January 11, 2021 – Ferrellgas Partners, L.P. ("HoldCo") and one affiliated Debtor, Ferrellgas Partners Finance Corp. (“Partners Finance,” and together with HoldCo, the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-10021. The Debtors (together with certain non-Debtors, collectively "Ferrellgas" or the "Enterprise"), are a leading distributor of propane and related equipment and supplies, and are represented by William E. Chipman, Jr of Chipman, Brown, Cicero & Cole LLP. Further board-authorized engagements include (i) Squire Patton Boggs (US) LLP as general bankruptcy counsel, (ii) Ryniker Consultants as financial advisors, (iii) Moelis & Company as investment banker and (iv) Prime Clerk as claims agent.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. On a consolidated basis, Ferrelgas's most recent 10-Q notes assets of $1.653bn and liabilities of $2.515bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) U.S. Bank National Association ($392.1mn unsecured note claim), (ii) Ferrellgas, L.P. ($19.9mn loan claim) and (iii) Eddystone Rail Company, LLC ($an indeterminate contingent, disputed, litigation claim).
In a press release (also 8-K here) announcing the filing, the Debtors advised that: “Pursuant to the transactions contemplated in the Transaction Support Agreement (the "TSA" [attached to the Disclosure Statement at exhibit B]), which was entered into with a substantial majority of the noteholders of Parent MLP and Parent Finance, Parent MLP and Parent Finance’s debt will be eliminated; approximately $1.5 billion of Ferrellgas’ debt will be refinanced; and Ferrellgas, L.P. will raise over $1 billion of new capital.”
James E. Ferrell, Chairman of the Ferrellgas Board of Directors, commented further: “Today’s announcement is an important step forward in significantly strengthening our balance sheets and positioning our company for long-term success. We are pleased this process will enable Ferrellgas to remain an independent, employee-owned company as we continue growing our strong and profitable core business. We remain focused on serving our nearly 800,000 customers throughout the United States and Puerto Rico, and on continuing to expand our premier Blue Rhino tank exchange business.
We appreciate the continued support of our institutional noteholders, which will enable us to complete our financial restructuring on an expedited basis…We look forward to emerging a financially stronger company, and we are excited to build on our near 100-year-old history of innovation as one of the nation’s largest propane dealers for many years to come.”
The Debtors circulated their prepackaged Plan and related Disclosure Statement prior to filing (the documents are dated December 21, 2020), but have now filed the Pland and disclosure statement with the Court [Docket Nos. 6 and 7, respectively]; and separately requested a Court order that would (i) conditionally approve the adequacy of the Disclosure Statement, (ii) approve Plan solicitation and voting procedures and (iii) approve a proposed timetable culminating in a February 24, 2021 combined hearing [Docket No. 8].
Plan Overview
The Disclosure Statement provides: "The chapter 11 plan term sheet that is attached as Exhibit A to the Transaction Support Agreement (the 'Transaction Term Sheet') and contemplates a swift restructuring that is supported by the holders of approximately 75.84% in principal amount of the 2020 Notes Claims. Notably, the Plan leaves all Claims other than the 2020 Notes Claims, the Existing LP Units Interests, and the Other Existing Equity Interests unimpaired. The unimpaired claims include Secured Claims (if any), 2025 OpCo Secured Notes Guaranty Claims, other Priority Claims (if any), the Eddystone Claims and General Unsecured Claims (if any). The Intercompany Claims will either be (a) Reinstated or (b) canceled and released subject to the consent rights set forth in the Transaction Support Agreement; provided, however that the OpCo Loan Claim shall be Reinstated and shall not be canceled and released. The Intercompany Interests will either be (a) reinstated or (b) canceled or released. Through this Plan treatment, the Debtors will minimize disruptions to the Enterprise’s go-forward operations while effectuating a value-maximizing refinancing transaction through the chapter 11 process. In addition, the Debtors’ existing common unitholders will receive or retain New Class A Units on account of the limited partnership interests such holders currently own.
Contemporaneously with the transactions to be effectuated through the Plan, OpCo will enter into its own financing transactions, which will be implemented outside of the Chapter 11 Cases. Specifically, OpCo will enter into new financing facilities including the issuance of new notes and a new revolving credit facility (the 'New OpCo Facilities'). OpCo or HoldCo will also issue new preferred units (the “Senior Preferred,” together with the New OpCo Facilities, the 'OpCo Transactions'). The proceeds of these transactions will be used to redeem the senior notes previously issued by OpCo and for other uses permitted under OpCo’s partnership agreement, the Transaction Support Agreement and the Transaction Term Sheet. The terms of the OpCo Transactions shall be subject to the consent of the Required Consenting Noteholders. OpCo may also consider other transactions to delever and address its current balance sheet. The consummation of the OpCo Transactions shall be a condition precedent for the transactions under the Plan. The Debtors elected to pursue a prepackaged Chapter 11 Plan process to minimize the costs and impact of an in-court restructuring on the Enterprise’s business. With a prepackaged Plan and key creditor support in place pursuant to the Transaction Support Agreement, the Debtors expect to emerge positioned to capitalize on their asset base as the Enterprise looks to continue its go-forward growth and operating plans to be competitive. Accordingly, the Transaction Support Agreement contains certain milestones, including (i) securing an order confirming the Plan no later than forty-five (45) calendar days after the Petition Date, and (ii) having the Effective Date occur no later April 4, 2021. The Debtors believe they can confirm the Plan and emerge from chapter 11 within these time periods without prejudicing the ability of any parties to assert their rights in the Chapter 11 Cases."
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; please see also the Liquidation Analysis below):
- Class 1 (“Secured Claims ”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $0.
- Class 2 (“2025 OpCo Secured Notes Guaranty”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $700.0mn and will be reinstated.
- Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $0.
- Class 4 (“2020 Notes Claims”) is impaired, deemed to accept and entitled to vote on the Plan. Estimated claims are $357.0mn (plus any accrued and unpaid interest) and estimated recovery is 62% (based on the Debtors’ Enterprise value, as shown in Exhibit D, and is estimated by the Debtors’ investment banker to be $245 million, representing the midpoint of their valuation). Each holder will receive, such holder’s pro rata share of 100% of the New Class B Units.
- Class 5 (“Eddystone Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $0 (claims are disputed and unliquidated) but will be in any event reinstated and, thus, no impact on recovery.
- Class 6 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $0 and each holder of Allowed Claim in Class 6 will have its claim reinstated.
- Class 7 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $19.9mn and will be reinstated, thus no impact on recovery.
- Class 8 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $NA and each holder will have its claim reinstated, thus no impact on recovery.
- Class 9 (“Existing GP Units”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $NA and each holder will have its claim reinstated, thus no impact on recovery.
- Class 10 (“Existing LP Units Interests”) is impaired, deemed to accept and entitled to vote on the Plan. There are 399 holders of record and recovery is TBD.
- Each Holder of an Allowed Existing LP Units Interest in HoldCo on account of such Interest shall receive or retain such Holder’s Pro Rata share of 100% of the New Class A Units, subject to dilution by the New Class A Units issued upon any future conversion of the New Class B Units. Each Holder of an Allowed Existing LP Units Interest in HoldCoshall receive or retain one (1) New Class A Unit for every twenty (20) Existing LP Units currently owned.
- Class 11 (“Other Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated claims are $NA and recovery is 0%. All Other Existing Equity Interests in the Debtors will be canceled.
Proposed Key Dates
- Voting Deadline: January 22, 2021
- Plan Supplement Deadline: February 8, 2021
- Objections to Deadline: February 15, 2021
- Plan & Disclosure Combined Hearing : February 24, 2021
Capital Structure (see also the structure chart below)
The Debtors' Capital Structure
The Debtors are party to the following:
- 2020 Notes. Pursuant to an April 13, 2010 indenture, among HoldCo and Partners Finance, as issuers, and U.S. Bank National Association, as trustee, the Debtors have $357.0 million outstanding principal amount of its 8.625% unsecured senior notes due 2020 (the “2020 Notes”), which matured on June 15, 2020, but have not been repaid. The 2020 Notes are structurally subordinated to all existing and future claims of creditors of OpCo and its subsidiaries due to the fact that OpCo and its subsidiaries are not guarantors or co-obligors of the 2020 Notes, and the obligations of the Debtors under the 2020 Notes are non-recourse to OpCo and its subsidiaries and their respective assets. Accordingly, holders of the 2020 Notes hold claims as a creditor only against the Debtors.
Non-Debtors' Capital Structure
Non-Debtors OpCo (ie Ferrellgas, L.P.) and Ferrellgas Finance Corp have the following indebtedness:
- 2021 Notes. Pursuant to an Indenture dated November 24, 2010, by and between OpCo and Ferrellgas Finance Corp, as issuers, and U.S. Bank National Association, as trustee (the “2021 Indenture”), OpCo issued its 6.50% Senior Notes due 2021 in the principal amount of $500.0mn (the “2021 Notes”).
- 2022 Notes. Pursuant to an Indenture dated November 4, 2013, by and between OpCo and Ferrellgas Finance Corp, as issuers, and U.S. Bank National Association, as trustee (the “2022 Indenture”), OpCo issued its 6.75% Senior Notes due 2022 in the principal amount of $475.0mn (the “2022 Notes”).
- 2023 Notes. Pursuant to an Indenture dated June 8, 2015, by and between OpCo and Ferrellgas Finance Corp, as issuers, and U.S. Bank National Association, as trustee (the “2023 Indenture”), OpCo issued its 6.75% Senior Notes due 2023 in the principal amount of $500.0mn (the “2023 Notes”).
- 2025 Notes. Pursuant to an Indenture dated April 16, 2020, by and between OpCo and Ferrellgas Finance Corp, as issuers, and Delaware Trust Company, as trustee and collateral agent (the “2025 Indenture." OpCo issued its 10.00% Senior Secured First Lien Notes due 2025 in the principal amount of $700.0mn (the “2025 Notes.”).
- OpCo also utilizes an accounts receivable securitization facility for the purpose of providing additional short-term working capital funding, especially during the winter heating months. As part of this facility, OpCo transfers an interest in a pool of its trade accounts receivable to Ferrellgas Receivables, LLC, a consolidated and wholly owned, qualifying special purpose subsidiary, which in turn sells this interest to certain financial institutions. OpCo remits daily to Ferrellgas Receivables, LLC funds collected on its pool of trade accounts receivables.
Events Leading to the Chapter 11 Filing
The Debtors' Disclosure Statement provided the following detail as to the events leading to Debtors' Chapter 11 filing: “While the Enterprise’s business as a whole remains operationally sound, it has experienced a number of unexpected challenges in recent years, including the inability of the Debtors to service the Debtors’ debt obligations due to, among other things, restrictions on OpCo’s ability to distribute funds to the Debtors. In addition, the Debtors faced liquidity issues that left them unable to repay or recapitalize the outstanding principal and interest under the 2020 Notes. Consequently, the Debtors negotiated with the Consenting Noteholders the terms of the Transaction Term Sheet, the Transaction Support Agreement, the Plan and the Restructuring Transactions (as defined in the Transaction Term Sheet). These transactions, when effectuated, are expected to leave the Enterprise’s business intact, de-lever the balance sheet of not only the Debtors but also OpCo and its subsidiaries, enhance long-term growth prospects and improve operational performance.
The Enterprise became over-leveraged in part due to the June 2015 acquisition of Bridger Logistics, LLC (‘Bridger’), which acquisition, in part, was financed by the OpCo Notes.
As the Enterprise was facing the upcoming maturity of the 2020 Notes, as well as significant pressure from its then existing lender, OpCo elected to issue the 2025 Notes to raise $700 million to, among other things, add cash to the balance sheet and pay off OpCo’s prior secured credit facility. The 2025 Notes are secured by substantially all of the assets of OpCo and its subsidiaries.
HoldCo executed a limited guaranty of payment of the 2025 Notes pursuant to the terms of the 2025 Indenture (the ‘2025 Guaranty’) and pledged as collateral its OpCo limited partnership interests (the ‘2025 OpCo Pledge’). Remedies under the 2025 OpCo Pledge are subject to the occurrence of an event of default under the 2025 Indenture, and the commencement of the Chapter 11 Cases does not constitute an event of default under the 2025 Indenture.
As discussed above, the 2020 Notes matured on June 15, 2020. On June 7, 2020, in order to give the Debtors additional time to engage in discussions with the holders of the 2020 Notes, the Debtors first entered into a Forbearance Agreement dated June 7, 2020 (the ‘Forbearance Agreement’), with holders holding approximately 77% of the 2020 Notes (the ‘Forbearing Noteholders’). Pursuant to the Forbearance Agreement, the Forbearing Noteholders agreed to forbear from exercising any default-related rights and remedies with respect to the event of default that was anticipated to occur…as a result of the Debtors’ failure to make payments of principal due on the 2020 Notes at their maturity (the ‘Specified Default’) and to direct the trustee thereunder not to take any remedial action during the Forbearance Period as a result of the Specified Default.
The Forbearance Agreement expired on August 15, 2020; however, negotiations continued between the Debtors and the Forbearing Noteholders. These discussions culminated in the execution of the Transaction Support Agreement and related Transaction Term Sheet on December 10, 2020.”
The following documents were attached to the Disclosure Statement:
- Exhibit A: Plan of Reorganization
- Exhibit B: Transaction Support Agreement
- Exhibit C: Liquidation Analysis
- Exhibit D: Feasibility Analysis and Plan Valuation
Significant Shareholders
The Debtors' lead Petition lists Ferrell Companies, Inc. and James E. Ferrell as parties with the power to vote 5% or more of their voting securities.
Liquidation Analysis (see Exhibit C to Disclosure Statement for notes)
About the Debtors
According to the Debtors: “Ferrellgas Partners, L.P., through its operating partnership, Ferrellgas, L.P., and subsidiaries, serves propane customers in all 50 states, the District of Columbia, and Puerto Rico. Ferrellgas employees indirectly own 22.8 million common units of the partnership, through an employee stock ownership plan. Ferrellgas Partners, L.P. filed a Form 10-K with the Securities and Exchange Commission on October 15, 2020. Investors can request a hard copy of this filing free of charge and obtain more information about the partnership online at www.ferrellgas.com."
Corporate Structure
Debtor HoldCo is a publicly traded Delaware limited partnership formed in 1994 that has two direct subsidiaries, Debtor Partners Finance and non-debtor Ferrellgas, L.P. (or “OpCo”). HoldCo owns 100% of Partners Finance and owns 99% of the limited partnership interests in OpCo. HoldCo has no operations, no employees and, other than its equity interests in Partners Finance and OpCo, does not have any material assets. FGI, a Delaware corporation and a wholly-owned subsidiary of non-debtor Ferrell Companies, Inc. (“FCI”), a Kansas corporation, is the sole general partner of HoldCo and one of three general partners of OpCo. FGI has retained an approximate 1% general partner economic interest in HoldCo and also holds an approximate 1% general partner economic interest in OpCo.
Debtor Partners Finance is a Delaware corporation formed in 1996 and has nominal assets, no employees and does not conduct any operations, but solely serves as co-issuer and co-obligor for the 2020 Notes.
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