Ferrellgas Partners L P: Form 10-Q for the period ended Jan 31, 2020

Overview

Our management’s discussion and analysis of financial condition and results of operations relates to Ferrellgas Partners and the operating partnership.

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. have nominal assets, do not conduct any operations and have no employees other than officers. Ferrellgas Partners Finance Corp. serves as co-issuer and co-obligor for debt securities of Ferrellgas Partners, while Ferrellgas Finance Corp. serves as co-issuer and co-obligor for debt securities of the operating partnership. Accordingly, and due to the reduced disclosure format, a discussion of the results of operations, liquidity and capital resources of Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. is not presented.

In this Item 2 of the Quarterly Report on Form 10‑Q, unless the context indicates otherwise:

• “us,” “we,” “our,” “ours,” “consolidated,” or "Ferrellgas" are references exclusively to Ferrellgas Partners, L.P. together with its consolidated subsidiaries, including Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., except when used in connection with “common units,” in which case these terms refer to Ferrellgas Partners, L.P. without its consolidated subsidiaries;
• “Ferrellgas Partners” refers to Ferrellgas Partners, L.P. itself, without its consolidated subsidiaries;
• the “operating partnership” refers to Ferrellgas, L.P., together with its consolidated subsidiaries, including Ferrellgas Finance Corp.;
• our “general partner” refers to Ferrellgas, Inc.;
• “Ferrell Companies” refers to Ferrell Companies, Inc., the sole shareholder of our general partner;
• “unitholders” refers to holders of common units of Ferrellgas Partners;
• "GAAP" refers to accounting principles generally accepted in the United States;
• “retail sales” refers to Propane and other gas liquid sales: Retail - Sales to End Users or the volume of propane sold primarily to our residential, industrial/commercial and agricultural customers;
• “wholesale sales” refers to Propane and other gas liquid sales: Wholesale - Sales to Resellers or the volume of propane sold primarily to our portable tank exchange customers and bulk propane sold to wholesale customers;
• “other gas sales” refers to Propane and other gas liquid sales: Other Gas Sales or the volume of bulk propane sold to other third-party propane distributors or marketers and the volume of refined fuel sold;
• “propane sales volume” refers to the volume of propane sold to our retail sales and wholesale sales customers;
• “Notes” refers to the notes of the condensed consolidated financial statements of Ferrellgas Partners or the operating partnership, as applicable; and
• “fiscal 2021” means the fiscal year ended July 31, 2021, “fiscal 2020” means the fiscal year ended July 31, 2020, “fiscal 2019” means the fiscal year ended July 31, 2019, and “fiscal 2018” means the fiscal year ended July 31, 2018.

Ferrellgas Partners is a holding entity that conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners’ only assets are its approximate 99% limited partnership interest in the operating partnership and its 100% equity interest in Ferrellgas Partners Finance Corp. The common units of Ferrellgas Partners are traded on the OTC Pink Market and our activities are primarily conducted through the operating partnership.

The operating partnership was formed on April 22, 1994, and accounts for substantially all of our consolidated assets, sales and operating earnings, except for interest expense related to the senior notes co-issued by Ferrellgas Partners and Ferrellgas Partners Finance Corp.

Our general partner performs all management functions for us and our subsidiaries and holds an approximate 1% general partner interest in Ferrellgas Partners and an approximate 1% general partner interest in the operating partnership. The parent company of our general partner, Ferrell Companies, beneficially owns approximately 23.4% of our outstanding common units. Ferrell Companies is owned 100% by an employee stock ownership trust.

We file annual, quarterly, and current reports and other information with the Securities and Exchange Commission (the "SEC"). You may read and download our SEC filings over the Internet from several commercial document retrieval services as well as at the SEC’s website at www.sec.gov (http://www.sec.gov). Our SEC filings are also available on our website at www.ferrellgas.com (http://www.ferrellgas.com) at no cost as soon as reasonably practicable after our electronic filing or furnishing thereof with the SEC. Please note that any Internet addresses provided in this Quarterly Report on Form 10‑Q are for informational purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such Internet addresses is intended or deemed to be incorporated by reference herein.

The following is a discussion of our historical financial condition and results of operations and should be read in conjunction with our historical consolidated financial statements and accompanying Notes thereto included in our Annual Report on Form 10‑K for fiscal 2019 and in our historical condensed consolidated financial statements and accompanying Notes thereto included elsewhere in this Quarterly Report on Form 10‑Q.

The discussions set forth in the “Results of Operations” and “Liquidity and Capital Resources” sections generally refer to Ferrellgas Partners and its consolidated subsidiaries. However, in these discussions there exists one material difference between Ferrellgas Partners and the operating partnership: Ferrellgas Partners has outstanding $357.0 million aggregate principal amount of 8.625% senior notes due June 15, 2020, and accordingly has interest expense that the operating partnership does not have. Ferrellgas Partners’ access to liquidity is dependent on distributions from the operating partnership. See the statements of operations in their respective condensed consolidated financial statements.

Cautionary Note Regarding Forward-looking Statements

Statements included in this report include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. These statements often use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative of those terms or other variations of them or comparable terminology. These statements often discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future and are based upon the beliefs and assumptions of our management and on the information currently available to them. In particular, statements, express or implied, concerning our future operating results or our ability to generate sales, income or cash flow are forward-looking statements.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on any forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from those expressed in or implied by these forward-looking statements. Many of the factors that will affect our future results are beyond our ability to control or predict. Some of the risk factors that may affect our business, financial condition or results of operations include:

• the effect of weather conditions on the demand for propane;
• the prices of wholesale propane, motor fuel and crude oil;
• disruptions to the supply of propane;
• competition from other industry participants and other energy sources;
• energy efficiency and technology advances;
• adverse changes in our relationships with our national tank exchange customers;
• significant delays in the collection of accounts or notes receivable;
• customer, counterparty, supplier or vendor defaults;
• changes in demand for, and production of, hydrocarbon products;
• disruptions to railroad operations on the railroads we use;
• increased trucking and rail regulations;
• inherent operating and litigation risks in gathering, transporting, handling and storing propane;
• our inability to complete acquisitions or to successfully integrate acquired operations;
• costs of complying with, or liabilities imposed under, environmental, health and safety laws;
• the impact of pending and future legal proceedings;
• the interruption, disruption, failure or malfunction of our information technology systems including due to cyber attack;
• the impact of changes in tax law that could adversely affect the tax treatment of Ferrellgas Partners for federal income tax purposes;
• economic and political instability, particularly in areas of the world tied to the energy industry;
• disruptions in the capital and credit markets;
• access to available capital to meet our operating requirements up to and including the refinancing of maturing debt instruments; and
• the impact of the inclusion in the report of our auditor of an “emphasis of matter” paragraph regarding substantial doubt as to our ability to continue as a going concern.

When considering any forward-looking statement, you should also keep in mind the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10‑K for fiscal 2019. Any of these risks could impair our business, financial condition or results of operations. Any such impairment may affect our ability to make distributions to our unitholders or pay interest on the principal of any of our debt securities. In addition, the trading price of our securities could decline as a result of any such impairment.

Except for our ongoing obligations to disclose material information as required by federal securities laws, we undertake no obligation to update any forward-looking statements or risk factors after the date of this Quarterly Report on Form 10‑Q.

Recent developments

On November 7, 2019, Ferrellgas, L.P. entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the second amendment (i) increased from $125.0 million to $140.0 million the sub-limit for issuance of letters of credit that exists within the $300.0 million Revolving Facility; and (ii) modified a component of the fixed charge coverage ratio calculation to exclude payments related to the manufacture of vehicles used for propane delivery or related service up to specified amounts if operating lease commitments sufficient to cover such excluded amounts have been obtained and those payments are in fact reimbursed under such operating leases within nine months thereafter. In addition, the Second Amendment provided waivers for any event of default that has or would otherwise arise with respect to the delivery of an unqualified report of Grant Thornton LLP as to going concern with respect to the audited financial statements of Ferrellgas, L.P. and with respect to the timely delivery of financial information for fiscal 2019, thereby resolving the disagreement with the agent under the Senior Secured Credit Facility regarding alleged events of default described in the Annual Report on Form 10-K for fiscal 2019. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity. Also, in connection with this event, in a non-cash transaction, the Term Loan portion of the Senior Secured Credit Facility was increased by $8.9 million. This transaction was classified as a capitalized financing cost.

On December 5, 2019, Ferrellgas, L.P. entered into an eighth amendment to its accounts receivable securitization facility in order to align certain deliverables under the accounts receivable securitization facility with similar requirements under the second amendment to the financing agreement governing the Senior Secured Credit Facility, noted above.

Debt and interest expense reduction and refinancing strategy

We continue to pursue a strategy to further reduce our debt and interest expense. Achievements under this strategy during fiscal 2018 include refinancing our senior secured credit facility, amending our accounts receivable securitization facility, and selling certain assets. Other opportunities include the generation of additional cash flows through accretive acquisitions, restructuring or refinancing existing indebtedness, selling additional assets, maintaining the suspension of Ferrellgas Partners’ common unit distributions, issuing equity or executing one or more debt exchanges. We expect to maintain our debt and interest expense reduction strategy until our consolidated leverage ratio reaches a level that we deem appropriate for our business.

Ferrellgas Partners has $357.0 million in unsecured notes due June 15, 2020 that are classified as current in its condensed consolidated financial statements. Ferrellgas Partners’ ability to restructure, refinance or otherwise satisfy these notes is directly impacted by the cash flows of Ferrellgas, L.P. The ability of Ferrellgas Partners to restructure or refinance these notes is uncertain considering the level of other outstanding indebtedness. In certain circumstances, the failure to repay the $357.0 million in unsecured notes on their contractual maturity date may result in an event of default under the operating partnership’s Senior Secured Credit Facility and the indentures governing the operating partnership’s outstanding notes.

During fiscal 2019, we engaged Moelis & Company LLC as our financial advisor and the law firm of Squire Patton Boggs LLP to assist us with our ongoing process to address our upcoming debt maturities.

Financial covenants

The indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit our ability to, among other things, make restricted payments and incur additional indebtedness. Our general partner believes that the most restrictive of these covenants are the restricted payments covenants in the indenture governing the outstanding notes of Ferrellgas Partners and the indentures governing the outstanding notes of the operating partnership, which are discussed below.

Ferrellgas Partners, L.P., the master limited partnership

The indenture governing the outstanding notes of Ferrellgas Partners due June 15, 2020 contains a covenant that restricts the ability of Ferrellgas Partners to make certain restricted payments, including distributions on its common units. Under this covenant, subject to the limited exception described below, Ferrellgas Partners may not make a restricted payment unless its consolidated fixed charge coverage ratio (defined in the indenture generally to mean the ratio of trailing four quarters consolidated EBITDA to consolidated interest expense, both as adjusted for certain, specified items) is at least 1.75x, on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. As of January 31, 2020, Ferrellgas Partners’ consolidated fixed charge coverage ratio was 1.35x.

If the consolidated fixed charge coverage ratio is below 1.75x, Ferrellgas Partners may make restricted payments of up to $50.0 million in total over a sixteen quarter period. As a result of distributions paid to common unitholders in September 2017, December 2017, March 2018, June 2018 and September 2018, while this ratio was less than 1.75x, Ferrellgas Partners has used substantially all of its capacity under the limited exception and therefore is currently restricted by this covenant from making future restricted payments, including distributions to common unitholders. Accordingly, no distributions have been or will be paid to common unitholders for the three months ended January 31, 2020, and the general partner expects that this covenant will continue to prohibit Ferrellgas Partners from making common unit distributions unless and until the outstanding notes of Ferrellgas Partners due 2020 are restructured, refinanced or otherwise satisfied. While there can be no assurance of success, as part of our debt and interest expense reduction and refinancing strategy, we are presently considering potential solutions to address the upcoming maturity of the outstanding notes of Ferrellgas Partners due 2020. The potential solutions include, among others, restructuring, refinancing or a transaction to exchange new notes for some or all of these notes.

Ferrellgas, L.P., the operating partnership

Similar to the indenture governing the outstanding notes of Ferrellgas Partners, the indentures governing the outstanding notes of the operating partnership contain covenants that restrict the ability of the operating partnership to make certain restricted payments, including distributions to Ferrellgas Partners. Under these covenants, subject to the limited exception described below, the operating partnership may not make a restricted payment unless its consolidated fixed charge coverage ratio (defined in the indentures generally to mean the ratio of trailing four quarters consolidated EBITDA to consolidated interest expense, both as adjusted for certain, specified items) is at least 1.75x, on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events. As of January 31, 2020, the operating partnership’s consolidated fixed charge coverage ratio was 1.68x.

If the consolidated fixed charge coverage ratio is below 1.75x, the operating partnership may make restricted payments in limited amounts determined under the indentures. The distribution made by the operating partnership on December 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due June 2020 was made from capacity under this limited exception to the ratio requirement.

As described above, Ferrellgas Partners’ unsecured notes due 2020 mature on June 15, 2020, and the outstanding principal amount of those notes is due to be paid on that date, together with accrued interest to the maturity date. Although the operating partnership has some remaining capacity to make distributions under the limited exception to the ratio requirement under the operating partnership’s indentures, this capacity, as well as limitations on distributions under our Senior Secured Credit Facility, will not allow the operating partnership to make distributions to Ferrellgas Partners sufficient to pay the principal of and accrued interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 due at the maturity of those notes. Additionally, the restrictions in these debt agreements currently prevent the operating partnership from making distributions to Ferrellgas Partners to enable it to pay cash distributions to its unitholders.

Distributions

As discussed above, no distributions will be paid to common unitholders in March 2020 for the three months ended January 31, 2020, and the general partner expects that Ferrellgas Partners will continue to be prohibited from making common unit distributions unless and until the outstanding notes of Ferrellgas Partners due 2020 are restructured, refinanced or otherwise satisfied.

How We Evaluate Our Operations

We evaluate our overall business performance based primarily on a metric we refer to as “Adjusted EBITDA”, which is not defined by GAAP and should not be considered an alternative to earnings measures defined by GAAP. We do not utilize depreciation, depletion and amortization expense in our key measures because we focus our performance management on cash flow generation and our revenue generating assets have long useful lives. For the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net earnings (loss) attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, see the subheading “Non-GAAP Financial Measures” below.

Based on our propane sales volumes in fiscal 2019, we believe that we are the second largest retail marketer of propane in the United States and a leading national provider of propane by portable tank exchange. We serve residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia and Puerto Rico. Our operations primarily include the distribution and sale of propane and related equipment and supplies with concentrations in the Midwest, Southeast, Southwest and Northwest regions of the United States.

We use information on temperatures to understand how our results of operations are affected by temperatures that are warmer or colder than normal. Normal temperatures computed by us are the average of the last 10 years of information published by the National Oceanic and Atmospheric Administration. Based on this information we calculate a ratio of actual heating degree days to normal heating degree days. Heating degree days are a general indicator of weather impacting propane usage.

Weather conditions have a significant impact on demand for propane for heating purposes primarily during the months of November through March (the “winter heating season”). Accordingly, the volume of propane used by our customers for this purpose is directly affected by the severity of the winter weather in the regions we serve and can vary substantially from year to year. In any given region, sustained warmer-than-normal temperatures will tend to result in reduced propane usage, while sustained colder-than-normal temperatures will tend to result in greater usage. Although there is a strong correlation between weather and customer usage, general economic conditions in the United States and the wholesale price of propane can have a significant impact on this correlation. Additionally, there is a natural time lag between the onset of cold weather and increased sales to customers. If the United States were to experience a cooling trend we could expect nationwide demand for propane to increase which could lead to greater sales, income and liquidity availability. Conversely, if the United States were to experience a continued warming trend, we could expect nationwide demand for propane for heating purposes to decrease which could lead to a reduction in our sales, income and liquidity availability as well as impact our ability to maintain compliance with our debt covenants.

We employ risk management activities that attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies. We attempt to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts. We enter into propane sales commitments with a portion of our customers that provide for a contracted price agreement for a specified period of time. These commitments can expose us to product price risk if not immediately hedged with an offsetting propane purchase commitment.

Our open financial derivative propane purchase commitments are designated as hedges primarily for fiscal 2020 and 2021 sales commitments and, as of January 31, 2020, have experienced net mark-to-market losses of approximately $23.3 million. Because these financial derivative purchase commitments qualify for hedge accounting treatment, the resulting asset, liability and related mark-to-market gains or losses are recorded on the condensed consolidated balance sheets as “Prepaid expenses and other current assets,” "Other assets, net," “Other current liabilities,” "Other liabilities" and “Accumulated other comprehensive loss,” respectively, until settled. Upon settlement, realized gains or losses on these contracts will be reclassified to “Cost of sales-propane and other gas liquid sales” in the condensed consolidated statements of operations as the underlying inventory is sold. These financial derivative purchase commitment net losses are expected to be offset by increased margins on propane sales commitments that qualify for the normal purchase normal sale exception. At January 31, 2020, we estimate 85% of currently open financial derivative purchase commitments, the related propane sales commitments and the resulting gross margin will be realized into earnings during the next twelve months.

Summary Discussion of Results of Operations:

Executive Overview

For the three months ended January 31, 2020 and 2019

Weather in the more highly concentrated geographic areas we serve for the three months ended January 31, 2020 was approximately 6% warmer than normal, and 7% warmer than the prior year period. We estimate retail gallons decreased 10 million gallons due to warmer weather. Additionally, the increases in gross margin, operating income and Adjusted EBITDA were also negatively impacted by the warmer weather.

During the three months ended January 31, 2020, we generated net earnings attributable to Ferrellgas Partners L.P. of $48.2 million, compared to net earnings attributable to Ferrellgas Partners L.P. of $43.3 million during the three months ended January 31, 2019. This increase principally reflects an $8.8 million increase in gross margin on propane and other gas liquid sales, increased gross margin-other and decreased general and administrative costs, partially offset by increased operating expenses and interest expense. These results also reflect the effects of legal fees and settlements related to non-core businesses of $2.5 million and $5.6 million, in the three months ended January 31, 2020 and 2019, respectively.

“Interest expense” for Ferrellgas increased $2.7 million primarily due to a $1.3 million increase related to borrowings on our Senior Secured Credit Facility and a $0.9 million increase related to increased amortization of our credit facility issuance costs.

Distributable cash flow attributable to equity investors increased to $73.4 million in the current period from $52.7 million in the prior period, primarily due to a $20.7 million decrease in our maintenance capital expenditures. This decrease in maintenance capital expenditures primarily relates to the purchase of new propane delivery trucks in fiscal 2019 which have historically been leased.

Distributable cash flow excess increased to $72.0 million in the current period from $51.7 million in the prior period, primarily due to a $20.7 million decrease in our maintenance capital expenditures.

For the six months ended January 31, 2020 and 2019

Weather in the more highly concentrated geographic areas we serve for the six months ended January 31, 2019 was approximately 4% warmer than normal, and 7% warmer than the prior year period. We estimate retail gallons decreased approximately 10 million gallons due to warmer weather. Additionally, the increases in gross margin, operating income and Adjusted EBITDA were also negatively impacted by the warmer weather.

During the six months ended January 31, 2020, we generated net earnings attributable to Ferrellgas Partners L.P. of $2.9 million, compared to net loss attributable to Ferrellgas Partners L.P. of $13.7 million during the six months ended January 31, 2019. This increase in net earnings attributable to Ferrellgas Partners principally reflects a $17.4 million increase in gross margin on propane and other gas liquid sales, increased gross margin-other and decreased general and administrative costs, partially offset by increased operating expenses and interest expense. These results reflect the effects of legal fees and settlements related to non-core businesses of $4.6 million and $9.2 million, in the six months ended January 31, 2020 and 2019, respectively. The six-month period ended January 31, 2019 also includes $1.6 million of severance cost and $1.5 million of expenses associated with the multi-employer pension plan withdrawal settlement.

“Interest expense” for Ferrellgas increased $4.5 million primarily due to a $2.8 million increase related to borrowings on our Senior Secured Credit Facility and a $1.1 million increase related to increased amortization of our credit facility issuance costs.

Distributable cash flow attributable to equity investors increased to $50.3 million in the current period from $25.3 million in the prior period, primarily due to a $19.6 million decrease in our maintenance capital expenditures, an $8.9 million increase in our Adjusted EBITDA, as discussed below in “Operating results for the six months ended January 31, 2020 and 2019”, partially offset by a $3.3 million increase in cash interest expense, as discussed above. This decrease in maintenance capital expenditures primarily relates to the purchase of new propane delivery trucks in fiscal 2019 which have historically been leased.

Distributable cash flow excess increased to $49.3 million in the current period from $15.1 million in the prior period, primarily due to a $19.6 million decrease in our maintenance capital expenditures, a $9.7 million decrease in distributions to common unitholders, and an $8.9 million increase in our Adjusted EBITDA, as discussed above, partially offset by a $3.3 million increase in cash interest expense, as discussed above.

Non-GAAP Financial Measures

In this Quarterly Report we present the following non-GAAP financial measures: Adjusted EBITDA, Distributable cash flow attributable to equity investors, Distributable cash flow attributable to common unitholders, and Distributable cash flow excess.

Adjusted EBITDA. Adjusted EBITDA is calculated as net earnings (loss) attributable to Ferrellgas Partners, L.P., plus the sum of the following: income tax expense, interest expense, depreciation and amortization expense, non-cash employee stock ownership plan compensation charge, loss on asset sales and disposals, other income (expense), net, severance costs, legal fees and settlements related to non-core businesses, multi-employer pension withdrawal settlement, lease accounting standard adjustment, and net earnings attributable to noncontrolling interest. Management believes the presentation of this measure is relevant and useful because it allows investors to view the partnership’s performance in a manner similar to the method management uses, adjusted for items management believes make it easier to compare its results with other companies that have different financing and capital structures. This method of calculating Adjusted EBITDA may not be comparable to Adjusted EBITDA or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of adjusted EBITDA that will not occur on a continuing basis may have associated cash payments. This method of calculating Adjusted EBITDA should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Attributable to Equity Investors. Distributable cash flow attributable to equity investors is calculated as Adjusted EBITDA minus net cash interest expense, maintenance capital expenditures and cash paid for taxes, plus proceeds from certain asset sales. Management considers distributable cash flow attributable to equity investors a meaningful measure of the partnership’s ability to declare and pay quarterly distributions to equity investors. Distributable cash flow attributable to equity investors, as management defines it, may not be comparable to distributable cash flow attributable to equity investors or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of distributable cash flow attributable to equity investors that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to equity investors should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Attributable to Common Unitholders. Distributable cash flow attributable to common unitholders is calculated as Distributable cash flow attributable to equity investors minus distributable cash flow attributable to general partner and noncontrolling interest. Management considers Distributable cash flow attributable to common unitholders a meaningful measure of the partnership’s ability to declare and pay quarterly distributions to common unitholders. Distributable cash flow attributable to common unitholders, as management defines it, may not be comparable to distributable cash flow attributable to common unitholders or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of distributable cash flow attributable to common unitholders that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to common unitholders should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Excess. Distributable cash flow excess is calculated as Distributable cash flow attributable to common unitholders minus Distributions paid to common unitholders. Distributable cash flow excess, if any, is retained to establish reserves to reduce debt, fund capital expenditures and for other partnership purposes and any shortage is funded from previously established reserves, cash on hand or borrowings under our Senior Secured Credit Facility or accounts receivable securitization facility. Management considers Distributable cash flow excess a meaningful measure of the partnership’s ability to effectuate those purposes. Distributable cash flow excess, as management defines it, may not be comparable to distributable cash flow excess or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of distributable cash flow excess that will not occur on a continuing basis may have associated cash payments. Distributable cash flow excess should be viewed in conjunction with measurements that are computed in accordance with GAAP.

The following table reconciles EBITDA, Adjusted EBITDA, Distributable cash flow attributable to equity investors, Distributable cash flow attributable to common unitholders and Distributable cash flow excess to Net loss attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, for the three and six months ended January 31, 2020 and 2019:

(amounts in thousands)

(a) Net cash interest expense is the sum of interest expense less non-cash interest expense and other income (expense), net. This amount includes interest expense related to the accounts receivable securitization facility.

(b) Maintenance capital expenditures include capitalized expenditures for betterment and replacement of property, plant and equipment, and may include the purchase of assets that are typically leased.

Operating Results for the three months ended January 31, 2020 and 2019

The following table summarizes propane sales volumes and Adjusted EBITDA results for the periods indicated:

73

(a) Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.

(b) Other primarily includes appliance and material sales, and various customer fee income.

(c) Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.

(d) Operating, general and administrative expense” above includes both the “Operating expense – personnel, vehicle, plant and other” and the “General and administrative expense” captions in the condensed consolidated statement of operations.

(e) Lease accounting standard adjustment reflects the additional expense recognized in excess of cash paid.

Weather in the more highly concentrated geographic areas we serve for the three months ended January 31, 2020 was approximately 6% warmer than normal, and 7% warmer than the prior year period. We estimate retail gallons decreased 10 million gallons due to warmer weather, partially offset by efforts to increase market share.

Propane sales volumes during the three months ended January 31, 2020 decreased 1%, or 4.4 million gallons, from the prior year period due to decreased sales volumes to both retail and wholesale customers. The decrease in propane sales volumes to retail customers was primarily due to warmer weather, as discussed above, partially offset by the 3% increase in retail customer count.

Our wholesale sales price per gallon partially correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas during the three months ended January 31, 2020 averaged 31% less than the prior year period, while at the Conway, Kansas major supply point prices averaged 25% less than the prior period. The wholesale market price at Mt. Belvieu, Texas averaged $0.48 and $0.70 per gallon during the three months ended January 31, 2020 and 2019, respectively, while the wholesale market price at Conway, Kansas averaged $0.46 and $0.61 per gallon during the three months ended January 31, 2020 and 2019, respectively. This decrease in the wholesale cost of propane contributed to our decrease in sales price per gallon and therefore revenues, but an increase in gross margin.

Revenues

Retail sales decreased $41.8 million compared to the prior period. This decrease resulted from a $37.0 million decrease in sales price per gallon, as discussed above. Decreases in sales due to warmer weather were approximately $15.0 million, as discussed above, partially offset by increases related to the 3% increase in customer count.

Wholesale sales decreased $10.3 million compared to the prior period. This decrease primarily resulted from a $9.5 million decrease in sales price per gallon, as discussed above, and due to the impact of increased competitive pressures related to fixed priced contracts, some of which are long term. This is a trend that continues from the prior year period.

Other gas sales decreased $12.8 million compared to the prior year period primarily due to decreased sales volumes.

Other revenues increased $2.3 million compared to the prior year period primarily due to a $2.5 million one-time refund of federal fuel excise tax.

Gross margin - Propane and other gas liquids sales

Gross margin increased $8.8 million primarily due to the increase in gross margin per gallon, as discussed above. The increase in retail gross margin of $5.5 million resulted from a $7.7 million increase in gross margin per gallon and to a lesser extent an increase in retail customer counts, as discussed above, partially offset by an estimated $7.0 million related to decreased gallon sales due to the effect of warmer weather, as discussed above. The $3.3 million increase in wholesale gross margin primarily relates to increased gross margin per gallon due to the decrease in the wholesale cost of propane, as discussed above.

Gross margin - other

Gross margin increased $2.4 million compared to the prior year period primarily due to a $2.5 million one-time refund of federal fuel excise tax.

Operating income

Operating income increased $7.7 million primarily due to an $8.8 million increase in "Gross margin - Propane and other gas liquid sales", a $2.4 million increase in “Gross margin-other”, both as discussed above, and a $1.3 million decrease in “Non-cash employee stock ownership plan compensation charge”, partially offset by a $4.8 million increase in “Operating, general and administrative expense”. “Operating, general and administrative expense” increased due to a $7.0 million increase in “Operating expense – personnel, vehicle, plant and other”, partially offset by a $2.2 million decrease in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased $7.0 million primarily due to a $3.2 million increase in field personnel costs, a $2.1 million increase in general liability and worker compensation cost and a $0.7 million increase in plant and office costs. “General and administrative expense” decreased primarily due to a $3.1 million decrease in legal costs and a $0.9 million decrease in severance cost incurred in fiscal 2019 that was not repeated in fiscal 2020, partially offset by a $1.2 million increase in incentives.

Adjusted EBITDA

Adjusted EBITDA increased $1.7 million primarily due to an $8.8 million increase in "Gross margin - Propane and other gas liquid sales", as discussed above, and a $2.4 million increase in “Gross margin – other” as discussed above, partially offset by a $9.6 million increase in “Operating, general and administrative”. “Operating, general and administrative expense” increased due to a $7.7 million increase in “Operating expense – personnel, vehicle, plant and other” and a $1.9 million increase in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased primarily due to a $3.9 million increase in field personnel costs and a $2.1 million increase in general liability and workers compensation costs and a $0.7 million increase in plant and office costs. “General and administrative expense” increased primarily due to an increase in personnel incentives of $1.2 million and a $0.2 million increase in plant and office costs.

Operating Results for the six months ended January 31, 2020 and 2019

The following table summarizes propane sales volumes and Adjusted EBITDA results for the periods indicated:

(a) Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.

(b) Other primarily includes appliance and material sales, and various customer fee income.

(c) Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.

(d) Operating, general and administrative expense” above includes both the “Operating expense – personnel, vehicle, plant and other” and the “General and administrative expense” captions in the condensed consolidated statement of operations.

(e) Lease accounting standard adjustment reflects the additional expense recognized in excess of cash paid.

Weather in the more highly concentrated geographic areas we serve for the six months ended January 31, 2019 was approximately 4% warmer than normal, and 7% warmer than the prior year period. Retail gallons decreased approximately 10 million gallons due to warmer weather, partially offset by efforts to increase market share.

Propane sales volumes during the six months ended January 31, 2020 decreased 1%, or 3.1 million gallons, from the prior year period due to decreased sales volumes to both retail and wholesale customers. The decrease in propane sales volumes to retail customers was primarily due to the warmer weather, as discussed above, partially offset by the 3% increase in retail customer count.

Our wholesale sales price per gallon partially correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas during the six months ended January 31, 2020 averaged 46% less than the prior year period, while at the Conway, Kansas major supply point prices averaged 40% less than the prior period. The wholesale market price at Mt. Belvieu, Texas averaged $0.46 and $0.85 per gallon during the six months ended January 31, 2020 and 2019, respectively, while the wholesale market price at Conway, Kansas averaged $0.42 and $0.70 per gallon during the six months ended January 31, 2020 and 2019, respectively. This decrease in the wholesale cost of propane contributed to our decrease in sales price per gallon and therefore revenues, but an increase in gross margin per gallon.

Revenues

Retail sales decreased $79.1 million compared to the prior period. This decrease resulted from a $74.7 million decrease in sales price per gallon, as discussed above, as well as decreases in sales due to warmer weather of approximately $11.0 million, as discussed above, partially offset by increases related to the 3% increase in customer count.

Wholesale sales decreased $21.6 million compared to the prior period. This decrease primarily resulted from a $23.3 million decrease in sales price per gallon, as discussed above, and due to the impact of increased competitive pressures related to fixed priced contracts, some of which are long term. This is a trend that continues from the prior year period.

Other gas sales decreased $25.8 million compared to the prior year period primarily due to decreased sales price per gallon.

Other revenues increased $4.8 million compared to the prior year period primarily due to a $2.5 million one-time refund of federal fuel excise tax and increased fees from service labor related to the 3% increase in retail customer count as discussed above.

Gross margin - Propane and other gas liquids sales

Gross margin increased $17.4 million primarily due to the increase in gross margin per gallon, as discussed above. The increase in retail gross margin of $12.9 million resulted from a $14.9 million increase in gross margin per gallon and to a lesser extent an increase in retail customer counts, partially offset by an estimated $5.0 million related to decreased gallon sales related to the effects of warmer weather, both as discussed above. The $4.4 million increase in wholesale gross margin primarily relates to increased gross margin per gallon and to a lesser extent increased volumes, both as discussed above.

Gross margin - other

Gross margin increased $4.2 million compared to the prior year period primarily due to a $2.5 million one-time refund of federal fuel excise tax and increased fees from service labor related to the 3% increase in retail customer count as discussed above.

Operating income

Operating income increased $21.8 million primarily due to a $17.4 million increase in "Gross margin - Propane and other gas liquid sales", as discussed above, a $4.2 million increase in “Gross margin - other”, both as discussed above, and a $3.3 million decrease in “Non-cash employee stock ownership plan compensation charge”, partially offset by a $4.6 million increase in “Operating, general and administrative expense”. “Operating, general and administrative expense” increased due to a $11.2 million increase in “Operating expense – personnel, vehicle, plant and other”, partially offset by a $6.6 million decrease in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased primarily due to a $7.5 million increase in field personnel costs, a $1.4 million increase in selling expenses, a $1.3 million increase in plant and office costs and a $1.2 million increase in general liability and worker compensation costs, partially offset by a previous $1.5 million pension settlement charge associated with the withdrawal from a multi-employer pension plan that was not repeated in the current period. “General and administrative expense” decreased primarily due to a $7.5 million decrease in legal costs, a decrease of $0.9 million in severance cost incurred in fiscal 2019 that was not repeated in fiscal 2020, and a $0.8 million decrease in personnel costs, partially offset by a $1.2 million increase in personnel incentives.

Adjusted EBITDA

Adjusted EBITDA increased $8.9 million primarily due to an $17.4 million increase in "Gross margin - Propane and other gas liquid sales" and a $4.2 million increase in “Gross margin – other”, both as discussed above, partially offset by a $12.3 million increase in “Operating, general and administrative expense”. “Operating, general and administrative expense” increased due to a $13.4 million increase in “Operating expense – personnel, vehicle, plant and other”, partially offset by a $1.1 million decrease in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased primarily due to a $7.5 million increase in field personnel costs, a $1.4 million increase in selling costs, a $1.3 million increase in plant and office costs, and a $1.2 million increase in general liability and workers compensation costs. “General and administrative expense” decreased primarily due to a $2.9 million decrease in legal costs, and a $0.8 million decrease in personnel cost, partially offset by a $1.2 million increase in personnel incentives.

Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash flows from operating activities, borrowings under our Senior Secured Credit Facility and our accounts receivable securitization facility and funds received from sales of debt and equity securities. As of January 31, 2020, our total liquidity was $152.8 million, which is comprised of $13.7 million in cash and $139.1 million of availability under our Senior Secured Credit Facility and accounts receivable securitization facility. These sources of liquidity and short term capital resources are intended to fund our working capital requirements, letter of credit requirements, and acquisition and capital expenditures. Our access to long term capital resources, in order to address our leverage, may be affected by our ability to access the capital markets, covenants in our debt agreements, unforeseen demands on cash, or other events beyond our control.

We believe that the liquidity available from cash flows from operating activities, our Senior Secured Credit Facility, and the accounts receivable securitization facility, combined with our debt and interest expense reduction initiatives, will be sufficient to meet our capital expenditure, working capital and letter of credit requirements. However, as discussed above, Ferrellgas Partners has $357.0 million in unsecured notes due June 15, 2020 that are classified as current in its condensed consolidated financial statements. Ferrellgas Partners’ ability to restructure, refinance or otherwise satisfy these notes is uncertain considering the level of other outstanding indebtedness. In certain circumstances, the failure to repay the $357.0 million in unsecured notes on their contractual maturity date may result in an event of default under the operating partnership’s Senior Secured Credit Facility and the indentures governing the operating partnership’s outstanding notes. Any such failure to repay the outstanding notes of Ferrellgas Partners due 2020 and any resulting event of default under the operating partnership’s debt agreements could result in our losing access to the liquidity available under our Senior Secured Credit Facility and the accounts receivable securitization facility and otherwise have a material adverse effect on our liquidity and financial position. We have engaged Moelis & Company LLC as our financial advisor and the law firm of Squire Patton Boggs LLP to assist us in our ongoing process to address our upcoming debt maturities.

Financial Covenants

As more fully described in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the subheading “Financial Covenants” above, the indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit our ability to, among other things, incur additional indebtedness and make distribution payments to our common unitholders. Given the limitations of these covenants, we continue to pursue a strategy to reduce our debt and interest expense. If we are unsuccessful with our strategy to further reduce debt and interest expense, we will continue to be restricted from making distribution payments to our common unitholders.

We may not meet the applicable financial tests in future quarters if we were to experience:

• significantly warmer than normal temperatures during the winter heating season;
• significant and sustained increases in the wholesale cost of propane that we are unable to pass along to our customers;
• a more volatile energy commodity cost environment;
• an unexpected downturn in business operations;
• a significant delay in the collection of accounts or notes receivable;
• a failure to execute our debt and interest expense reduction and refinancing initiatives;
• a change in customer retention or purchasing patterns due to economic or other factors in the United States;
• a material downturn in the credit and/or equity markets; or
• a large uninsured, unfavorable lawsuit judgment or settlement.

We may seek additional capital as part of our debt reduction strategy.

As discussed above, no distributions will be paid to common unitholders in March 2020 for the three months ended January 31, 2020, and the general partner expects that Ferrellgas Partners will continue to be prohibited from making common unit distributions unless and until the outstanding notes of Ferrellgas Partners due 2020 are restructured, refinanced or otherwise satisfied. Unless the indenture governing the outstanding notes due 2020 is amended or replaced, or the Ferrellgas Partners’ consolidated fixed charge coverage ratio improves to at least 1.75x, this covenant will continue to restrict us from making common unit distributions.

Distributable Cash Flow

Distributable cash flow attributable to equity investors is reconciled to net earnings (loss) attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, in this Item 2. Management’s Discuss and Analysis of Financial Condition and Results of Operations under the subheading "Non-GAAP Financial Measures" above. A comparison of distributable cash flow attributable to equity investors to cash distributions paid to equity investors for the twelve months ended January 31, 2020 to the twelve months ended October 31, 2019 is as follows (in thousands):

(a) DCF ratio is calculated as Distributable cash flow attributable to equity investors divided by Cash distributions paid to equity investors.

(b) NM – Not Meaningful.

For the twelve months ended January 31, 2020, distributable cash flow attributable to equity investors increased $20.7 million compared to the twelve months ended October 31, 2019, primarily due to decreases in our maintenance capital expenditures. Thus, cash reserves, which we utilize to meet future anticipated expenditures, increased by $47.2 million during the twelve months ended January 31, 2020 compared to an increase of $26.5 million in the twelve months ended October 31, 2019.

During periods of high volatility, our risk management activities may expose us to the risk of counterparty margin calls in amounts greater than we have the capacity to fund. Likewise, our counterparties may not be able to fulfill their margin calls from us or may default on the settlement of positions with us.

Our working capital requirements are subject to, among other things, the price of propane, delays in the collection of receivables, volatility in energy commodity prices, liquidity imposed by insurance providers, downgrades in our credit ratings, decreased trade credit, significant acquisitions, the weather, customer retention and purchasing patterns and other changes in the demand for propane. Relatively colder weather or higher propane prices during the winter heating season are factors that could significantly increase our working capital requirements.

Our ability to satisfy our obligations is dependent upon our future performance, which will be subject to prevailing weather, economic, financial and business conditions and other factors, many of which are beyond our control. Due to the seasonality of the retail propane distribution business, a significant portion of our propane operations and related products cash flows from operations is generated during the winter heating season. Our net cash provided by operating activities primarily reflects earnings from our business activities adjusted for depreciation and amortization and changes in our working capital accounts. Historically, we generate significantly lower net cash from operating activities in our first and fourth fiscal quarters as compared to the second and third fiscal quarters due to the seasonality of our propane operations and related equipment sales operations.

Operating Activities

Ferrellgas Partners

Net cash provided by operating activities was $0.6 million for the six months ended January 31, 2020, compared to net cash used in operating activities of $55.1 million for the six months ended January 31, 2019. This increase in cash provided by operating activities was primarily due to a $37.3 million decrease in working capital requirements, a $12.0 million increase in cash flow from operations and a $6.4 million inflow associated with other assets and other liabilities.

The decrease in working capital requirements for the six months ended January 31, 2020 compared to the six months ended January 31, 2019 was primarily due to an $11.0 million decrease in requirements for other current liabilities due primarily to a decrease in margin deposits paid by us during the six months ended January 31, 2020 compared to the six months ended January 31, 2019, a $10.4 million decrease in requirements for accounts and notes receivable, partially due to decreases in the sales price per gallon of propane sold, a $9.3 million decrease in prepaid expenses and other current assets, as well as a $8.1 million decrease in requirements for inventory due to declining propane prices in the current period compared to the prior period.

The increase in cash flow from operations is primarily due to a $21.6 million increase in gross profit, partially offset by a net increase in "Operating expense – personnel, plant, vehicle and other", "General and administrative expense" and "Operating expense – equipment lease expense" of $5.0 million and a $4.5 million increase in "Interest expense," primarily due to increased borrowings on our Senior Secured Credit Facility.

The operating partnership

Net cash provided by operating activities was $16.0 million for the six months ended January 31, 2020, compared to net cash used in operating activities of $39.7 million for the six months ended January 31, 2019. This increase in cash provided by operating activities was primarily due to a $37.2 million decrease in working capital requirements, a $12.2 million increase in cash flow from operations and a $6.4 million inflow associated with other assets and other liabilities.

The decrease in working capital requirements for the six months ended January 31, 2020 compared to the six months ended January 31, 2019 was primarily due to an $11.0 million decrease in requirements for other current liabilities due primarily to a decrease in margin deposits paid by us during the six months ended January 31, 2020 compared to the six months ended January 31, 2019, a $10.4 million decrease in requirements for accounts and notes receivable, partially due to decreases in the sales price per gallon of propane sold, a $9.2 million decrease in prepaid expenses and other current assets, as well as an $8.1 million decrease in requirements for inventory due to declining propane prices in the current period compared to the prior period.

The increase in cash flow from operations is primarily due to a $21.6 million increase in gross profit, partially offset by a net increase in "Operating expense – personnel, plant, vehicle and other", "General and administrative expense" and "Operating expense – equipment lease expense" of $4.9 million and a $4.2 million increase in "Interest expense," primarily due to increased borrowings on our Senior Secured Credit Facility.

Investing Activities

Ferrellgas Partners

Capital Requirements

Our business requires continual investments to upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations. Capital expenditures for our business consist primarily of:

• Maintenance capital expenditures. These capital expenditures include expenditures for betterment and replacement of property, plant and equipment, and from time to time may include the purchase of assets that are typically leased, rather than to generate incremental distributable cash flow. Examples of maintenance capital expenditures include a routine replacement of a worn-out asset or replacement of major vehicle components; and
• Growth capital expenditures. These expenditures are undertaken primarily to generate incremental distributable cash flow. Examples include expenditures for purchases of both bulk and portable propane tanks and other equipment to facilitate expansion of our customer base and operating capacity.

Net cash used in investing activities was $48.5 million for the six months ended January 31, 2020, compared to net cash used in investing activities of $61.4 million for the six months ended January 31, 2019. This decrease in net cash used in investing activities is primarily due to a $24.9 million decrease in “Capital expenditures” and a $20.0 million increase in “Cash receipts in connection with leased vehicles”, partially offset by a $30.3 million increase in “Cash payments to construct assets in connection with future lease transactions” and a $1.3 million increase in "Business acquisitions, net of cash acquired".

The decrease in "Capital expenditures" is primarily due to a decrease in maintenance capital expenditures, and to a lesser extent a decrease in growth capital expenditures, during the six months ended January 31, 2020. The decrease in maintenance capital expenditures is primarily related to the purchase of new propane delivery trucks funded through cash on hand during the six months ended January 31, 2019 compared to the six months ended January 31, 2020. The decrease in growth capital expenditures is primarily due to the construction of new Blue Rhino production plants in the first quarter of fiscal 2019. The decrease is also due to a drop in the number of Blue Rhino cylinders purchased, as well as a drop in the number of cylinders purchased for industrial and commercial forklift sales during the six months ended January 31, 2020 compared to the six months ended January 31, 2019. The decrease in these asset purchases is primarily a result of more efficient asset utilization.

Due to the mature nature of our operations we do not anticipate significant fluctuations in maintenance capital expenditures, with the exception of future decisions regarding lease versus buy financing options. However, future fluctuations in growth capital expenditures could occur due to the opportunistic nature of these projects.

The operating partnership

The investing activities discussed above also apply to the operating partnership.

Financing Activities

Ferrellgas Partners

Net cash provided by financing activities was $50.6 million for the six months ended January 31, 2020, compared to net cash provided by financing activities of $37.9 million for the six months ended January 31, 2019. This increase in cash flow provided by financing activities was primarily due to a $9.8 million reduction in distributions and a $6.8 million net increase in short-term borrowings, partially offset by a $3.7 million increase in cash paid for financing costs.

Senior secured credit facility

The Senior Secured Credit Facility consists of a $300.0 million revolving line of credit (the "Revolving Facility") as well as a $283.9 million term loan (the "Term Loan"), which mature on the earlier of (i) May 4, 2023 and (ii) the date that is 90 days prior to the earliest maturity date of any series of the operating partnership’s outstanding notes after giving effect to any extensions or refinancings thereof. As of this filing, the earliest maturity date of any series of the operating partnership’s outstanding notes is May 1, 2021. The Revolving Facility borrowings bear interest at the Prime Rate + 4.75% and Term Loan borrowings bear interest at LIBOR + 5.75%. The Revolving Facility, as amended, includes a $140.0 million sublimit for the issuance of letters of credit. Borrowings under the Senior Secured Credit Facility are available for working capital needs, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness and acquisitions, within certain limits.

The Term Loan does not include any scheduled principal payments and the Revolving Facility does not have any scheduled commitment reductions before maturity; however, the Term Loan requires prepayments pursuant to the following: 1) certain asset sales, 2) 50% of any excess cash flow, as defined by the Term Loan, in any fiscal year beginning with fiscal year 2019, 3) certain insurance proceeds, and 4) certain tax refunds.

On June 6, 2019, the operating partnership entered into a first amendment to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the first amendment updated the calculation of the fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the agreement to exclude certain maintenance capital expenditures related to the purchase during fiscal 2019 of new propane delivery trucks which have historically been leased. The first amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation.

On November 7, 2019, the operating partnership entered into a second amendment (the “Second Amendment”) to the financing agreement governing its Senior Secured Credit Facility. Among other matters, the Second Amendment (i) increased from $125.0 million to $140.0 million the sub-limit for issuance of letters of credit that exists within the $300.0 million Revolving Facility; and (ii) modified a component of the fixed charge coverage ratio calculation to exclude payments related to the manufacture of vehicles used for propane delivery or related service up to specified amounts if operating lease commitments sufficient to cover such excluded amounts have been obtained and those payments are in fact reimbursed under such operating leases within nine months thereafter. In addition, the Second Amendment provided waivers for any event of default that has or would otherwise arise with respect to the delivery of an unqualified report of Grant Thornton LLP as to going concern with respect to the audited financial statements of Ferrellgas, L.P. and with respect to the timely delivery of financial information for fiscal 2019, thereby resolving the disagreement with the agent under the Senior Secured Credit Facility regarding alleged events of default described in the Annual Report on Form 10-K for fiscal 2019. As a result of the Second Amendment, the Term Loan was reclassified from current to long-term at October 31, 2019, consistent with its underlying maturity. Also, in connection with this event, in a non-cash transaction, the Term Loan portion of the Senior Secured Credit Facility was increased by $8.9 million. This transaction was classified as a capitalized financing cost.

The Senior Secured Credit Facility is secured with substantially all of the assets of the operating partnership and its subsidiaries, and Ferrellgas Partners’ and the general partner’s partnership interests in the operating partnership, and contains various affirmative and negative covenants and default provisions, as well as requirements with respect to the maintenance of specified financial ratios and limitations on the making of loans and investments.

As of January 31, 2020, the operating partnership had borrowings of $283.9 million under the Term Loan at an interest rate of 7.54%, which was classified as long-term debt, and $40.0 million under the Revolving Facility, at an interest rate of 7.54%. As of January 31, 2020, Ferrellgas had available borrowing capacity under the Revolving Facility of $139.1 million. As of July 31, 2019, the operating partnership had borrowings of $275.0 million under the Term Loan at an interest rate of 8.16%, which was then classified as current and $43.0 million under the Revolving Facility at a weighted average interest rate of 9.47%, which was classified as short-term borrowings. As of July 31, 2019, Ferrellgas had available borrowing capacity under the Revolving Facility of $155.1 million.

Letters of credit outstanding at January 31, 2020 totaled $120.9 million and were used to secure insurance arrangements, product purchases, and commodity hedges. At January 31, 2020, Ferrellgas had remaining available letter of credit capacity of $19.1 million.

Accounts receivable securitization

Ferrellgas Receivables is a consolidated subsidiary. Expenses associated with accounts receivable securitization transactions are recorded in “Interest expense” in the condensed consolidated statements of operations. Additionally, borrowings and repayments associated with these transactions are recorded in “Cash flows from financing activities” in the condensed consolidated statements of cash flows.

Cash flows from our accounts receivable securitization facility decreased $23.0 million, as we received net funding of $59.0 million from this facility during the six months ended January 31, 2020 as compared to receiving net funding of $82.0 million from this facility during the six months ended January 31, 2019.

Our utilization of the accounts receivable securitization facility is limited by the amount of accounts receivable that we are permitted to securitize according to the facility agreement. As of January 31, 2020, we had received cash proceeds of $121.0 million related to the securitization of our trade accounts receivable, with no remaining capacity to receive additional proceeds. As of January 31, 2020, the weighted average interest rate was 4.6%. As our trade accounts receivable increase during the winter heating season, the securitization facility permits us to receive greater proceeds as eligible trade accounts receivable increase, thereby providing additional cash for working capital needs.

On December 5, 2019, we entered into an eighth amendment to the accounts receivable securitization facility in order to align certain deliverables under the accounts receivable securitization facility with similar requirements under the financing agreement governing the Senior Secured Credit Facility.

Distributions

During the three months ended October 31, 2018, Ferrellgas Partners paid a per unit distribution on all common units of $0.10 in connection with the distributions declared for the three month period ended July 31, 2018. No distribution on common units was made for the three month periods ended October 31, 2018, January 31, 2019, April 30, 2019, July 31, 2019 and October 31, 2019, and no distribution will be made in March 2020 for the three months ended January 31, 2020.

Total distributions paid to common unitholders during fiscal 2019, including the related general partner distributions, was $9.8 million. As discussed above, no distribution on common units was made in December 2018, March 2019, June 2019, September 2019 or December 2019 or will be made in March 2020 for the three months ended January 31, 2020, and the general partner expects that Ferrellgas Partners will be prohibited from making common unit distributions for any future quarterly period unless and until the outstanding notes of Ferrellgas Partners due 2020 are restructured, refinanced or otherwise satisfied.

The operating partnership

The financing activities discussed above also apply to the operating partnership except for cash flows related to distributions paid, as discussed below.

Cash distribution paid

The operating partnership paid cash distributions of $15.7 million and $25.6 million during the six months ended January 31, 2020 and 2019, respectively. The operating partnership does not intend to make any distributions related to the three month period ended January 31, 2020.

As described previously, Ferrellgas Partners’ unsecured notes due 2020 mature on June 15, 2020, and the outstanding

principal amount of those notes is due to be paid on that date, together with accrued interest to the maturity date. Although the operating partnership has some remaining capacity to make distributions under the limited exception to the ratio requirement under the operating partnership’s indentures, this capacity, as well as limitations on distributions under our Senior Secured Credit Facility, will not allow the operating partnership to make distributions to Ferrellgas Partners sufficient to pay the principal of and accrued interest on Ferrellgas Partners’ unsecured senior notes due 2020 due at the maturity of those notes. Additionally, the restrictions in these debt agreements currently prevent the operating partnership from making distributions to Ferrellgas Partners to enable it to pay cash distributions to its unitholders.

Disclosures about Effects of Transactions with Related Parties

We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreements, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf, and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These reimbursable costs, which totaled $150.5 million for the six months ended January 31, 2020, include operating expenses such as compensation and benefits paid to employees of our general partner who perform services on our behalf as well as related general and administrative expenses.

During the six months ended January 31, 2020, Ferrellgas Partners and the operating partnership together paid the general partner distributions of $0.1 million.

As discussed previously, Ferrellgas Partners continues to be not in compliance with the consolidated fixed charge coverage ratio under its note indenture, and thus remains unable to make restricted payments, including distributions to unitholders.

We did not enter into any risk management trading activities during the six months ended January 31, 2020. Our remaining market risk sensitive instruments and positions have been determined to be “other than trading.”

Commodity price risk management

Our risk management activities primarily attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies. We attempt to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts.

Our risk management strategy involves taking positions in the forward or financial markets that are equal and opposite to our positions in the physical products market in order to minimize the risk of financial loss from an adverse price change. This risk management strategy is successful when our gains or losses in the physical product markets are offset by our losses or gains in the forward or financial markets. Propane related financial derivatives are designated as cash flow hedges.

Our risk management activities include the use of financial derivative instruments including, but not limited to, price futures, swaps, options and basis swaps to seek protection from adverse price movements and to minimize potential losses. We enter into these financial derivative instruments with brokers who are clearing members with the Intercontinental Exchange or the Chicago Mercantile Exchange and, to a lesser extent, directly with third parties in the over-the-counter market. We also enter into forward propane purchase and sales contracts with counterparties. These forward contracts qualify for the normal purchase normal sale exception within GAAP guidance and are therefore not recorded on our financial statements until settled.

Transportation Fuel Price Risk

From time to time, our risk management activities also attempt to mitigate price risks related to the purchase of gasoline and diesel fuel for use in the transport of propane from retail fueling stations. When employed, we attempt to mitigate these price risks through the use of financial derivative instruments.

When employed, our risk management strategy involves taking positions in the financial markets that are not more than the forecasted purchases of fuel for our internal use in the retail and supply propane delivery fleet in order to minimize the risk of decreased earnings from an adverse price change. This risk management strategy locks in our purchase price and is successful when our gains or losses in the physical product markets are offset by our losses or gains in the financial markets. Our transport fuel financial derivatives are not designated as cash flow hedges.

Risk Policy and Sensitivity Analysis

Market risks associated with energy commodities are monitored daily by senior management for compliance with our commodity risk management policy. This policy includes an aggregate dollar loss limit and limits on the term of various contracts. We also utilize volume limits for various energy commodities and review our positions daily where we remain exposed to market risk, so as to manage exposures to changing market prices.

We have prepared a sensitivity analysis to estimate the exposure to market risk of our energy commodity positions. Forward contracts, futures, swaps and options outstanding as of January 31, 2020 and July 31, 2019, that were used in our risk management activities were analyzed assuming a hypothetical 10% adverse change in prices for the delivery month for all energy commodities. The potential loss in future earnings from these positions due to a 10% adverse movement in market prices of the underlying energy commodities was estimated at $5.8 million and $8.0 million as of January 31, 2020 and July 31, 2019, respectively. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%, thus actual results may differ. Our sensitivity analysis does not include the anticipated transactions associated with these transactions, which we anticipate will be 100% effective.

Credit risk

We maintain credit policies with regard to our counterparties that we believe significantly reduce overall credit risk. These policies include evaluating and monitoring of counterparties’ financial condition (including credit ratings), and entering into agreements with counterparties that govern credit guidelines.

Our other counterparties principally consist of major energy companies that are suppliers, marketers, wholesalers, retailers and end users; and major U.S. financial institutions. The overall impact due to certain changes in economic, regulatory and other events may impact our overall exposure to credit risk, either positively or negatively in that counterparties may be similarly impacted. Based on our policies, exposures, credit and other reserves, management does not anticipate a material adverse effect on financial position or results of operations as a result of counterparty performance.

Interest rate risk

At January 31, 2020, we had a total of $444.8 million in variable rate Senior Secured Credit Facility and collateralized note payable borrowings. Thus, assuming a one percent increase in our variable interest rate, our interest rate risk related to these borrowings would result in a reduction to future earnings of $4.4 million for the twelve months ending January 31, 2020. The preceding hypothetical analysis is limited because changes in interest rates may or may not equal one percent, thus actual results may differ. Our results of operations, cash flows and financial condition could be materially adversely affected by significant increases in interest rates.

An evaluation was performed by the management of Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp., with the participation of the principal executive officer and principal financial officer of our general partner, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures, as defined in Rules 13a‑15(e) or 15d‑15(e) under the Exchange Act, were effective as of January 31, 2020.

The management of Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp. does not expect that our disclosure controls and procedures will prevent all errors and all fraud. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Based on the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the above mentioned partnerships and corporations have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the principal executive officer and principal financial officer of our general partner have concluded, as of January 31, 2020, that our disclosure controls and procedures are effective in achieving that level of reasonable assurance.

During the most recent fiscal quarter ended January 31, 2020, there have been no changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) or Rule 15d‑15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our lease contracts and properly assessed the impact of the new accounting standard related to leases on our financial statements to facilitate its adoption on August 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

There is a limited market for our common units and it may be difficult for you to obtain accurate quotations or sell your common units.

Our common units trade on the OTC Pink Market under the symbol “FGPR”. The OTC Pink Market is a quotation system, not a national securities exchange, and does not provide the same benefits to common unitholders that a national exchange provides. Holders of our common units may experience limited availability of market quotations, reduced liquidity for trading, and the reported bid and asked prices may bear little relationship to the price you pay if you buy common units or the price you receive if you sell common units. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future, and it could impair our ability to provide equity incentives to our employees. There can be no assurance that an active trading market for our common units will exist in the future or be sustained.