Research: Rating Action: Moody’s raises CFR from Ferrellgas to B1

New York, July 13, 2022 — Moody’s Investors Service (“Moody’s”) has updated the Corporate Family Rating (CFR) of Ferrellgas, LP (Ferrellgas) from B1 to B2 and the Probability of Default Rating ( PDR) to B1-PD from B2-PD. Simultaneously, Moody’s upgraded the company’s senior unsecured notes due 2026 and 2029 which were issued in March 2021 from B3 to B2. The Speculative Liquidity Rating (SGL) was also upgraded to SGL-2 from of SGL-3. The outlook for ratings remains stable.

“Since completing its refinancing operations in 2021, Ferrellgas has improved its operations and reduced its financial leverage while improving its liquidity,” said Arvinder Saluja, vice president of Moody’s.

Updates :

..Issuer: Ferrellgas, LP

…. Corporate Family Ranking, upgraded to B1 from B2

…. Default scoring probability, upgrade to B1-PD from B2-PD

…. Speculative liquidity rating, upgrade to SGL-2 from SGL-3

…. Senior regular unsecured bond/debenture, upgrade from B2 (LGD4) to B3 (LGD4)

Outlook Actions:

..Issuer: Ferrellgas, LP

….Outlook remains stable

RATINGS RATIONALE

Ferrellgas’ CFR B1 reflects continued improvement in operations leading to better margins, improved liquidity and leverage (excluding preferred shares) of less than 4.5x in fiscal 2022. Ferrellgas has an end exercise in July. Ferrellgas’ best operating profile stems from its continued cost reductions and efficiency improvements emanating from management’s concentrated focus on these objectives. Its credit profile also benefits from the substantial scale and geographic diversification of the business which facilitates cost savings in the fragmented propane distribution industry, its utility type services which provide a level of revenue of base and a propane tank trading activity that generates additional cash flow during the summer. month. Ferrellgas’ ratings are limited by its exposure to the seasonal nature of propane sales with a significant reliance on cold months and related cash flow volatility. Additionally, the significant distribution burden (approximately $65 million per year) to manage its $650 million of preferred stock increases the company’s cash burn and is a significant difference from its higher-rated peers.

Ferrellgas’ senior unsecured notes due 2026 and 2029 are rated B2, one notch below the company’s B1 CFR. The company’s capital structure is comprised of $1,475 million senior unsecured notes, which constitute the majority of the debt in the liability structure, and a $350 million secured revolving credit facility. (unrated) whose borrowing base includes a fixed amount of $200 million plus up to $150 million based on a proportion of receivables and inventory as defined in the credit agreement. The Company’s Revolver enjoys a senior claim on the Company’s assets, subordinating the Senior Notes to the claims under the Facility.

The SGL-2 Speculative Liquidity Rating reflects Moody’s view that Ferrellgas will have good liquidity through 2023. The company has approximately $259 million on its $350 million secured revolving credit facility maturing in April 2025 after booking letters of credit totaling $91 million as of April 30, 2022. Revolver financial covenants include a minimum interest coverage ratio of 2.50x, a maximum secured leverage ratio of 2.50x and a maximum total net leverage ratio (with cash compensation limited to $100 million if revolver usage is at or above 50%) of 5.25x, decreasing by 0.25x on October 31, 2022 and reaching 4.75x on April 30, 2023. expects the company’s liquidity to exceed $200 million in 2022-23. The company’s working capital requirements are highly seasonal, with peak borrowing during the winter season which can fluctuate significantly depending on the volatility of the price of propane. Moody’s expects Ferrellgas to generate modest free cash flow given improved earnings and lower interest expense after its 2021 refinancing.

The stable outlook reflects Moody’s expectation that Ferrellgas will generate free cash flow, maintain leverage below 4.5x and maintain adequate liquidity.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ferrellgas’ ratings could be upgraded if the company’s leverage (debt/EBITDA) falls below 3.5x while retained cash flow to net debt remains close to 20%. A substantial reduction in the amount of preferred stock outstanding would also favor an upgrade. Ratings could be downgraded if leverage exceeds 4.5x or if Ferrellgas’ operating profile deteriorates.

Ferrellgas, LP (Ferrellgas), is an operating subsidiary of Ferrellgas Partners LP, a publicly traded company, which owns and operates propane distribution businesses based in Overland Park, Kansas.

The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Arvinder Saluja, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Peter Speer
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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