Lender Spat Could Push Barbecue Fuel Retailer into Debt Restructuring

(Bloomberg) -- Nearly a year after it began looking to ease its hefty debt load, Ferrellgas Partners LP is mired in a dispute with its most important lender and running out of time to turn things around.

The second-biggest U.S. distributor of retail propane is tangling with TPG Specialty Lending Inc., which provides a $575 million credit facility that makes up the bulk of Ferrellgas’s liquidity. According to the company’s annual 10-K filing, Ferrellgas failed to deliver its financial results by the Sept. 24 deadline, delivering them a day later after TPG said it was in default.

That’s not right, Ferrellgas said in the filing, adding that it will vigorously contest the matter. But TPG may allege another default because the auditor’s statement includes a warning that there’s substantial doubt about the company’s viability, Ferrellgas said. As a result, it may be forced to restructure, sell assets or pursue other financial transactions. Shares plunged on the news and currently trade at about 69 cents, compared with $1.89 a year ago.

Ferrellgas didn’t respond to a request for comment, but the filing shows it’s getting advice from Moelis & Co. and Squire Patton Boggs LLP, and that talks have been going on since TPG asserted the default.

TPG Specialty Lending, which is tied to the giant TPG Sixth Street Partners credit investment firm, declined to comment. Moelis declined to comment and Squire Patton didn’t offer a response.

Ferrellgas risks accelerating payment on some of its roughly $2 billion debt load and crimping its liquidity if it can’t satisfy TPG. The company reported just $11.1 million in cash at July 31 and $155.1 million of availability under its under senior secured credit facility, which includes a $300 million revolver and a $275 million term loan. It also needs to figure out a way to refinance $357 million of bonds maturing in June.

A group of holders of the operating company’s debt are getting advice from Stroock & Stroock & Lavan, and they’re contacting potential financial advisers, according to a person with knowledge of the matter, who asked not to be identified discussing confidential matters. A separate group that holds a mix of operating and holding company debt are working with Davis Polk & Wardwell LLP and Ducera, according to people with knowledge of the matter.

Representatives for Stroock, Davis Polk and Ducera didn’t respond to requests for comment or didn’t immediately comment.

Some investors have expressed interest in injecting new money, according to a person with knowledge of the company’s efforts. Management expects there will be adequate liquidity and enough time to bolster the balance sheet and deal with the 2020 notes, said the person, who asked not to be identified discussing confidential plans.

Blue Rhino

Ferrellgas serves residential and business customers with propane for space heating, water heating, cooking and other appliances, and it supplies portable tank exchanges under the Blue Rhino brand for outdoor gas grills.

Co-founder and Chairman Jim Ferrell, who has been involved with the company since 1965, returned in late 2016 to turn around the business after its managers made an $837.5 million bid in 2015 for Bridger Logistics LLC that sent the company off course. It borrowed heavily to acquire the midstream oil and gas business, only to end up selling the assets in pieces for a fraction of the price a few years later, with a vow to stick to propane.

“This is what we do best,” Ferrell told investors during a December 2018 earnings call. “And we’re not going to stray again.”

Busy Signal

Creditors have been waiting for the company to engage in negotiations, but meaningful talks have yet to begin, according to people with knowledge of the matter. Its 2020 bonds, which are issued by the holding company, trade at 75 cents on the dollar, to yield about 58%. The remaining bond maturities in 2021 through 2023 are the responsibility of the operating company, and those trade around 84 cents.

Ferrellgas has a 9% market share, but its retail margins are narrower than peers such as AmeriGas Partners LP, the largest retailer, and Suburban Propane Partners LP, the third-largest, because it cuts prices to compete on volume, according to S&P Global Ratings. Analysts have speculated over whether Ferrellgas could be acquired by one of its stronger competitors. AmeriGas was acquired two months ago by UGI Corp.

S&P cut Ferrellgas one notch to CCC- on Wednesday, saying that a default or distressed exchange is a “virtual certainty.” It’s an inherently risky business, S&P said, because propane sales are tied to temperatures in winter, and the upcoming one is expected to be warm. It doesn’t help that more U.S. households are likely to convert to natural gas to heat their homes to take advantage of plunging prices.

To contact the reporter on this story: Allison McNeely in New York at amcneely@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

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