Rating Action: Moody's downgrades Ferrellgas Partners PDR to D-PD on bankruptcy filing; assigns Caa3 CFR to Ferrellgas, L.P.
Global Credit Research - 11 Jan 2021
New York, January 11, 2021 -- Moody's Investors Service ("Moody's") downgraded Ferrellgas Partners L.P. (Ferrellgas Partners) Probability of Default Rating (PDR) to D-PD from Ca-PD/LD following the company's announcement that it filed for protection under Chapter 11 of the US Bankruptcy Code on January 11, 2021. Ferrellgas Partners' other ratings were affirmed including its Caa3 Corporate Family Rating (CFR) and C ratings on the company's senior unsecured notes rating. The Speculative Grade Liquidity Rating (SGL) remains SGL-4. The rating outlook was changed to stable.
Concurrently, Moody's assigned a Caa3 CFR and a Caa3-PD PDR to Ferrellgas, L.P. (Ferrellgas). Ferrellgas is not part of the bankruptcy filing but has outstanding rated debt. Moody's also affirmed Ferrellgas' B3 senior secured notes rating, downgraded its senior unsecured notes to Ca from Caa3, and assigned it an SGL-4 Speculative Grade Liquidity Rating (SGL). The rating outlook was changed to stable.
..Issuer: Ferrellgas, L.P.
.... Speculative Grade Liquidity Rating, Assigned SGL-4
.... Corporate Family Rating, Assigned Caa3
.... Probability of Default Rating, Assigned Caa3-PD
..Issuer: Ferrellgas Partners L.P.
.... Probability of Default Rating, Downgraded to D-PD from Ca-PD /LD
..Issuer: Ferrellgas, L.P.
....Senior Unsecured Regular Bond/Debenture, Downgraded to Ca (LGD4) from Caa3 (LGD3)
..Issuer: Ferrellgas Partners L.P.
.... Corporate Family Rating, Affirmed Caa3
....Senior Unsecured Regular Bond/Debenture, Affirmed C (LGD5)
..Issuer: Ferrellgas, L.P.
....Senior Secured Regular Bond/Debenture, Affirmed B3 (LGD2)
..Issuer: Ferrellgas Partners L.P.
....Outlook, Changed To Stable From Negative
..Issuer: Ferrellgas, L.P.
....Outlook, Changed To Stable From Negative
Ferrellgas Partners' Chapter 11 bankruptcy filing has resulted in a downgrade of its PDR to D-PD, reflecting the company's default on its debt agreements. Shortly following this rating action, Moody's will withdraw all of Ferrellgas Partners' ratings. Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.
The Transaction Support Agreement (TSA) filed under Ferrellgas Partners' pre-packaged Chapter 11 plan calls for conversion of not only Ferrellgas Partners' debt into equity, but also for addressing Ferrellgas' unsecured debt maturities. Under the TSA, Ferrellgas plans to issue new or additional notes, enter into a new revolving credit facility, issue new preferred equity at either Ferrellgas or Ferrellgas Partners to redeem Ferrellgas' existing unsecured notes due 2021, 2022, and 2023. This Ferrellgas debt refinancing is planned to occur by April 4, 2021. Moody's understands that the company currently does not have committed financing in place to refinance Ferrellgas' unsecured debt and therefore the refinancing plan is subject to capital market risk.
Ferrellgas' Caa3 CFR reflects the challenges it faces in growing EBITDA for its core propane distribution operations and in further reducing its still high financial leverage. Despite the elimination of its parent's debt through the bankruptcy process, Ferrellgas' leverage will remain elevated at around 7.5x-8x with about $1 billion of debt maturing through January 2022. The compressed debt maturity schedule and still high leverage leave substantial execution risk to complete the contemplated refinancing. From a fundamental perspective, Ferrellgas is greatly exposed to the seasonal nature of propane sales with significant dependency on cold weather months and the associated volatility in cash flows. The rating considers the company's substantial scale and geographic diversification that facilitate cost efficiencies in the fragmented propane distribution industry, its utility-like services that provide a base level of revenue, and a propane tank exchange business which generates complementary cash flows during summer months.
Ferrellgas' $700 million secured debt due 2025 is rated B3, three notches above the Caa3 CFR, given its first lien priority claim in the capital structure and the lack of a cross-default provision with respect to the bankruptcy of Ferrellgas. However, given the still high amount of debt on the balance sheet, Moody's believes the B3 rating is more appropriate than that suggested by the Moody's Loss Given Default (LGD) methodology. Ferrellgas also has $500 million in 6.5% senior unsecured notes due 2021, $475 million 6.75% senior unsecured notes due 2022, and $500 million 6.75% senior unsecured notes due 2023. Ferrellgas' senior unsecured notes are rated Ca, one notch below the CFR, due to their structural subordination to the company's secured debt.
Moody's views Ferrellgas' liquidity as weak through 2021 mainly due to modest free cash flow generation and its approaching maturities of $500 million in May 2021, and $475 million in January 2022. There will be a continued need for growth capex but liquidity isn't hampered by quarterly distributions. The company' working capital needs are highly seasonal, with peak borrowings during the winter season that can fluctuate significantly with volatile propane prices. The company also has an accounts receivable (A/R) securitization facility, which provides a variable monthly borrowing limit ranging from $175 million to $250 million. If the company can successfully execute its refinancing as contemplated under the TSA, then its liquidity could improve to adequate depending on the amount of available cash, revolving credit availability and maturity profile following the refinancing.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ferrellgas ratings could be downgraded if Moody's views on expected recoveries were to worsen or if the company does not complete its contemplated refinancing. A ratings upgrade is unlikely without a refinancing of near-term maturities, establishing adequate liquidity, and significant debt reduction.
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Ferrellgas, L.P. (Ferrellgas), is an operating subsidiary of Ferrellgas Partners, owns and operates propane distribution businesses based in Overland Park, Kansas.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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 Form 8-K (SEC), Ferrellgas Partners, L.P., 11-Jan-2021
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Arvinder Saluja, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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