes and purchased all such 2026 Notes and 2029 Notes tendered pursuant to such offer (unless otherwise waived by such noteholders); provided, further that the Redemption Price shall be paid immediately following the purchase of such tendered Notes (if any).

Ferrellgas identified the issuer redemption right, the investor redemption right, and the change in control option as embedded derivatives that require bifurcation as they are not clearly and closely related to the debt host contract and has concluded that the fair values at issuance and at April 30, 2021, are immaterial to the financial statements.

Distributions

Pursuant to the OpCo LPA Amendment, the operating partnership will pay to the holders of each Preferred Unit a cumulative, quarterly distribution (the "Quarterly Distribution") at the Distribution Rate (as defined below) on the Purchase Price.

"Distribution Rate" means, for the first five years after March 30, 2021, a rate per annum equal to 8.956%, with certain increases in the Distribution Rate on each of the 5th, 6th and 7th anniversaries of March 30, 2021, subject to a maximum rate of 11.125% and certain other adjustments and exceptions.

The Quarterly Distribution will be paid in cash; provided, that the operating partnership may, at its option in its sole discretion, pay any Quarterly Distribution "in kind" through the issuance of additional Preferred Units ("PIK Units") at the quarterly Distribution Rate plus an applicable premium that escalates each year from 75 bps to 300 bps so long as the Preferred Units remain outstanding. In the event the operating partnership fails to make any Quarterly Distribution in cash, such Quarterly Distribution will automatically be paid in PIK Units.

The Distribution Rate on the Preferred Units will increase upon violation of certain protective provisions for the benefit of Preferred Unit holders notwithstanding the cap mentioned above.

As of April 30, 2021, the Quarterly Distribution accrued was $8.0 million, reflecting a prorated distribution amount for the period from the Effective Date to April 30, and the Quarterly Distribution in that amount was paid in cash to holders of Preferred Units on May 17, 2021.

Tax Distributions

For any quarter in which the operating partnership makes a Quarterly Distribution in PIK Units in lieu of cash, it will be required to make a subsequent cash tax distribution for such quarter in an amount equal to the (i) the lesser of (x) 25% and (y) the highest combined federal, state and local tax rate applicable for corporations organized in New York, multiplied by (ii) the excess (if any) of (A) one-fourth (1/4th) of the estimated taxable income to be allocated to the holders of Preferred Units for the year in which the Quarterly Tax Payment Date (which refers to certain specified dates that next follow a Quarterly Distribution date on which PIK Units were issued) occurs, over (B) any cash paid on the Quarterly Distribution date immediately preceding the Quarterly Tax Payment Date on which a quarterly tax amount would otherwise be paid (such amount, the "Tax Distribution"). Tax Distributions are treated as advances against, and reduce, future cash distributions for any reason, including payments in redemption of Preferred Units or PIK Units, or payments to the holders in their capacity as such pursuant to any side letter or other agreement.

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Additional Amounts for Certain Purchasers

The operating partnership is required to pay certain additional amounts of cash (the “Additional Amounts”) as necessary to certain holders of Preferred Units that hold their interests through a “blocker,” which is a U.S. entity that is owned and organized by certain original purchasers of Preferred Units who are non-U.S. persons or tax exempt for U.S. tax purposes and is treated as a corporation for U.S. tax purposes. Only certain original purchasers of Preferred Units who hold their Preferred Units through such blockers are, and none of their transferees is, entitled to Additional Amounts. Additional Amounts are capped at the lesser of: (a) the product of 20% multiplied by taxable income allocated to a “blocker” (as defined) divided by 0.8, and (b) the actual taxes payable by the “blocker” as a result of holding Senior Preferred Units.

Board Rights

For so long as at least 140,000 Preferred Units remain outstanding, holders of the Preferred Units have the right to designate 1 director to the Board of the general partner, subject to approval by the general partner.

Protective Provisions

The OpCo LPA Amendment and the Amended Ferrellgas Partners LPA include, among other things, certain covenants for the benefit of holders of Preferred Units applicable to the operating partnership and, in certain instances, Ferrellgas Partners, for so long as at least $35,000,000 of Preferred Units and PIK Units remain outstanding. These covenants include, among other things, limitations on (i) effecting a Change of Control, (ii) amending organizational documents, (iii) issuing certain equity securities, (iv) issuing Preferred Units, (v) filing for bankruptcy, (vi) non-ordinary course investments, and (vii) incurring certain levels of indebtedness.

Ranking and Liquidation Preference

The Preferred Units rank senior to any other class or series of equity interests of the operating partnership (including the partnership interests held by Ferrellgas Partners and the general partner). Upon a liquidation, dissolution or winding up of the operating partnership, each holder of Preferred Units will be entitled to receive, prior and in preference to any distribution of any assets of the operating partnership to the holders of any other class or series of equity interests in the operating partnership (including Ferrellgas Partners and the general partner), an amount per Preferred Unit equal to the Redemption Price.

Restrictions on Cash Distributions to Ferrellgas Partners and the General Partner

The operating partnership is permitted to make distributions of Available Cash (as defined in the Amended OpCo LPA) to Ferrellgas Partners and the general partner only if (i) the operating partnership has made all required Quarterly Distributions (in cash or PIK Units), Tax Distributions and payments of Additional Amounts, (ii) the operating partnership has redeemed all PIK Units issued, (iii) the operating partnership’s consolidated net leverage (defined generally to mean the ratio of the operating partnership’s consolidated total net debt (including the total redemption price of all outstanding Preferred Units and PIK Units but excluding certain letters of credit and capital lease obligations) as of each Quarterly Distribution Date to trailing four quarters consolidated EBITDA, both as adjusted for certain, specified items) is below 7.25x through May 15, 2022 and 7.00x thereafter, net of cash, immediately before and after giving effect to such distribution, (iv) the operating partnership has at least $100 million of liquidity, consisting of unrestricted cash on hand and available capacity under the Credit Agreement or any replacement thereof, and (v) the operating partnership is in compliance with the other protective provisions in the OpCo LPA Amendment.

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H.    Equity

Reverse Unit Split

As described in the Note A – Partnership organization and formation under “—Recent Developments—Transactions— Amended Partnership Agreements of Ferrellgas Partners and the Operating Partnership,” on the Effective Date, Ferrellgas Partners effected a 1-for-20 reverse unit split in which holders of its then-outstanding common units received one Class A Unit for every twenty common units held. No fractional Class A Units were issued in connection with the reverse unit split. If, as a result of the reverse unit split, a unitholder would otherwise have been entitled to a fractional Class A Unit, the number of Class A Units such unitholder received was rounded up or down to the nearest whole Class A Unit, with a fraction of one-half or less being rounded down. The reverse unit split resulted in a reduction of our previously outstanding common units from 97,152,665 common units to 4,857,605 Class A Units. All references to common units and per unit data for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted to reflect the reverse unit split on a retroactive basis.

Class B Units

As discussed in the Note A – Partnership organization and formation under “—Recent Developments—Transactions— Satisfaction of Ferrellgas Partners Notes; Issuance of Class B Units to Holders of Ferrellgas Partners Notes”, on the Effective Date, Ferrellgas Partners issued 1.3 million Class B Units to the holders of the Ferrellgas Partners Notes in exchange for such holders’ contribution of the Ferrellgas Partners Notes to Ferrellgas Partners as a capital contribution and in satisfaction of such holders’ claims in respect of the Ferrellgas Partners Notes. The terms of the Class B Units are set forth in the Amended Ferrellgas Partners LPA entered into by the general partner on the Effective Date.

Ferrellgas Partners may, subject to certain conditions, issue additional Class A Units to such parties as determined at the discretion of Ferrellgas Partners, upon consent by the holders of the requisite percentage of Class B Units as specified in the Amended Ferrellgas Partners LPA (the “Requisite Class B Units”), which refers to: (i) if the initial majority holder of Class B Units holds at least 50% of Class B Units, holders of at least 50% of the outstanding Class B Units, or (ii) if the initial majority holder of Class B Units holds less than 50% of Class B Units, holders of at least one-third of the outstanding Class B Units.

Distributions by Ferrellgas Partners to its partners are required to be made such that the ratio of (i) the amount of distributions made to holders of Class B Units to (ii) the amount of distributions made to holders of Class A Units and the general partner is not less than 6:1 until holders of Class B Units receive distributions in the aggregate amount equaling $357.0 million (which was the outstanding principal amount of the Ferrellgas Partners Notes), upon receipt of which the Class B Units will be converted to Class A Units at the applicable conversion rate, set forth in the table below, at the option of Ferrellgas Partners in the first five years after the Effective Date and, thereafter, automatically upon distribution of $357.0 million.

Year Post-Emergence

Conversion Factor

Y1

1.75x

Y2

2.00x

Y3

3.50x

Y4

4.00x

Y5

5.00x

Y6

6.00x

Y7

7.00x

Y8

10.00x

Y9

12.00x

Y10

25.00x

In the first five years after the Effective Date, Ferrellgas Partners may redeem the Class B Units, in full, at a price equal to an amount that will result in an internal rate of return with respect to the Class B Units equal to the sum of (i) 300 basis points and (ii) the internal rate of return for the Preferred Units as specified in the Amended Ferrellgas Partners LPA, subject to the minimum redemption price of $302.08 per unit, less any cash distributed prior to the redemption, if called in the first year after issuance.

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During the first five years following the Effective Date, after Ferrellgas Partners has distributed $356 million in distributions to holders of the Class B Units, Ferrellgas Partners will have the option to hold cash for six months at either Ferrellgas Partners or Ferrellgas Partners Finance Corp. for the sole purpose of redeeming the Class B Units; provided, however, if the funds held are not used to redeem the Class B Units, such funds will either be distributed to holders of the Class B Units, holders of the Class A Units and the general partner or returned to the operating partnership.

Ferrellgas Partners will only be able to call the Class B Units to the extent it receives sufficient distributions from the operating partnership, and the operating partnership is limited in its ability to make distributions by the indentures that govern the 2026 Notes and the 2029 Notes, the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units.

The holders of Class B Units will have the right to acquire the general partner interests in Ferrellgas Partners and the operating partnership, without the approval of the general partner, Ferrellgas Partners, the holders of the Class A Units or the operating partnership, if the Class B Units are still outstanding and have not been converted to Class A Units by the earlier of (i) a material breach of the covenants in favor of the Class B Units under the Amended Ferrellgas Partners LPA or the Amended OpCo LPA that is not cured within the time period specified therein and (ii) the 10th anniversary of the Effective Date.

Board Rights

The holders of Class B units will be permitted to designate 1 independent director to the Board of the general partner in accordance with a voting agreement among the general partner, Ferrell Companies, Inc. ("FCI"), the sole stockholder of the general partner, and the holders of the Class B units and the general partner's bylaws.

Fair Value

The fair value of Class B Units approximates the carrying value of the principal and interest of the Ferrellgas Partners Notes of $390.1 million and thus 0 gain (loss) on extinguishment was recognized.

Class A Units

As of April 30, 2021 and July 31, 2020, limited partner Class A Units were beneficially owned by the following:

    

April 30, 2021

    

July 31, 2020

Public Class A unitholders (1)

 

3,480,621

 

3,480,621

Ferrell Companies (2)

 

1,126,468

 

1,126,468

FCI Trading Corp. (3)

 

9,784

 

9,784

Ferrell Propane, Inc. (4)

 

2,560

 

2,560

James E. Ferrell (5)

 

238,172

 

238,172

(1)These Class A Units are traded on the OTC Pink Market under the symbol “FGPR”.
(2)Ferrell Companies is the owner of the general partner and an approximate 23% direct owner of Ferrellgas Partners’ Class A Units and thus a related party. Ferrell Companies also beneficially owns 9,784 and 2,560 Class A Units of Ferrellgas Partners held by FCI Trading Corp. ("FCI Trading") and Ferrell Propane, Inc. ("Ferrell Propane"), respectively, bringing Ferrell Companies’ total beneficial ownership to 23.4%.
(3)FCI Trading is an affiliate of the general partner and thus a related party.
(4)Ferrell Propane is controlled by the general partner and thus a related party.
(5)James E. Ferrell is the Chief Executive Officer and President of our general partner; and is the Chairman of the Board of Directors of our general partner and a related party. JEF Capital Management owns 237,942 of these Class A Units and is owned by the James E. Ferrell Revocable Trust Two and other family trusts, all of which James E. Ferrell and/or his family members are the trustees and beneficiaries. James E. Ferrell holds all voting common stock of JEF Capital Management. The remaining 230 Class A Units are held by Ferrell Resources Holdings, Inc., which is wholly-owned by the James E. Ferrell Revocable Trust One, for which James E. Ferrell is the trustee and sole beneficiary.

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Partnership distributions

Ferrellgas Partners did not pay any distributions to Class B Unitholders, Class A Unitholders or the general partner for the three months ended April 30, 2021.

Accumulated other comprehensive income (loss) (“AOCI”)

See Note J – Derivative instruments and hedging activities for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and nine months ended April 30, 2021 and 2020.

General partner’s commitment to maintain its capital account

Ferrellgas’ partnership agreements allow the general partner to have an option to maintain its effective 2% general partner interest concurrent with the issuance of other additional equity.

During the nine months ended April 30, 2021, the general partner made non-cash contributions of $46.0 thousand to Ferrellgas to maintain its effective 2% general partner interest.

During the nine months ended April 30, 2020, the general partner made non-cash contributions of $44.0 thousand to Ferrellgas to maintain its effective 2% general partner interest.

I.    Revenue from contracts with customers

Disaggregation of revenue

Ferrellgas disaggregates revenues based upon the type of customer and on the type of revenue. The following table presents retail propane revenues, wholesale propane revenues and other revenues. Retail revenues result from sales to end use customers, wholesale revenues result from sales to or through resellers and all other revenues include sales of appliances and other materials, other fees charged to customers and equipment rental charges.

    

For the three months ended April 30, 

For the nine months ended April 30, 

2021

    

2020

    

2021

    

2020

 

Retail - Sales to End Users

$

392,838

$

286,163

$

945,833

$

840,649

Wholesale - Sales to Resellers

 

140,015

 

103,686

 

381,357

 

291,445

Other Gas Sales

 

9,183

 

1,896

 

24,329

 

18,283

Other

 

22,694

 

20,385

 

67,665

 

65,800

Propane and related equipment revenues

$

564,730

$

412,130

$

1,419,184

$

1,216,177

Contract assets and liabilities

Ferrellgas’ performance obligations are generally limited to the delivery of propane for our retail and wholesale contracts. Ferrellgas’ performance obligations with respect to sales of appliances and other materials and other revenues are limited to the delivery of the agreed upon good or service. Ferrellgas does not have material performance obligations that are delivered over time, thus all of our revenue is recognized at the time the goods, including propane, are delivered or installed. Ferrellgas offers “even pay” billing programs that can create customer deposits or advances, depending on whether Ferrellgas has delivered more propane than the customer has paid for or whether the customer has paid for more propane than what has been delivered. Revenue is recognized from these customer deposits or advances to customers at the time product is delivered. The advance or deposit is considered to be a contract asset or liability. Additionally, from time to time, we have customers that pay in advance for goods or services, and such amounts result in contract liabilities.

Ferrellgas incurs incremental commissions directly related to the acquisition or renewal of customer contracts. The commissions are calculated and paid based upon the number of gallons sold to the acquired or renewed customer. The total amount of commissions that we incur is not material, and the commissions are expensed commensurate with the deliveries to which they relate; therefore, Ferrellgas does not capitalize these costs.

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The following table presents the opening and closing balances of Ferrellgas’ receivables, contract assets, and contract liabilities:

    

April 30, 2021

    

July 31, 2020

Accounts receivable

$

172,660

$

108,483

Contract assets

$

16,498

$

7,079

Contract liabilities

 

 

  

Deferred revenue (1)

$

39,378

$

42,911

(1)Of the beginning balance of deferred revenue, $34.3 million was recognized as revenue during the nine months ended April 30, 2021.

Remaining performance obligations

Ferrellgas’ remaining performance obligations are generally limited to situations where its customers have remitted payment but have not yet received deliveries of propane. This most commonly occurs in Ferrellgas’ even pay billing programs and Ferrellgas expects that these balances will be recognized within a year or less as the customer takes delivery of propane.

J.    Fair value measurements

Derivative financial instruments

The following table presents Ferrellgas’ financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of April 30, 2021 and July 31, 2020:

Asset (Liability)

Quoted Prices in Active

    

    

    

Markets for Identical

Significant Other

Assets and Liabilities

Observable Inputs

Unobservable Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

April 30, 2021:

 

  

 

  

 

  

 

  

Assets:

 

  

 

  

 

  

 

  

Derivative financial instruments:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

33,914

$

$

33,914

Liabilities:

 

  

 

 

  

 

  

Derivative financial instruments:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

(1,731)

$

$

(1,731)

July 31, 2020:

 

  

 

  

 

  

 

  

Assets:

 

  

 

  

 

  

 

  

Derivative financial instruments:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

3,112

$

$

3,112

Liabilities:

 

  

 

  

 

  

 

  

Derivative financial instruments:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

(5,425)

$

$

(5,425)

Methodology

The fair values of Ferrellgas’ non-exchange traded commodity derivative contracts are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators.

Other financial instruments

The carrying amounts of other financial instruments included in current assets and current liabilities (except for current maturities of long-term debt) approximate their fair values because of their short-term nature. At April 30, 2021 and

26

July 31, 2020, the estimated fair value of Ferrellgas’ long-term debt instruments was $1,462.4 million and $2,177.1 million, respectively. Ferrellgas estimates the fair value of long-term debt based on quoted market prices. The fair value of Ferrellgas’ consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

Class B Units

The fair value of Class B units approximates the carrying value of the principal and interest of the Ferrellgas Partners Notes of $390.1 million and thus 0 gain (loss) on extinguishment was recognized.

Ferrellgas has other financial instruments such as trade accounts receivable which could expose it to concentrations of credit risk. The credit risk from trade accounts receivable is limited because of a large customer base which extends across many different U.S. markets.

K.    Derivative instruments and hedging activities

Ferrellgas is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges.

Derivative instruments and hedging activity

During the nine months ended April 30, 2021 and 2020, Ferrellgas did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.

The following tables provide a summary of the fair value of derivatives within Ferrellgas’ condensed consolidated balance sheets as of April 30, 2021 and July 31, 2020:

Final

April 30, 2021

Maturity

Asset Derivatives

Liability Derivatives

Derivative Instrument

    

Date

Location

    

Fair value

    

Location

    

Fair value

Derivatives designated as hedging instruments

December 2023

  

 

  

 

  

 

  

Commodity derivatives-propane

 

Prepaid expenses and other current assets

$

29,612

Other current liabilities

$

833

Commodity derivatives-propane

 

Other assets, net

 

4,302

 

Other liabilities

 

898

 

Total

$

33,914

 

Total

$

1,731

Final

July 31, 2020

Maturity

Asset Derivatives

Liability Derivatives

Derivative Instrument

    

Date

Location

    

Fair value

    

Location

    

Fair value

Derivatives designated as hedging instruments

 

December 2021

  

 

  

 

  

 

  

Commodity derivatives-propane

 

Prepaid expenses and other current assets

$

2,846

 

Other current liabilities

$

5,029

Commodity derivatives-propane

 

Other assets, net

 

266

 

Other liabilities

 

396

 

Total

$

3,112

 

Total

$

5,425

27

Ferrellgas’ exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of April 30, 2021 and July 31, 2020, respectively:

April 30, 2021

Assets

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

$

14,972

 

Other current liabilities

$

34,581

 

Other assets, net

 

3,447

 

Other liabilities

 

4,282

$

18,419

 

  

$

38,863

July 31, 2020

Assets

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

$

14,398

 

Other current liabilities

$

510

 

Other assets, net

 

1,433

 

Other liabilities

 

$

15,831

 

  

$

510

The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income (loss) for the three and nine months ended April 30, 2021 and 2020 due to derivatives designated as cash flow hedging instruments:

For the three months ended April 30, 2021

    

    

    

Amount of Gain (Loss) 

Amount of Gain

Location of Gain (Loss)

Reclassified from

(Loss) Recognized in

Reclassified from 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

$

20,446

 

Cost of product sold- propane and other gas liquids sales

$

22,383

$

$

20,446

$

22,383

$

For the three months ended April 30, 2020

Amount of Gain (Loss)

Amount of Gain (Loss)

Location of Gain (Loss)

Reclassified from

Recognized in

Reclassified from

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

$

(11,501)

 

Cost of product sold- propane and other gas liquids sales

$

(14,073)

$

$

(11,501)

$

(14,073)

$

For the nine months ended April 30, 2021

Amount of Gain (Loss)

Amount of Gain (Loss)

Location of Gain (Loss)

Reclassified from

Recognized in

Reclassified from 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

$

63,170

 

Cost of sales-propane and other gas liquids sales

$

28,674

$

$

63,170

$

28,674

$

28

For the nine months ended April 30, 2020

Amount of Gain (Loss)

Amount of Gain (Loss)

Location of Gain (Loss)

Reclassified from

Recognized in

Reclassified from

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

$

(36,340)

 

Cost of sales-propane and other gas liquids sales

$

(30,318)

$

$

(36,340)

$

(30,318)

$

The changes in derivatives included in AOCI for the nine months ended April 30, 2021 and 2020 were as follows:

For the nine months ended April 30, 

Gains and losses on derivatives included in AOCI

    

2021

    

2020

Beginning balance

$

(2,313)

$

(14,756)

Change in value of risk management commodity derivatives

 

63,170

 

(36,340)

Reclassification of (gains) losses on commodity hedges to cost of sales - propane and other gas liquids sales, net

 

(28,674)

 

30,318

Ending balance

$

32,183

$

(20,778)

Ferrellgas expects to reclassify net gains of approximately $28.8 million to earnings during the next 12 months. These net gains are expected to be offset by decreased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sale exception.

During the nine months ended April 30, 2021 and 2020, Ferrellgas had no reclassifications to operations resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.

As of April 30, 2021, Ferrellgas had financial derivative contracts covering 5.3 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

Derivative financial instruments credit risk

Ferrellgas is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas’ counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas maintains credit policies with regard to its counterparties that it believes reduce its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas in the forms of letters of credit, parental guarantees or cash. Ferrellgas has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. If these counterparties that make up the concentration failed to perform according to the terms of their contracts at April 30, 2021, the maximum amount of loss due to credit risk that Ferrellgas would incur based upon the gross fair values of the derivative financial instruments is 0.

From time to time Ferrellgas enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas’ debt rating. There were 0 open derivative contracts with credit-risk-related contingent features as of April 30, 2021.

29

L.    Transactions with related parties

Ferrellgas has 0 employees and is managed and controlled by its general partner. Pursuant to Ferrellgas’ partnership agreements, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas’ business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas’ behalf and are reported in the condensed consolidated statements of operations as follows:

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

Operating expense

$

64,242

$

67,241

$

195,817

$

203,796

General and administrative expense

$

6,194

$

7,705

$

23,348

$

21,668

See additional discussions about transactions with the general partner and related parties in Note H – Equity.

M.    Contingencies and commitments

Litigation

Ferrellgas’ operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and, prior to the sales of midstream operations during the fiscal year ended July 31, 2018, crude oil. As a result, at any given time, Ferrellgas can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the consolidated financial condition, results of operations and cash flows of Ferrellgas.

Ferrellgas has been named as a defendant, along with a competitor, in putative class action lawsuits filed in multiple jurisdictions. The lawsuits, which were consolidated in the Western District of Missouri on October 16, 2014, allege that Ferrellgas and a competitor coordinated in 2008 to reduce the fill level in barbeque cylinders and combined to persuade a common customer to accept that fill reduction, resulting in increased cylinder costs to direct customers and end-user customers in violation of federal and certain state antitrust laws. The lawsuits seek treble damages, attorneys’ fees, injunctive relief and costs on behalf of the putative class. These lawsuits have been coordinated for pretrial purposes by the multidistrict litigation panel. The Federal Court for the Western District of Missouri initially dismissed all claims brought by direct and indirect customers other than state law claims of indirect customers under Wisconsin, Maine and Vermont law. The direct customer plaintiffs filed an appeal, which resulted in a reversal of the district court’s dismissal. We filed a petition for a writ of certiorari which was denied. An appeal by the indirect customer plaintiffs resulted in the court of appeals affirming the dismissal of the federal claims and remanding the case to the district court to decide whether to exercise supplemental jurisdiction over the remaining state law claims. Thereafter, in August 2019, Ferrellgas reached a settlement with the direct customers, pursuant to which it agreed to pay a total of $6.25 million to resolve all claims asserted by the putative direct purchaser class. With respect to the indirect customers, the district court exercised supplemental jurisdiction over the remaining state law claims, but then granted in part Ferrellgas’ pleadings-based motion and dismissed 11 of the 24 remaining state law claims. As a result, there are 13 remaining state law claims brought by a putative class of indirect customers. Ferrellgas believes it has strong defenses and intends to vigorously defend itself against these remaining claims. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuit.

30

Ferrellgas and Bridger Logistics, LLC (“Bridger”), have been named, along with 2 former officers, in a lawsuit filed by Eddystone Rail Company ("Eddystone") on February 2, 2017 in the Eastern District of Pennsylvania (the "EDPA Lawsuit"). Eddystone indicated that it has prevailed in or settled an arbitration against Jamex Transfer Services (“JTS”), previously named Bridger Transfer Services, a former subsidiary of Bridger. The arbitration involved a claim against JTS for money due for deficiency payments under a contract for the use of an Eddystone facility used to offload crude from rail onto barges. Eddystone alleges that Ferrellgas transferred assets out of JTS prior to the sale of the membership interest in JTS to Jamex Transfer Holdings, and that those transfers should be avoided so that the assets can be used to satisfy the amount owed by JTS to Eddystone as a result of the arbitration. Eddystone also alleges that JTS was an “alter ego” of Bridger and Ferrellgas and that Bridger and Ferrellgas breached fiduciary duties owed to Eddystone as a creditor of JTS. Ferrellgas believes that Ferrellgas and Bridger have valid defenses to these claims and to Eddystone’s primary claim against JTS for breach of contract. The lawsuit does not specify a specific amount of damages that Eddystone is seeking; however, Ferrellgas believes that the amount of such damages, if ultimately owed to Eddystone, could be material to Ferrellgas. Ferrellgas intends to vigorously defend this claim. On August 24, 2017, Ferrellgas filed a third-party complaint against JTS, Jamex Transfer Holdings, and other related persons and entities (the "Third-Party Defendants"), asserting claims for breach of contract, indemnification of any losses in the EDPA Lawsuit, tortious interference with contract, and contribution. On June 25, 2018, Ferrellgas entered into an agreement with the Third-Party Defendants which, among other things, resulted in a dismissal of the claims against the Third-Party Defendants from the lawsuit. The lawsuit is in the discovery stage; as such, management does not currently believe a loss is probable or reasonably estimable at this time.

N.    Net earnings (loss) per unitholders’ interest

Below is a calculation of the basic and diluted net loss per Class A unitholders’ interest in the condensed consolidated statements of operations for the periods indicated:

For the three months ended April 30, 

For the nine months ended April 30, 

2021

    

2020

    

2021

    

2020

 

(in thousands, except per common unit amounts)

Class A unitholders’ interest in net loss

$

(74,057)

$

(15,239)

$

(57,024)

$

(12,405)

Weighted average common units outstanding (in thousands)

 

4,857.6

 

4,857.6

 

4,857.6

 

4,857.6

Basic and diluted net loss per Class A common unit

$

(15.25)

$

(3.14)

$

(11.74)

$

(2.55)

Class B units considerations

The Class B units meet the definition of a participating security and the two-class method is required. For any periods in which earnings are recognized, the earnings will be allocated between the Class B units and the Class A units on a 6-to-one basis. For any periods in which losses are recognized, no effect is given to the Class B units as they do not contractually participate in the losses of Ferrellgas.

In addition, Ferrellgas has the option to redeem all, but not less than all, of the Class B units outstanding at any time on or prior to the fifth anniversary of the Effective Date for cash. This call option does not impact the dilutive effect of net earnings (loss) per common unit due to the cash-only redemption provision, which is assumed, therefore there would be no dilutive effect.

O.    Subsequent events

Ferrellgas has evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas’ condensed consolidated financial statements were issued and concluded that no events or transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements, except as follows.

On June 11, 2021, Ferrellgas Partners, Ferrellgas, Inc. and certain subsidiaries of Ferrellgas Partners, as guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent for the lenders (the “Agent”), entered into a First Amendment to Credit Agreement (the “Credit Agreement Amendment”) which amends its existing Credit Agreement, dated as of March 30, 2021 (the “Existing Credit Agreement”). The Credit Agreement Amendment does not alter the size or tenor of the loans provided (a four-year revolving credit facility in an aggregate principal amount of up to $350.0 million).

31

The Credit Agreement Amendment, which has an effective date of April 30, 2021, amends the financial covenant requiring Ferrellgas Partners and its subsidiaries to maintain a specified consolidated Minimum Interest Coverage Ratio (“Minimum Coverage Ratio”) of at least 2.50 to 1.00 as of the end of each fiscal quarter for the period consisting of the trailing 4 fiscal quarters by (i) waiving the financial covenant for the trailing 4 fiscal quarters ending April 30, 2021 and (ii) annualizing the consolidated cash interest charges component of the covenant for (a) the fiscal quarter ending on July 31, 2021, (b) the 2 fiscal quarters ending on October 31, 2021, and (c) the 3 fiscal quarters ending on January 31, 2022. In addition, the Credit Agreement Amendment waives compliance with the representations related to the accuracy of the information set forth in Schedules 4.12 and 4.29 to the Existing Credit Agreement and any default arising therefrom. The Credit Agreement Amendment further amends and replaces Schedules 4.12 and 4.29 in their entirety. In addition, the Credit Agreement Amendment modifies the timing for payment of certain fees and modifies certain provisions relating to the timing and delivery of collateral documents as well as certain other deliverables.

The foregoing description of the Credit Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the First Amendment to the Credit Agreement, which is filed or incorporated by reference as Exhibit 10.29.

32

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED BALANCE SHEETS

(unaudited)

    

April 30, 2021

    

July 31, 2020

ASSETS

Cash

$

1,000

$

1,000

Prepaid expenses and other current assets

 

 

1,850

Total assets

$

1,000

$

2,850

Contingencies and commitments (Note B)

 

  

 

  

STOCKHOLDER’S EQUITY

 

 

  

Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding

$

1,000

$

1,000

Additional paid in capital

 

39,486

 

38,846

Accumulated deficit

 

(39,486)

 

(36,996)

Total stockholder’s equity

$

1,000

$

2,850

See notes to condensed financial statements.

33

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

General and administrative expense

$

341

    

$

3,087

$

2,490

$

3,977

Net loss

$

(341)

$

(3,087)

$

(2,490)

$

(3,977)

See notes to condensed financial statements.

34

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

For the nine months ended April 30, 

    

2021

    

2020

Cash flows from operating activities:

  

  

Net loss

$

(2,490)

$

(3,977)

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and other current assets

 

1,850

 

1,858

Cash used in operating activities

 

(640)

 

(2,119)

Cash flows from financing activities:

 

  

 

  

Capital contribution

 

640

 

2,119

Cash provided by financing activities

 

640

 

2,119

Net change in cash

 

 

Cash - beginning of period

 

1,000

 

1,000

Cash - end of period

$

1,000

$

1,000

See notes to condensed financial statements.

35

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

(unaudited)

NOTES TO CONDENSED FINANCIAL STATEMENTS

A.    Formation

Ferrellgas Partners Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (“Ferrellgas Partners��).

Ferrellgas Partners contributed $1,000 to the Finance Corp. on April 8, 1996 in exchange for 1,000 shares of common stock.

The Finance Corp. has nominal assets, does not conduct any operations and has 0 employees.

Chapter 11 Bankruptcy Cases

As previously reported, on January 11, 2021, Ferrellgas Partners and the Finance Corp. filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases were jointly administered under the caption and case numbers, In re: Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., Chapter 11 Case Nos. 21-10020 and 21-10021.

On March 5, 2021, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Second Amended Prepackaged Joint Chapter 11 Plan of Reorganization of Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. (the “Plan”).

On March 30, 2021 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied and the Confirmation Order was deemed binding upon Ferrellgas Partners, the Finance Corp. and all other parties affected by the Plan. In satisfying the conditions of the Plan, on the Effective Date, certain restructuring transactions by Ferrellgas Partners and certain financing transactions by Ferrellgas, L.P. were completed.

B.    Contingencies and commitments

The Finance Corp. serves as co-issuer and co-obligor for debt securities of Ferrellgas Partners. At July 31, 2020, the Finance Corp. was liable as co-issuer and co-obligor for the $357.0 million aggregate principal amount of Ferrellgas Partners’ unsecured senior notes due June 15, 2020, which Ferrellgas Partners failed to repay, and which obligation was only reported on Ferrellgas Partners’ condensed consolidated balance sheet. On the Effective Date, by operation of the Plan, all outstanding indebtedness under the Ferrellgas Partners Notes was discharged and cancelled. As of April 30, 2021, Ferrellgas Partners had no debt securities outstanding, and the Finance Corp. therefore was not liable as co-issuer for any such debt securities.

C. Subsequent events

The Finance Corp. has evaluated events and transactions occurring after the balance sheet date through the date the Finance Corp.’s condensed consolidated financial statements were issued and concluded that there were no events or transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements.

36

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

    

April 30, 2021

    

July 31, 2020

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents (including $11,500 and $95,759 of restricted cash at April 30, 2021 and July 31, 2020, respectively)

$

210,251

$

333,755

Accounts and notes receivable, net (including $103,703 of accounts receivable pledged as collateral at July 31, 2020)

 

170,516

 

101,438

Inventories

 

69,742

 

72,664

Prepaid expenses and other current assets

 

73,964

 

35,897

Total current assets

 

524,473

 

543,754

Property, plant and equipment, net

 

582,838

 

591,042

Goodwill, net

 

246,946

 

247,195

Intangible assets (net of accumulated amortization of $429,135 and $423,290 at April 30, 2021 and July 31, 2020, respectively)

 

97,560

 

104,049

Operating lease right-of-use assets

93,341

107,349

Loan receivable - Ferrellgas Partners, L.P.

25,057

Other assets, net

 

86,914

 

74,748

Total assets

$

1,657,129

$

1,668,137

LIABILITIES, MEZZANINE AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

54,320

$

33,944

Current portion of long-term debt

1,565

502,095

Current operating lease liabilities

26,669

29,345

Other current liabilities

 

175,400

 

148,136

Total current liabilities

257,954

713,520

Long-term debt

 

1,443,095

 

1,646,396

Operating lease liabilities

78,498

89,022

Other liabilities

 

51,427

 

51,190

Contingencies and commitments (Note L)

 

 

Mezzanine equity:

Senior preferred units, net of issue discount and offering costs (700,000 units outstanding at April 30, 2021)

651,854

Equity:

 

  

 

  

Limited partners

 

(849,381)

 

(821,462)

General partner

 

(8,501)

 

(8,216)

Accumulated other comprehensive income (loss)

 

32,183

 

(2,313)

Total equity

 

(825,699)

 

(831,991)

Total liabilities, mezzanine and equity

$

1,657,129

$

1,668,137

See notes to condensed consolidated financial statements.

37

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

Revenues:

Propane and other gas liquids sales

$

542,036

$

391,745

$

1,351,519

$

1,150,377

Other

 

22,694

 

20,385

 

67,665

 

65,800

Total revenues

 

564,730

 

412,130

 

1,419,184

 

1,216,177

Costs and expenses:

 

  

 

  

 

  

 

  

Cost of sales - propane and other gas liquids sales

 

298,386

 

176,265

 

706,790

 

548,136

Cost of sales - other

 

2,985

 

2,740

 

10,156

 

9,774

Operating expense - personnel, vehicle, plant and other

 

124,624

 

121,558

 

348,898

 

364,334

Operating expense - equipment lease expense

 

6,770

 

8,075

 

20,462

 

24,724

Depreciation and amortization expense

 

21,281

 

20,366

 

63,920

 

59,380

General and administrative expense

 

15,203

 

12,555

 

48,533

 

36,336

Non-cash employee stock ownership plan compensation charge

 

811

 

757

 

2,281

 

2,182

Loss on asset sales and disposals

 

1,345

 

1,859

 

2,238

 

6,242

Operating income

 

93,325

 

67,955

 

215,906

165,069

Interest expense

 

(42,189)

 

(38,006)

 

(135,239)

 

(113,573)

Loss on extinguishment of debt

(107,968)

(37,399)

(107,968)

(37,399)

Other income (expense), net

 

1,552

 

(158)

 

5,419

 

(214)

Earnings (loss) before income taxes

 

(55,280)

 

(7,608)

 

(21,882)

13,883

Income tax expense

 

193

 

112

 

592

 

745

Net earnings (loss)

$

(55,473)

$

(7,720)

$

(22,474)

$

13,138

See notes to condensed consolidated financial statements.

38

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

 

Net earnings (loss)

$

(55,473)

$

(7,720)

$

(22,474)

$

13,138

Other comprehensive income (loss):

 

  

 

 

  

 

  

Change in value of risk management derivatives

 

20,446

 

(11,501)

63,170

 

(36,340)

Reclassification of (gains) losses on derivatives to earnings, net

 

(22,383)

 

14,073

 

(28,674)

 

30,318

Pension liability adjustment

 

 

 

 

(109)

Other comprehensive income (loss)

 

(1,937)

 

2,572

 

34,496

 

(6,131)

Comprehensive income (loss)

$

(57,410)

$

(5,148)

$

12,022

$

7,007

See notes to condensed consolidated financial statements.

39

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)

Accumulated

other

Total

Limited

General

comprehensive

partners’

    

partner

    

partner

    

income (loss)

    

equity

Balance at July 31, 2020

$

(821,462)

$

(8,216)

$

(2,313)

$

(831,991)

Contributions in connection with non-cash ESOP compensation charges

 

701

 

7

 

 

708

Net loss

 

(38,360)

 

(391)

 

 

(38,751)

Other comprehensive income

 

 

 

7,917

 

7,917

Balance at October 31, 2020

(859,121)

(8,600)

5,604

(862,117)

Contributions in connection with non-cash ESOP compensation charges

 

754

 

8

 

 

762

Net earnings

 

71,026

 

724

 

 

71,750

Other comprehensive income

 

 

 

28,516

 

28,516

Balance at January 31, 2021

(787,341)

(7,868)

34,120

(761,089)

Contributions in connection with non-cash ESOP compensation charges

 

803

 

8

 

 

811

Net earnings allocated to preferred units

 

(8,011)

(8,011)

Net loss

 

(54,832)

 

(641)

 

 

(55,473)

Other comprehensive loss

 

 

 

(1,937)

 

(1,937)

Balance at April 30, 2021

$

(849,381)

$

(8,501)

$

32,183

$

(825,699)

Accumulated

other

Total

Limited

General

comprehensive

partners’

    

partner

    

partner

    

loss

    

equity

Balance at July 31, 2019

$

(758,186)

$

(7,570)

$

(14,647)

$

(780,403)

Contributions in connection with non-cash ESOP compensation charges

 

787

 

8

 

 

795

Cumulative adjustment for lease accounting standard

(1,361)

 

(14)

 

 

(1,375)

Distributions

 

(100)

 

(1)

 

 

(101)

Net loss

 

(36,525)

 

(373)

 

 

(36,898)

Other comprehensive loss

 

 

 

(6,148)

 

(6,148)

Balance at October 31, 2019

(795,385)

(7,950)

(20,795)

(824,130)

Contributions in connection with non-cash ESOP compensation charges

624

6

630

Distributions

(15,396)

(157)

(15,553)

Net earnings

57,172

584

57,756

Other comprehensive loss

(2,555)

(2,555)

Balance at January 31, 2020

(752,985)

$

(7,517)

(23,350)

(783,852)

Contributions in connection with non-cash ESOP compensation charges

749

8

757

Net loss

(7,642)

(78)

(7,720)

Other comprehensive income

2,572

2,572

Balance at April 30, 2020

$

(759,878)

$

(7,587)

$

(20,778)

$

(788,243)

See notes to condensed consolidated financial statements.

40

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

For the nine months ended April 30, 

    

2021

    

2020

Cash flows from operating activities:

Net earnings (loss)

$

(22,474)

$

13,138

Reconciliation of net earnings (loss) to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization expense

 

63,920

 

59,380

Non-cash employee stock ownership plan compensation charge

 

2,281

 

2,182

Loss on asset sales and disposals

 

2,238

 

6,242

Loss on extinguishment of debt

 

107,968

 

37,399

Provision for expected credit losses

 

3,479

 

1,586

Deferred income tax expense

 

 

554

Other

 

6,524

 

7,555

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

  

 

  

Accounts and notes receivable, net of securitization

 

(72,557)

 

(26,942)

Inventories

 

2,922

 

15,245

Prepaid expenses and other current assets

 

(11,300)

 

(6,704)

Accounts payable

 

20,520

 

4,236

Accrued interest expense

 

(26,757)

 

25,010

Other current liabilities

 

28,099

 

(7,949)

Other assets and liabilities

 

5,401

 

363

Net cash provided by operating activities

 

110,264

 

131,295

Cash flows from investing activities:

 

  

 

  

Business acquisitions, net of cash acquired

 

 

(6,400)

Capital expenditures

 

(50,470)

 

(57,251)

Proceeds from sale of assets

 

3,707

 

2,510

Cash payments to construct assets in connection with future lease transactions

(603)

(37,042)

Cash receipts in connection with leased vehicles

391

21,995

Loan to Ferrellgas Partners, L.P.

(23,808)

Net cash used in investing activities

 

(70,783)

 

(76,188)

Cash flows from financing activities:

 

  

 

  

Distributions

 

 

(15,654)

Proceeds from sale of preferred units, net of issue discount and offering costs

 

670,429

 

Proceeds from issuance of long-term debt

 

1,475,000

 

703,750

Payments on long-term debt

 

(1,540)

 

(1,422)

Payment for settlement and early extinguishment of liabilities

(2,175,000)

(283,863)

Payment of redemption premium on debt extinguishment

(83,072)

(17,516)

Net reductions in short-term borrowings

 

 

(43,000)

Cash payments for principal portion of finance lease liability

 

(5,282)

 

(944)

Net additions to collateralized short-term borrowings

 

 

(62,000)

Cash paid for financing costs

 

(43,520)

 

(26,667)

Net cash provided by (used in) financing activities

 

(162,985)

 

252,684

Net change in cash and cash equivalents

 

(123,504)

307,791

Cash and cash equivalents - beginning of period

 

333,755

 

11,046

Cash, cash equivalents and restricted cash - end of period

$

210,251

$

318,837

See notes to condensed consolidated financial statements.

41

FERRELLGAS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise designated)

(unaudited)

A.    Partnership organization and formation

Ferrellgas, L.P. (the “operating partnership”) is a limited partnership that owns and operates propane distribution and related assets. Ferrellgas Partners, L.P. (“Ferrellgas Partners”), a publicly traded limited partnership, holds an approximate 99% limited partner interest in, and consolidates, the operating partnership. Ferrellgas, Inc., a Delaware corporation and a wholly-owned subsidiary of Ferrell Companies, Inc., a Kansas corporation (“Ferrell Companies”), is the sole general partner of Ferrellgas Partners and of the operating partnership. Ferrellgas, Inc. has retained an approximate 1% general partner economic interest in Ferrellgas Partners and also holds an approximate 1% general partner economic interest in the operating partnership, representing an effective 2% general partner economic interest in the operating partnership on a combined basis.

As the sole general partner of Ferrellgas Partners and the operating partnership, Ferrellgas, Inc. performs all management functions required by Ferrellgas Partners and the operating partnership. Ferrellgas Partners and the operating partnership, collectively referred to as “Ferrellgas,” are governed by their respective partnership agreements. These agreements contain specific provisions for the allocation of net earnings and loss to each of the partners for purposes of maintaining the partner capital accounts.

The operating partnership owns a 100% equity interest in Ferrellgas Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of debt issued by the operating partnership.

The operating partnership is primarily engaged in the retail distribution of propane and related equipment sales. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. The operating partnership serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico.

Due to seasonality, the results of operations for the nine months ended April 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2021.

The condensed consolidated financial statements of the operating partnership and subsidiaries reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas, L.P.’s Annual Report on Form 10-K for fiscal 2020.

Recent Developments

Chapter 11 Bankruptcy Cases

As previously reported, on January 11, 2021, Ferrellgas Partners and Ferrellgas Partners Finance Corp. filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases were jointly administered under the caption and case numbers, In re: Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., Chapter 11 Case Nos. 21-10020 and 21-10021.

On March 5, 2021, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Second Amended Prepackaged Joint Chapter 11 Plan of Reorganization of Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. (the “Plan”).

On March 30, 2021 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied and the Confirmation Order was deemed binding upon Ferrellgas Partners, Ferrellgas Partners Finance Corp. and all other parties affected by the Plan. In satisfying the conditions of the Plan, on the Effective Date, certain restructuring

42

transactions by Ferrellgas Partners and certain financing transactions by the operating partnership were completed, as further described under “–Transactions” below.

Transactions

Satisfaction of Ferrellgas Partners Notes; Issuance of Class B Units to Holders of Ferrellgas Partners Notes

On the Effective Date, by operation of the Plan, all outstanding indebtedness (including accrued interest) of Ferrellgas Partners and Ferrellgas Partners Finance Corp. under their $357.0 million aggregate principal amount of 8.625% senior unsecured notes due June 2020 (the “Ferrellgas Partners Notes”) were discharged and cancelled.

Pursuant to the Plan, Ferrellgas Partners issued an aggregate of 1.3 million of its Class B Units to holders of the Ferrellgas Partners Notes in satisfaction of their claims in respect of the Ferrellgas Partners Notes.

Issuance of Preferred Units

On the Effective Date, the operating partnership and the general partner (in its capacity as the general partner of operating partnership) entered into an Investment Agreement (the “Investment Agreement”) with certain purchasers named therein, pursuant to which, on the Effective Date, the operating partnership issued and sold to such purchasers an aggregate of 700,000 Senior Preferred Units (the “Preferred Units”), having an aggregate initial liquidation preference of $700.0 million. The purchase price per Preferred Unit was $1,000 less a 3.0% purchase price discount, for an aggregate purchase price of $679.0 million.

The operating partnership received net proceeds from the issuance and sale of the Preferred Units of approximately $651.8 million, after deducting the purchase price discount and certain expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the 2026 Notes and the 2029 Notes (as defined and described below) and cash on hand, (i) to redeem (or satisfy and discharge and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note G – Preferred units for additional discussion.

Issuance of Senior Unsecured Notes

On the Effective Date, 2 wholly-owned subsidiaries of the operating partnership (the “Escrow Issuers”) issued $650.0 million aggregate principal amount of 5.375% senior notes due 2026 (the “2026 Notes”) and $825.0 million aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”), in each case, at an offering price equal to 100% of the principal amount thereof. On the Effective Date and immediately after the issuance of the 2026 Notes and the 2029 Notes by the Escrow Issuers, (i) the Escrow Issuers were merged into the operating partnership and Ferrellgas Finance Corp., respectively, and the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes, and (ii) the general partner and certain subsidiaries of the operating partnership guaranteed the 2026 Notes and the 2029 Notes.

The operating partnership received aggregate net proceeds from the issuance and sale of the 2026 Notes and the 2029 Notes of approximately $1,446.5 million, after deducting the initial purchaser’s discount and offering expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the Preferred Units and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note F – Debt for additional discussion.

Redemption of Previously Issued Senior Notes

Prior to the Effective Date, the operating partnership delivered notices of redemption of all its previously issued and outstanding 10.00% senior secured notes due 2025 (the “2025 Notes”), 6.50% senior unsecured notes due 2021 (the “2021 Notes”), 6.75% senior unsecured notes due 2022 (the “2022 Notes”) and 6.75% senior unsecured notes due 2023 (the “2023 Notes”), in the aggregate combined principal amount for all such notes of $2,175.0 million, pursuant the

43

terms of the indentures governing those notes, with a redemption date of March 30, 2021 for the 2025 Notes and April 5, 2021 for the 2021 Notes, the 2022 Notes and the 2023 Notes.

On the Effective Date, the operating partnership redeemed all of the issued and outstanding 2025 Notes. Also on the Effective Date, the operating partnership (i) satisfied and discharged the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes by irrevocably depositing with the applicable trustees under such indentures funds in an amount sufficient to pay the redemption price for all of such notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the applicable trustees to apply such funds to the redemption of such notes on April 5, 2021. As a result, as of the Effective Date, the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2021 Notes, 2022 Notes and 2023 Notes were redeemed on April 5, 2021.

The aggregate redemption price for the 2021 Notes, the 2022 Notes, the 2023 Notes and the 2025 Notes was approximately $2,320.9 million, consisting of principal, redemption premium (in the case of the 2023 Notes and the 2025 Notes) and accrued and unpaid interest to the applicable redemption date. See Note F – Debt for additional discussion.

Credit Agreement

On the Effective Date, the operating partnership, the general partner and certain of the operating partnership’s subsidiaries entered into a Credit Agreement, which provides for a four-year revolving credit facility in an aggregate principal amount of up to $350.0 million, including a sublimit not to exceed $225.0 million for the issuance of letters of credit for a period of 60 days after March 30, 2021, reducing to $200.0 million thereafter. See Note F – Debt for additional discussion.

Termination of Accounts Receivable Securitization Facility

On the Effective Date, the operating partnership and its receivables subsidiary repaid all of the outstanding obligations and fees under the then-existing accounts receivable securitization facility and terminated that facility. See Note E – Accounts and notes receivable, net for additional discussion.

Amended Partnership Agreement

On the Effective Date, the general partner executed (i) the Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. (the “Amended OpCo LPA”), which amended and restated in its entirety the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas L.P., and (ii) a First Amendment to the Amended OpCo LPA (the “OpCo LPA First Amendment”), which sets forth the preferences, rights, privileges and other terms of the Preferred Units.

44

B.    Summary of significant accounting policies

(1) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for expected credit losses, fair value of reporting units, recoverability of long-lived assets, assumptions used to value business combinations, determination of incremental borrowing rate used to measure right-of-use asset and lease liability, fair values of derivative contracts and stock-based compensation calculations.

Update to accounting estimates:

On August 1, 2020 Ferrellgas, L.P. adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). As a result, we updated our significant accounting policies for the measurement of expected credit losses below.

Allowance for expected credit losses

Ferrellgas, L.P. closely monitors accounts receivable balances and estimates the allowance for expected credit losses. The estimate is primarily based on historical collection experience and other factors, including those related to current market conditions and events. The expected credit losses associated with accounts receivable have not historically been material and the adoption impact on Ferrellgas, L.P.’s allowance for expected credit losses was immaterial as of April 30, 2021.

(2) New accounting standards:

FASB Accounting Standard Update No. 2016-13

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas, L.P. adopted the amended guidance effective August 1, 2020. The adoption of this standard did not have a material impact on the condensed consolidated financial statements..

45

C. Leases

The following table provides the operating and financing ROU assets and lease liabilities as of April 30, 2021 and July 31, 2020:

Leases

Classification

April 30, 2021

July 31, 2020

Assets

Operating lease assets

Operating lease right-of-use assets

$

93,341

$

107,349

Financing lease assets

Other assets, net

36,747

41,426

Total leased assets

$

130,088

$

148,775

Liabilities

Current

Operating

Current operating lease liabilities

$

26,669

$

29,345

Financing

Other current liabilities

7,460

6,955

Noncurrent

Operating

Operating lease liabilities

78,498

89,022

Financing

Other liabilities

29,559

33,473

Total leased liabilities

$

142,186

$

158,795

46

The following table provides the lease expenses for the three and nine months ended April 30, 2021 and 2020:

    

For the three months ended April 30, 

    

For the nine months ended April 30, 

Leases expense

    

Classification

2021

2020

2021

2020

Operating lease expense

Operating expense - personnel, vehicle, plant and other

$

1,846

$

1,946

$

5,126

$

5,351

Operating expense - equipment lease expense

6,373

7,602

19,328

23,365

Cost of sales - propane and other gas liquids sales

461

370

1,479

1,083

General and administrative expense

(169)

528

307

1,491

Total operating lease expense

8,511

10,446

26,240

31,290

Short-term expense

Operating expense - personnel, vehicle, plant and other

2,003

1,512

5,908

5,478

General and administrative expense

111

123

475

374

Total short-term expense

2,114

1,635

6,383

5,852

Variable lease expense

Operating expense - personnel, vehicle, plant and other

784

751

2,328

2,097

Operating expense - equipment lease expense

397

473

1,134

1,359

Total variable lease expense

1,181

1,224

3,462

3,456

Finance lease expense:

Amortization of leased assets

Depreciation and amortization expense

2,229

754

6,583

1,229

Interest on lease liabilities

Interest expense

933

183

2,841

543

Total finance lease expense

3,162

937

9,424

1,772

Total lease expense (a)

$

14,968

$

14,242

$

45,509

$

42,370

(a)For the three and nine months ended April 30, 2021 Ferrellgas, L.P. also recognized $0.1 million and $0.4 million, respectively, of expense related to the accretion of lease exit costs associated with a crude oil storage agreement that is no longer being utilized, primarily due to various Midstream dispositions, and for which Ferrellgas does not anticipate any future economic benefit.

Minimum annual payments under existing operating and finance lease liabilities as of April 30, 2021 are as follows:

Maturities of lease liabilities

Operating leases

Finance leases

Total

2021

$

10,376

$

3,391

$

13,767

2022

28,860

10,148

39,008

2023

36,674

8,149

44,823

2024

19,782

7,564

27,346

2025

13,943

7,577

21,520

Thereafter

21,931

11,559

33,490

Total lease payments

$

131,566

$

48,388

$

179,954

Less: Imputed interest

26,399

11,369

37,768

Present value of lease liabilities

$

105,167

$

37,019

$

142,186

47

The following table represents the weighted-average remaining lease term and discount rate as of April 30, 2021:

As of April 30, 2021

Lease type

Weighted-average remaining lease term (years)

Weighted-average discount rate

Operating leases

4.9

8.3%

Finance leases

5.4

8.8%

Cash flow information is presented below:

For the nine months ended April 30, 

2021

    

2020

Cash paid for amounts included in the measurement of lease liabilities for operating leases:

Operating cash flows

$

26,454

$

32,104

Cash paid for amounts included in the measurement of lease liabilities for financing leases:

Operating cash flows

$

2,571

$

543

Financing cash flows

$

5,282

$

944

D.    Supplemental financial statement information

Inventories consist of the following:

    

April 30, 2021

    

July 31, 2020

Propane gas and related products

$

56,369

$

58,733

Appliances, parts and supplies, and other

 

13,373

 

13,931

Inventories

$

69,742

$

72,664

In addition to inventories on hand, Ferrellgas, L.P. enters into contracts to take delivery of propane for supply procurement purposes with terms that generally do not exceed 36 months. Most of these contracts call for payment based on market prices at the date of delivery. As of April 30, 2021, Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately 11.6 million gallons of propane at fixed prices.

Prepaid expenses and other current assets consist of the following:

    

April 30, 2021

    

July 31, 2020

Broker margin deposit assets

$

14,972

$

14,398

Price risk management asset

29,612

2,846

Other

 

29,380

18,653

Prepaid expenses and other current assets

$

73,964

$

35,897

Other current liabilities consist of the following:

    

April 30, 2021

    

July 31, 2020

Accrued interest

$

7,754

$

34,511

Customer deposits and advances

 

29,296

 

32,257

Accrued payroll

 

22,646

 

18,375

Accrued insurance

 

11,305

 

14,796

Broker margin deposit liability

34,581

510

Other

 

69,818

 

47,687

Other current liabilities

$

175,400

$

148,136

48

Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

Operating expense - personnel, vehicle, plant and other

$

56,989

$

54,664

$

161,242

$

167,666

Depreciation and amortization expense

 

3,347

 

2,007

 

9,828

 

5,883

Operating expense - equipment lease expense

 

5,551

 

8,308

 

17,227

 

23,934

$

65,887

$

64,979

$

188,297

$

197,483

Cash and cash equivalents consist of the following:

    

April 30, 2021

    

July 31, 2020

Cash and cash equivalents

$

198,751

$

237,996

Restricted cash (1)

 

11,500

 

95,759

Cash, cash equivalents and restricted cash

$

210,251

$

333,755

(1)As of April 30, 2021, restricted cash includes an $11.5 million cash deposit made with the administrative agent under the operating partnership’s senior secured credit facility that was terminated in April 2020, which may be used by the administrative agent to pay contingent obligations arising under the financing agreement that governed the terminated senior secured credit facility. As of July 31, 2020, the $95.8 million of restricted cash includes $78.2 million of pledged cash collateral for letters of credit outstanding, the $11.5 million cash deposit made with the administrative agent under the terminated senior secured credit facility and $6.1 million of additional pledged collateral. For additional discussion see Note F – Debt.

For purposes of the condensed consolidated statements of cash flows, Ferrellgas, L.P. considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Certain cash flow and significant non-cash activities are presented below:

For the nine months ended April 30, 

    

2021

    

2020

Cash paid for:

Interest

$

154,834

$

81,023

Income taxes

$

424

$

1

Non-cash investing and financing activities:

 

  

 

  

Liability incurred in connection with Financing Agreement amendment

$

$

8,863

Change in accruals for property, plant and equipment additions

$

(48)

$

486

Lease liabilities arising from operating right-of-use assets

$

7,315

$

20,886

Lease liabilities arising from finance right-of-use assets

$

1,904

$

21,156

Accrued fees relating to senior preference units

$

18,575

$

Accrued senior preferred units distributions

$

8,011

$

E.    Accounts and notes receivable, net

Accounts and notes receivable, net consist of the following:

    

April 30, 2021

    

July 31, 2020

Accounts receivable (a)

$

175,510

$

102,914

Note receivable

 

13,648

 

12,648

Less: Allowance for expected credit losses

 

(18,642)

 

(14,124)

Accounts and notes receivable, net

$

170,516

$

101,438

(a)At July 31, 2020, $103.7 million was pledged as collateral under the terminated accounts receivable securitization facility, discussed below.

49

On March 30, 2021, Ferrellgas terminated the agreement governing the accounts receivable securitization facility, initially dated as of January 19, 2012 and as subsequently amended from time to time (the “Accounts Receivables Facility”). In connection with the termination of the Accounts Receivables Facility, Ferrellgas repaid all of the outstanding obligations and fees thereunder.

F.    Debt

Long-term debt

Long-term debt consists of the following:

    

April 30, 2021

    

July 31, 2020

Unsecured senior notes

 

  

 

  

Fixed rate, 6.50%, due 2021 (1)

$

$

500,000

Fixed rate, 6.75%, due 2023 (2)

 

 

500,000

Fixed rate, 6.75%, due 2022, net of unamortized premium of $937 at July 31, 2020 (3)

 

 

475,937

Fixed rate, 5.375%, due 2026 (4)

650,000

Fixed rate, 5.875%, due 2029 (4)

825,000

Secured senior notes

 

  

 

  

Fixed rate, 10.00%, due 2025, net of unamortized premium of $3,573 at July 31, 2020 (5)

 

 

703,573

Notes payable

 

  

 

  

7.7% and 9.4% weighted average interest rate at April 30, 2021 and July 31, 2020, respectively, due 2021 to 2029, net of unamortized discount of $296 and $537 at April 30, 2021 and July 31, 2020, respectively

 

3,063

 

4,564

Total debt, excluding unamortized debt issuance and other costs

 

1,478,063

 

2,184,074

Unamortized debt issuance and other costs

 

(33,403)

 

(35,583)

Less: current portion of long-term debt

 

1,565

 

502,095

Long-term debt

$

1,443,095

$

1,646,396

(1)During November 2010, the operating partnership issued $500.0 million aggregate principal amount of 6.50% senior notes due 2021 (referred to herein as the 2021 Notes). The outstanding principal amount of the 2021 Notes was due on May 1, 2021. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2021 Notes pursuant the terms of the indenture governing the 2021 Notes, with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2021 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2021 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2021 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2021 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2021 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2021 Notes was $513.9 million, consisting of principal and accrued and unpaid interest to the redemption date.
(2)During June 2015, the operating partnership issued $500.0 million aggregate principal amount of 6.75% senior notes due 2023 (referred to herein as the 2023 Notes). The outstanding principal amount of the 2023 Notes was due June 15, 2023. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2023 Notes pursuant the terms of the indenture governing the 2023 Notes, with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2023 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2023 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2023 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2023 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2023 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2023 Notes was $518.8 million, consisting of principal, redemption premium and accrued and unpaid interest to the redemption date.

50

(3)During fiscal 2014, the operating partnership issued $475.0 million aggregate principal amount of 6.75% senior notes due 2022 (referred to herein as the 2022 Notes), $325.0 million of which was issued at par and $150.0 million of which was issued at 104% of par. The outstanding principal amount of the 2022 Notes was due January 15, 2022. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2022 Notes pursuant the terms of the indenture governing the 2022 Notes, with a redemption date of April 5, 2021. On the Effective Date, the operating partnership (i) satisfied and discharged the indenture governing the 2022 Notes by irrevocably depositing with the trustee under such indenture funds in an amount sufficient to pay the redemption price for all of the 2022 Notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the trustee to apply such funds to the redemption of the 2022 Notes on April 5, 2021. As a result, as of the Effective Date, the indenture governing the 2022 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2022 Notes were redeemed on April 5, 2021. The aggregate redemption price for the 2022 Notes was $482.0 million, consisting of principal and accrued and unpaid interest to the redemption date.
(4)On the Effective Date, 2 wholly-owned subsidiaries of the operating partnership (referred to herein as the Escrow Issuers) issued $650.0 million aggregate principal amount of 5.375% senior notes due 2026 (referred to herein as the 2026 Notes) and $825.0 million aggregate principal amount of 5.875% senior notes due 2029 (referred to herein as the 2029 Notes). On the Effective Date and immediately after the issuance of the 2026 Notes and 2029 Notes by the Escrow Issuers, (i) the Escrow Issuers were merged into the operating partnership and Ferrellgas Finance Corp., respectively, and the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes, and (ii) the general partner and certain subsidiaries of the operating partnership guaranteed the 2026 Notes and the 2029 Notes. The 2026 Notes and 2029 Notes bear interest from the date of issuance, payable semi-annually in arrears on October 1 and April 1 of each year. The 2026 Notes will mature on April 1, 2026, and the 2029 Notes will mature on April 1, 2029. See “–Senior unsecured notes” below for additional discussion.
(5)During April 2020, the operating partnership issued $700.0 million aggregate principal amount of 10.00% senior secured notes due 2025 (referred to herein as the 2025 Notes), $575.0 million of which was issued at par and $125.0 million of which was issued at 103% of par. The outstanding principal amount of the 2025 Notes was due on April 15, 2025. Prior to the Effective Date, the operating partnership delivered a notice of redemption of all of the issued and outstanding 2025 Notes pursuant the terms of the indenture governing the 2025 Notes, with a redemption date of March 30, 2021, and all of the issued and outstanding 2025 Notes were redeemed on the Effective Date. The aggregate redemption price for the 2025 Notes was $806.2 million, consisting of principal, redemption premium and accrued and unpaid interest to the redemption date.

Senior secured revolving credit facility

On the Effective Date, the operating partnership, the general partner and certain of the operating partnership’s subsidiaries entered into a Credit Agreement (the “Credit Agreement”), which provides for a four-year revolving credit facility (the “Credit Facility”) in an aggregate principal amount of up to $350.0 million, including a sublimit not to exceed $225.0 million for the issuance of letters of credit for a period of 60 days after March 30, 2021, reducing to $200.0 million thereafter.

All borrowings under the Credit Facility are guaranteed by the general partner and the direct and indirect subsidiaries of the operating partnership (other than Ferrellgas Finance Corp. and Ferrellgas Receivables, LLC) and a limited-recourse guaranty from Ferrellgas Partners (limited to its equity interests in the operating partnership). Additionally, all borrowings are secured, on a first priority basis, by substantially all of the assets of the operating partnership and its subsidiaries and all of the equity interests in the operating partnership held by the general partner and Ferrellgas Partners.

Availability under the Credit Facility is, at any time, an amount equal to (a) the lesser of the revolving commitment (initially $350.0 million) and the Borrowing Base (as defined below) minus (b) the sum of the aggregate outstanding amount of borrowings under Credit Facility plus the undrawn amount of outstanding letters of credit under the Credit Facility plus unreimbursed drawings in respect of letters of credit (unless otherwise converted into revolving loans). The "Borrowing Base" equals the sum of: (a) $200.0 million, plus (b) 80% of the eligible accounts receivable of the operating partnership and its subsidiaries, plus (c) 70% of the eligible propane inventory of the operating partnership and its subsidiaries, valued at weighted average cost, less (d) certain reserves, as determined and subject to certain modifications by the administrative agent in its permitted discretion.

51

Amounts borrowed under the Credit Facility bear interest, at the operating partnership's option, at either (a) for base rate loans, (i) a base rate determined by reference to the highest of (A) the rate of interest last quoted by The Wall Street Journal in the U.S. as the prime rate in effect, (B) the NYFRB Rate from time to time plus 0.50% per annum and (C) the Adjusted LIBO Rate for a one-month interest period plus 1.00% per annum plus (ii) a margin of 1.50% to 2.00% per annum depending on total net leverage or (b) for Eurodollar rate loans, (i) a rate determined by reference to the Adjusted LIBO Rate plus (ii) a margin of 2.50% to 3.00% per annum depending on total net leverage. The operating partnership will be required to pay an undrawn fee to the lenders on the average daily unused amount of the Credit Facility at a rate of 0.375% to 0.50% per annum depending on total net leverage.

The Credit Agreement contains customary representations, warranties, covenants and events of default.

The financial covenants in the Credit Agreement require the operating partnership to maintain: (1) a minimum interest coverage ratio (defined generally as the ratio of adjusted EBITDA to cash interest expense) of 2.50 to 1.00, (2) a maximum secured leverage ratio (defined generally as the ratio of total first priority secured indebtedness to adjusted EBITDA) of 2.50 to 1.00, and (3) a maximum total net leverage ratio (defined generally as the ratio of total indebtedness (net of unrestricted cash, subject to certain limits) to adjusted EBITDA) of 5.50 to 1.00 initially. The maximum total net leverage ratio adjusts to 5.25 to 1.00 starting with the quarter ending April 30, 2022, 5.00 to 1.00 starting with the quarter ending October 31, 2022, and 4.75 to 1.00 starting with the quarter ending April 30, 2023.

In addition to the financial covenants, the Credit Agreement includes covenants that may (or if not met will) restrict the ability of the operating partnership to, among other things: incur indebtedness or liens; effect certain fundamental changes, including mergers, consolidations, liquidations, dissolutions and changes in line of business; make certain restricted payments, including distributions to holders of Preferred Units, Ferrellgas Partners and the general partner and redemptions of Preferred Units; make investments, loans or advances; dispose of assets; effect sale and leaseback transactions; enter into swap agreements; make optional payments and modifications of subordinated and other debt instruments; enter into transactions with affiliates; agree to negative pledge clauses and burdensome agreements; and effect amendments to organizational documents.

In particular, under these covenants, subject to certain exceptions and additional requirements, the operating partnership is permitted to make cash distributions to holders of Preferred Units, Ferrellgas Partners and the general partner, redemptions of Preferred Units and other restricted payments (i) only in limited amounts specified in the Credit Agreement and (ii) only if availability under the Credit Facility exceeds the greater of $50.0 million and 15% of the Borrowing Base and the operating partnership’s total net leverage ratio is not greater than 5.0 to 1.0 (or 4.75 to 1.0 starting on April 30, 2023).

On June 11, 2021, Ferrellgas, L.P. entered into the First Amendment to the Credit Agreement. See Note N – Subsequent events for further discussion.

Senior unsecured notes

As discussed above, on the Effective Date, (i) the Escrow Issuers issued $650.0 million aggregate principal amount of 2026 Notes and $825.0 million aggregate principal amount of 2029 Notes, and (ii) the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes upon the merger of the Escrow Issuers into the operating partnership and Ferrellgas Finance Corp., respectively. The operating partnership received aggregate net proceeds from the issuance and sale of the 2026 Notes and the 2029 Notes of approximately $1,446.5 million, after deducting the initial purchaser’s discount and estimated offering expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the Preferred Units, as discussed in Note G – Preferred units, and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the issued and outstanding 2021 Notes, 2022 Notes, 2023 Notes and 2025 Notes, as described above, and (ii) to repay all outstanding obligations under the Accounts Receivable Facility in connection with the termination of that facility, as described in Note E – Accounts and notes receivable, net.

The 2026 Notes and 2029 Notes are the senior unsecured obligations of the operating partnership and Ferrellgas Finance Corp. and are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the general partner and all domestic subsidiaries of the operating partnership other than Ferrellgas Finance Corp. and Ferrellgas Receivables, LLC.

52

The 2026 Notes may be redeemed prior to April 1, 2023 and the 2029 Notes may be redeemed prior to April 1, 2024 at the issuer’s option, in whole or in part, at a redemption price of par plus the applicable make-whole premium and accrued and unpaid interest. On and after April 1, 2023 and April 1, 2024, the 2026 Notes and the 2029 Notes, respectively, may be redeemed at the issuer’s option, in whole or in part, at the redemption prices set forth in the respective indenture governing such notes, plus accrued and unpaid interest. Beginning on April 1, 2025 and April 1, 2026, the 2026 Notes and 2029 Notes, respectively, may be redeemed at par plus accrued and unpaid interest.

The indentures governing the 2026 Notes and 2029 Notes contain customary affirmative and negative covenants restricting, among other things, the ability of the operating partnership and its restricted subsidiaries to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions (including distributions to holders of Preferred Units, Ferrellgas Partners and the general partner) or repurchase or redeem their equity interests (including redemptions of Preferred Units); repurchase or redeem certain debt; make certain other restricted payments or investments; sell assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the operating partnership’s subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially of their assets. The indentures also restrict the ability of the general partner to engage in certain activities.

In particular, under these covenants, subject to certain exceptions and additional requirements, the operating partnership is permitted to make cash distributions to holders of Preferred Units, Ferrellgas Partners and the general partner, redemptions of Preferred Units and other restricted payments (i) only in limited amounts specified in the indentures and (ii) only if the operating partnership’s net leverage ratio (defined generally to mean the ratio of consolidated total net debt to trailing 4 quarters consolidated EBITDA, both as adjusted for certain, specified items) is not greater than 5.0 to 1.0, on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. Further, if the operating partnership’s consolidated fixed charge coverage ratio (defined generally to mean the ratio of trailing 4 quarters consolidated EBITDA to consolidated fixed charges, both as adjusted for certain, specified items) is equal to or less than 1.75 to 1.00 (on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events), the amount of distributions and other restricted payments the operating partnership is permitted to make under the indentures is further limited.

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

Payment due by fiscal year

    

Scheduled
principal payments

2021

$

580

2022

 

1,335

2023

 

899

2024

 

329

2025

 

199

Thereafter

 

1,475,019

Total

$

1,478,361

Letters of credit outstanding at April 30, 2021 and July 31, 2020 totaled $138.2 million and $126.0 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. As of April 30, 2021, Ferrellgas, L.P. had available borrowing capacity under its Credit Facility of $211.8 million, which included remaining available letter of credit capacity of $86.8 million. At July 31, 2020, Ferrellgas, L.P. did not have in place a credit facility providing for the issuance of letters of credit and had $78.2 million of restricted cash pledged as cash collateral for letters of credit outstanding. Additionally, at July 31, 2020, Ferrellgas, L.P. also issued letters of credit of $50.0 million by utilizing our liquidity available on the terminated accounts receivable securitization facility.

53

G.    Preferred units

On the Effective Date, pursuant to the Investment Agreement, the operating partnership issued an aggregate of 700,000 Preferred Units, having an aggregate initial liquidation preference of $700.0 million. The purchase price per Preferred Unit was $1,000 less a 3.0% purchase price discount, for an aggregate purchase price of $679.0 million. The operating partnership received net proceeds from the issuance and sale of the Preferred Units of approximately $651.8 million, after deduction of the purchase price discount and certain expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the 2026 Notes and the 2029 Notes and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the issued and outstanding 2021 Notes, 2022 Notes, 2023 Notes and 2025 Notes, as described in Note F - Debt, and (ii) to repay all outstanding obligations under the Accounts Receivable Facility in connection with the termination of that facility, as described in Note E – Accounts and notes receivable, net.

The following table summarizes the changes in the number of the Preferred Units:

Preferred Units

Balance at January 31, 2021

 

Preferred units issued

 

700,000

Balance at April 30, 2021

 

700,000

The preferences, rights, privileges and other terms of the Preferred Units are set forth in the OpCo LPA Amendment entered into by the general partner on the Effective Date (along with the Amended OpCo LPA) and are described below.

Issuer Redemption Right

The operating partnership has the right to redeem all or a portion of the Preferred Units for cash, pro rata and at any time and from time to time, including in connection with a Change of Control (as defined in the OpCo LPA Amendment), at an amount per Preferred Unit (the “Redemption Price”) equal to, without duplication, the sum of (a) the greater of (i) the amount necessary to result in a MOIC (as defined below) of 1.47x in respect of the purchase price, before discount, of such Preferred Unit, which is $1,000 per Preferred Unit (the “Purchase Price”), and (ii) the amount necessary to result in the applicable internal rate of return equal to 12.25%, which is increased by 150 basis points if the operating partnership has elected to pay more than four Quarterly Distributions (as defined below) in PIK Units (as defined below) and (b) the accumulated but unpaid Quarterly Distributions to the date of redemption, if any. A partial redemption of the Preferred Units is permitted only in the event the aggregate amount to be paid in respect of all Preferred Units included in such partial redemption is at least $25.0 million.

MOIC” means, with respect to a Preferred Unit, a multiple on invested capital equal to the quotient determined by dividing (A) the sum of (x) the aggregate amount of all distributions made in cash with respect to such Preferred Unit prior to the applicable date of determination, with certain exclusions, plus (y) each Redemption Price paid in cash in respect of such Preferred Unit, on or prior to the applicable date of determination, by (B) the Purchase Price of such Preferred Unit.

Investor Redemption Right

In the event that (i) any Class B Units are outstanding, or (ii) (x) 0 Class B Units are outstanding and (y) no more than 233,300 Preferred Units are outstanding, at any time on and after the tenth anniversary of the Effective Date the Required Holders may elect, by delivery of written notice, to have the operating partnership fully redeem each remaining outstanding Preferred Unit for an amount in cash equal to the Redemption Price. “Required Holders” refers to both (i) holders owning at least 33.3% of the total Preferred Units outstanding at any time and (ii) certain initial affiliated purchasers, for so long as such initial affiliated purchasers collectively own at least 25% of the Preferred Units outstanding at such time.

In the event that (i) 0 Class B Units are outstanding and (ii) more than 233,300 Preferred Units are outstanding, the Required Holders will have the right to trigger a sale of the operating partnership after the tenth anniversary of the Effective Date. If the operating partnership fails to consummate a sale that would pay the Redemption Price in full within 180 days of written notice requiring such sale, the Required Holders will have the right to appoint a majority of the members of the Board of Directors of the general partner and initiate a sale of the operating partnership.

54

Change of Control

Upon a Change of Control (as defined in the OpCo LPA Amendment), the Required Holders will have the option to require the redemption of all or a portion of the Preferred Units in cash in an amount equal to the Redemption Price; provided, that such Redemption Price shall not be payable unless the operating partnership shall have first made any required change of control offer pursuant to the indentures governing the 2026 Notes and the 2029 Notes and purchased all such 2026 Notes and 2029 Notes tendered pursuant to such offer (unless otherwise waived by such noteholders); provided, further that the Redemption Price shall be paid immediately following the purchase of such tendered Notes (if any).

Ferrellgas identified the issuer redemption right, the investor redemption right, and the change in control option as embedded derivatives that require bifurcation as they are not clearly and closely related to the debt host contract and has concluded that the fair values at issuance and at April 30, 2021, are immaterial to the financial statements.

Distributions

Pursuant to the OpCo LPA Amendment, the operating partnership will pay to the holders of each Preferred Unit a cumulative, quarterly distribution (the "Quarterly Distribution") at the Distribution Rate (as defined below) on the Purchase Price.

"Distribution Rate" means, for the first five years after March 30, 2021, a rate per annum equal to 8.956%, with certain increases in the Distribution Rate on each of the 5th, 6th and 7th anniversaries of March 30, 2021, subject to a maximum rate of 11.125% and certain other adjustments and exceptions.

The Quarterly Distribution will be paid in cash; provided, that the operating partnership may, at its option in its sole discretion, pay any Quarterly Distribution "in kind" through the issuance of additional Preferred Units ("PIK Units") at the quarterly Distribution Rate plus an applicable premium that escalates each year from 75 bps to 300 bps so long as the Preferred Units remain outstanding. In the event the operating partnership fails to make any Quarterly Distribution in cash, such Quarterly Distribution will automatically be paid in PIK Units.

The Distribution Rate on the Preferred Units will increase upon violation of certain protective provisions for the benefit of Preferred Unit holders notwithstanding the cap mentioned above.

As of April 30, 2021, the Quarterly Distribution accrued was $8.0 million, reflecting a prorated distribution amount for the period from the Effective Date to April 30, and the Quarterly Distribution in that amount was paid in cash to holders of Preferred Units on May 17, 2021.

Tax Distributions

For any quarter in which the operating partnership makes a Quarterly Distribution in PIK Units in lieu of cash, it will be required to make a subsequent cash tax distribution for such quarter in an amount equal to the (i) the lesser of (x) 25% and (y) the highest combined federal, state and local tax rate applicable for corporations organized in New York, multiplied by (ii) the excess (if any) of (A) one-fourth (1/4th) of the estimated taxable income to be allocated to the holders of Preferred Units for the year in which the Quarterly Tax Payment Date (which refers to certain specified dates that next follow a Quarterly Distribution date on which PIK Units were issued) occurs, over (B) any cash paid on the Quarterly Distribution date immediately preceding the Quarterly Tax Payment Date on which a quarterly tax amount would otherwise be paid (such amount, the "Tax Distribution"). Tax Distributions are treated as advances against, and reduce, future cash distributions for any reason, including payments in redemption of Preferred Units or PIK Units, or payments to the holders in their capacity as such pursuant to any side letter or other agreement.

Additional Amounts for Certain Purchasers

The operating partnership is required to pay certain additional amounts of cash (the “Additional Amounts”) as necessary to certain holders of Preferred Units that hold their interests through a “blocker,” which is a U.S. entity that is owned and organized by certain original purchasers of Preferred Units who are non-U.S. persons or tax exempt for U.S. tax purposes and is treated as a corporation for U.S. tax purposes. Only certain original purchasers of Preferred Units who hold their Preferred Units through such blockers are, and none of their transferees is, entitled to Additional Amounts. Additional Amounts are capped at the lesser of: (a) the product of 20% multiplied by taxable income allocated to a “blocker” (as defined) divided by 0.8, and (b) the actual taxes payable by the “blocker” as a result of holding Senior Preferred Units.

55

Board Rights

For so long as at least 140,000 Preferred Units remain outstanding, holders of the Preferred Units have the right to designate 1 director to the Board of the general partner, subject to approval by the general partner.

Protective Provisions

The OpCo LPA Amendment and the Amended Ferrellgas Partners LPA include, among other things, certain covenants for the benefit of holders of Preferred Units applicable to the operating partnership and, in certain instances, Ferrellgas Partners, for so long as at least $35,000,000 of Preferred Units and PIK Units remain outstanding. These covenants include, among other things, limitations on (i) effecting a Change of Control, (ii) amending organizational documents, (iii) issuing certain equity securities, (iv) issuing Preferred Units, (v) filing for bankruptcy, (vi) non-ordinary course investments, and (vii) incurring certain levels of indebtedness.

Ranking and Liquidation Preference

The Preferred Units rank senior to any other class or series of equity interests of the operating partnership (including the partnership interests held by Ferrellgas Partners and the general partner). Upon a liquidation, dissolution or winding up of the operating partnership, each holder of Preferred Units will be entitled to receive, prior and in preference to any distribution of any assets of the operating partnership to the holders of any other class or series of equity interests in the operating partnership (including Ferrellgas Partners and the general partner), an amount per Preferred Unit equal to the Redemption Price.

Restrictions on Cash Distributions to Ferrellgas Partners and the General Partner

The operating partnership is permitted to make distributions of Available Cash (as defined in the Amended OpCo LPA) to Ferrellgas Partners and the general partner only if (i) the operating partnership has made all required Quarterly Distributions (in cash or PIK Units), Tax Distributions and payments of Additional Amounts, (ii) the operating partnership has redeemed all PIK Units issued, (iii) the operating partnership’s consolidated net leverage (defined generally to mean the ratio of the operating partnership’s consolidated total net debt (including the total redemption price of all outstanding Preferred Units and PIK Units but excluding certain letters of credit and capital lease obligations) as of each Quarterly Distribution Date to trailing four quarters consolidated EBITDA, both as adjusted for certain, specified items) is below 7.25x through May 15, 2022 and 7.00x thereafter, net of cash, immediately before and after giving effect to such distribution, (iv) the operating partnership has at least $100 million of liquidity, consisting of unrestricted cash on hand and available capacity under the Credit Agreement or any replacement thereof, and (v) the operating partnership is in compliance with the other protective provisions in the OpCo LPA Amendment.

H.    Equity

Partnership distributions

Ferrellgas, L.P. has recognized the following distributions:

For the three months ended April 30, 

For the nine months ended April 30, 

    

2021

    

2020

    

2021

    

2020

Ferrellgas Partners

$

$

$

$

15,496

General partner

 

 

 

 

158

See additional discussions about transactions with related parties in Note K – Transactions with related parties.

Accumulated other comprehensive income (loss) (“AOCI”)

See Note J – Derivative instruments and hedging activities for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and nine months ended April 30, 2021 and 2020.

General partner’s commitment to maintain its capital account

Ferrellgas, L.P.’s partnership agreement allows the general partner to have an option to maintain its 1.0101% general partner interest concurrent with the issuance of other additional equity.

56

During the nine months ended April 30, 2021, the general partner made non-cash contributions of $23.0 thousand to Ferrellgas, L.P. to maintain its 1.0101% general partner interest.

During the nine months ended April 30, 2020, the general partner made non-cash contributions of $22.0 thousand to Ferrellgas, L.P. to maintain its 1.0101% general partner interest.