Ferrellgas Partners L P: Form 10-Q for the period ended Apr 30, 2021

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 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 (except where the context indicates otherwise) 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 or sole member, as applicable, of our general partners;
• “unitholders” refers to holders of Class A 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;
• “Ferrellgas Partners Notes” refers to the $357.0 million aggregate principal amount of 8.625% unsecured senior notes due June 15, 2020 co-issued by Ferrellgas Partners and Ferrellgas Partners Finance Corp.;
• “Notes” refers to the notes of the condensed consolidated financial statements of Ferrellgas Partners or the operating partnership, as applicable; and
• references to any fiscal year are to the fiscal year ended or ending on July 31 of the applicable year.

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 Class A 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 Class A 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 audited historical consolidated financial statements and accompanying Notes thereto included in our Annual Report on Form 10-K for fiscal 2020 and in our unaudited 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 differences between Ferrellgas Partners and the operating partnership:

• Ferrellgas Partners, L.P. entered into a term loan credit agreement with Ferrellgas, L.P., pursuant to which Ferrellgas, L.P. extended to Ferrellgas Partners, L.P. an unsecured, non-amortizing term loan in the aggregate principal amount of $19.9 million. The term loan bears interest at a rate of 20% per annum, and all interest on the term loan will be added to the outstanding principal amount of the term loan. The term loan will mature on July 1, 2022. The balance of the outstanding loan and accrued interest at April 30, 2021 equals $25.1 million.

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 and debt-service requirements;

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 2020 and in “Item 1A Risk Factors” of this Quarterly Report on Form 10-Q. 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

COVID-19

The coronavirus disease 2019 (COVID-19), which has been declared by the World Health Organization as a “Public Health Emergency of International Concern,” continues to impact the economy of the United States and other countries around the world. COVID-19 poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from or limited in conducting business activities for an indefinite period of time. The outbreak of COVID-19 has already resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, manufacturing restrictions, declarations of national emergency and states of emergency, business shutdowns and restrictions on the movement of people throughout the United States and the world. While some of our business operations and support systems are deemed essential in many jurisdictions, we are continuing to assess the impact that COVID-19 may have on our results of operations and financial condition and cannot at this time accurately predict what effects these conditions will have on our operations and sales due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak and the length of the travel restrictions and business closures imposed by governments in different jurisdictions. Additionally, initiatives we have implemented or may implement to slow and/or reduce the impact of COVID-19, such as using staggered start times for drivers, may increase our operating expenses and reduce the efficiency of our operations. Any of the foregoing events or other unforeseen consequences of public health epidemics may have further adverse impacts on U.S. and global economic conditions, including a general slowdown in the U.S. economy, which could decrease demand for our products and have a material adverse effect on our results of operations and financial condition.

Chapter 11 Bankruptcy Cases

As previously reported on January 11, 2021, Ferrellgas Partners and Ferrellgas Partners Finance Corp. filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases were jointly administered under the caption and case numbers, In re: Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., Chapter 11 Case Nos. 21-10020 and 21-10021.

On March 5, 2021, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Second Amended Prepackaged Joint Chapter 11 Plan of Reorganization of Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. (the “Plan”).

On March 30, 2021 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied and the Confirmation Order was deemed binding upon Ferrellgas Partners, Ferrellgas Partners Finance Corp. and all other parties affected by the Plan. In satisfying the conditions of the Plan, on the Effective Date, certain restructuring transactions by Ferrellgas Partners and certain financing transactions by the operating partnership were completed, as further described under “–Transactions” below.

Ferrellgas has accounted for the effects of the reorganization and determined that fresh-start accounting does not need to be applied, as a change in control did not occur.

Transactions

Satisfaction of Ferrellgas Partners Notes; Issuance of Class B Units to Holders of Ferrellgas Partners Notes

On the Effective Date, by operation of the Plan, all outstanding indebtedness (including accrued interest) of Ferrellgas Partners and Ferrellgas Partners Finance Corp. under their $357.0 million aggregate principal amount of the Ferrellgas Partners Notes were discharged and cancelled.

Pursuant to the Plan, Ferrellgas Partners issued an aggregate of 1.3 million Class B Units to holders of the Ferrellgas Partners Notes in satisfaction of their claims in respect of the Ferrellgas Partners Notes. See Note H – Equity for additional discussion.

Issuance of Preferred Units of the Operating Partnership

On the Effective Date, the operating partnership and the general partner (in its capacity as the general partner of operating partnership) entered into an Investment Agreement (the “Investment Agreement”) with certain purchasers named therein, pursuant to which, on the Effective Date, the operating partnership issued and sold to such purchasers an aggregate of 700,000 Senior Preferred Units (the “Preferred Units”), having an aggregate initial liquidation preference of $700.0 million. The purchase price per Preferred Unit was $1,000 less a 3.0% purchase price discount, for an aggregate purchase price of $679.0 million.

The operating partnership received net proceeds from the issuance and sale of the Preferred Units of approximately $651.8 million, after deducting the purchase price discount and certain expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the 2026 Notes and the 2029 Notes (as defined and described below) and cash on hand, (i) to redeem (or satisfy and discharge and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note G – Preferred units for additional discussion.

Issuance of Senior Unsecured Notes of the Operating Partnership

On the Effective Date, two wholly-owned subsidiaries of the operating partnership (the “Escrow Issuers”) issued $650.0 million aggregate principal amount of 5.375% senior notes due 2026 (the “2026 Notes”) and $825.0 million aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”), in each case, at an offering price equal to 100% of the principal amount thereof. On the Effective Date and immediately after the issuance of the 2026 Notes and the 2029 Notes by the Escrow Issuers, (i) the Escrow Issuers were merged into the operating partnership and Ferrellgas Finance Corp., respectively, and the operating partnership and Ferrellgas Finance Corp. assumed the obligations of the Escrow Issuers as co-issuers of the 2026 Notes and the 2029 Notes, and (ii) the general partner and certain subsidiaries of the operating partnership guaranteed the 2026 Notes and the 2029 Notes.

The operating partnership received aggregate net proceeds from the issuance and sale of the 2026 Notes and the 2029 Notes of approximately $1,446.5 million, after deducting the initial purchaser’s discount and offering expenses. The operating partnership used such net proceeds, together with the net proceeds of the issuance and sale of the Preferred Units and cash on hand, (i) to redeem (or satisfy and discharge the indentures governing and subsequently redeem) all of the operating partnership’s previously issued and outstanding senior notes, as described below, and (ii) to repay all outstanding obligations under the operating partnership’s then-existing accounts receivable securitization facility in connection with the termination of that facility, as described below. See Note F – Debt for additional discussion.

Redemption of Previously Issued Senior Notes of the Operating Partnership

Prior to the Effective Date, the operating partnership delivered notices of redemption of all its previously issued and outstanding 10.00% senior secured notes due 2025 (the “2025 Notes”), 6.50% senior unsecured notes due 2021 (the “2021 Notes”), 6.75% senior unsecured notes due 2022 (the “2022 Notes”) and 6.75% senior unsecured notes due 2023 (the “2023 Notes”), in the aggregate combined principal amount for all such notes of $2,175.0 million, pursuant the terms of the indentures governing those notes, with a redemption date of March 30, 2021 for the 2025 Notes and April 5, 2021 for the 2021 Notes, the 2022 Notes and the 2023 Notes.

On the Effective Date, the operating partnership redeemed all of the issued and outstanding 2025 Notes. Also on the Effective Date, the operating partnership (i) satisfied and discharged the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes by irrevocably depositing with the applicable trustees under such indentures funds in an amount sufficient to pay the redemption price for all of such notes on April 5, 2021 and (ii) delivered irrevocable instructions directing the applicable trustees to apply such funds to the redemption of such notes on April 5, 2021. As a result, as of the Effective Date, the indentures governing the 2021 Notes, the 2022 Notes and the 2023 Notes ceased to be of further effect (except as to certain expressly surviving rights), and all of the issued and outstanding 2021 Notes, 2022 Notes and 2023 Notes were redeemed on April 5, 2021.

The aggregate redemption price for the 2021 Notes, the 2022 Notes, the 2023 Notes and the 2025 Notes was approximately $2,320.9 million, consisting of principal, redemption premium (in the case of the 2023 Notes and the 2025 Notes) and accrued and unpaid interest to the applicable redemption date. See Note F – Debt for additional discussion.

Credit Agreement

On the Effective Date, the operating partnership, the general partner and certain of the operating partnership’s subsidiaries entered into a Credit Agreement, which provides for a four-year revolving credit facility in an aggregate principal amount of up to $350.0 million, including a sublimit not to exceed $225.0 million for the issuance of letters of credit for a period of 60 days after March 30, 2021, reducing to $200.0 million thereafter. See Note F – Debt for additional discussion.

Termination of Accounts Receivable Securitization Facility

On the Effective Date, the operating partnership and its receivables subsidiary repaid all of the outstanding obligations and fees under the then-existing accounts receivable securitization facility and terminated that facility. See Note E – Accounts and notes receivable, net for additional discussion.

Amended Partnership Agreements of Ferrellgas Partners and the Operating Partnership

On the Effective Date, the general partner executed the Sixth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the “Amended Ferrellgas Partners LPA”), which amended and restated in its entirety the Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. Among other matters, the Amended Ferrellgas Partners LPA provided for the restructuring of Ferrellgas Partners in accordance with the Plan, including (i) effecting a reverse unit split of Ferrellgas Partners’ then-outstanding common units pursuant to which the holders of the common units received one Class A Unit for every twenty common units held, and (ii) providing for the issuance of Class B Units to the holders of the Ferrellgas Partners Notes in exchange for such holders’ contribution of the Ferrellgas Partners Notes as a capital contribution to Ferrellgas Partners and in satisfaction of such holders’ claims in respect of the Ferrellgas Partners Notes. See Note H – Equity for additional discussion.

Also on the Effective Date, the general partner executed (i) the Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. (the “Amended OpCo LPA”), which amended and restated in its entirety the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas L.P., and (ii) a First Amendment to the Amended OpCo LPA (the “OpCo LPA First Amendment”), which sets forth the preferences, rights, privileges and other terms of the Preferred Units.

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 2020, 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 retail 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 2021 and 2022 sales commitments and, as of April 30, 2021, we have experienced net mark-to-market gains of approximately $32.2 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 current liabilities,” "Other liabilities" and “Accumulated other comprehensive income,” 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 gains are expected to be offset by decreased margins on propane sales commitments that qualify for the normal purchase normal sale exception. At April 30, 2021, we estimate 62% 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 April 30, 2021 and 2020

Weather in the more highly concentrated geographic areas we serve for the three months ended April 30, 2021 was approximately 3% colder than normal, and 8% colder than the prior year period. A sustained and widespread cooler weather pattern during the month of February where average temperatures were 15% colder than normal and 18% colder than February 2020 contributed to an increase in heat-related demand and volumes sold. We estimate that this colder weather increased retail gallons compared to the prior year.

During the three months ended April 30, 2021, we recognized net loss attributable to Ferrellgas Partners, L.P. of $66.8 million, compared to net loss attributable to Ferrellgas Partners, L.P. of $15.4 million during the three months ended April 30, 2020. This increased loss reflects a $72.5 million increase in “Loss on extinguishment of debt” and $9.0 million of “Reorganization items, net” incurred only in fiscal 2021, partially offset by a $28.2 million increase in “Gross margin – Propane and other gas liquid sales”.

Interest expense decreased $3.5 million primarily due to a $7.7 million decrease in interest recognized on the Ferrellgas Partner Notes, partially offset by the following April 2020 transactions: net additional borrowings related to the refinancing of our terminated senior secured credit facility with the issuance of $700.0 million principal amount of the 2025 Notes and, to a lesser extent, increased interest rates on the 2025 Notes.

Distributable cash flow excess increased to $68.9 million in the current period from $42.0 million in the prior year period, primarily due to a $26.9 million increase to our Adjusted EBITDA, and by a $5.7 million decrease in our net cash interest expense.

For the nine months ended April 30, 2021 and 2020

Weather in the more highly concentrated geographic areas we serve for the nine months ended April 30, 2021 was approximately 2% warmer than normal, and 2% colder than the prior year period. We believe that this colder weather slightly increased retail gallons compared to the prior year.

During the nine months ended April 30, 2021, we recognized net loss attributable to Ferrellgas Partners, L.P. of $49.6 million, compared to net loss attributable to Ferrellgas Partners, L.P. of $12.5 million during the nine months ended April 30, 2020. This increased loss reflects a $72.5 million increase in “Loss on extinguishment of debt”, a $12.3 million increase in “General and administrative expense” and $10.2 million of “Reorganization items, net” incurred only in fiscal 2021, partially offset by a $42.5 million increase in “Gross margin – Propane and other gas liquid sales” and a $15.4 million decrease in “Operating expenses – personnel, vehicle, plant and other”. “General and administrative expense” reflect the effects of legal fees and settlement related to non-core businesses of $8.6 million and $5.9 million during fiscal 2021 and fiscal 2020, respectively.

Interest expense increased $10.1 million primarily due to the following April 2020 transactions: net additional borrowings related to the refinancing of our terminated senior secured credit facility with the issuance of $700.0 million principal amount of the 2025 Notes and, to a lesser extent, increased interest rates on the 2025 Notes, partially offset by an $11.6 million decrease in interest recognized on the Ferrellgas Partners Notes.

Distributable cash flow excess increased to $134.1 million in the current period from $91.3 million in the prior year period, primarily due to a $55.2 million increase to our Adjusted EBITDA, partially offset by an $8.4 million increase in our net cash interest expense.

Consolidated Results of Operations

(amounts in thousands)

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 preferred and common unitholders, and Distributable cash flow excess.

Adjusted EBITDA. Adjusted EBITDA for Ferrellgas Partners is calculated as net loss attributable to Ferrellgas Partners, L.P., plus the sum of the following: income tax expense, interest expense, depreciation and amortization expense, distribution to preferred unitholders, non-cash employee stock ownership plan compensation charge, loss on extinguishment of debt, loss on asset sales and disposals, other income (expense), net, reorganization expense – professional fees, severance costs, legal fees and settlements related to non-core businesses, provision for doubtful accounts related to non-core businesses, lease accounting standard adjustment and other and net loss 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 companies. 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 income 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, including holders of the operating partnership’s Preferred Units. 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 companies. 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 distributions accrued or paid on the Preferred Units and 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 companies. 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 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 companies. 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 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 nine months ended April 30, 2021 and 2020:

(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 terminated 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 April 30, 2021 and 2020

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

NM – Not meaningful

(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 various customer fee income and to a lesser extent appliance and material sales.

(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 and other reflects the additional expense recognized in excess of cash paid.

Propane sales volumes during the three months ended April 30, 2021 increased 5%, or 13.3 million gallons, from the prior year period due to increased sales volumes to retail customers and to a lesser extent increased sales volumes to tank exchange customers, tempered by the impacts of industrial commercial downtime due to closures related to the extreme cold felt in February 2021. Weather in the more highly concentrated geographic areas we serve for the three months ended April 30, 2021 was approximately 3% colder than normal, and 8% colder than the prior year period. A sustained and widespread cooler weather pattern during the month of February where average temperatures were 15% colder than normal and 18% colder than February 2020 contributed to an increase in heat-related demand and volumes sold. We believe that this colder weather increased retail gallons compared to the prior year.

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 April 30, 2021 averaged 162% more than the prior year period, while at the Conway, Kansas major supply point prices averaged 175% more than the prior year period. The wholesale market price at Mt. Belvieu, Texas averaged $0.89 and $0.34 per gallon during the three months ended April 30, 2021 and 2020, respectively, while the wholesale market price at Conway, Kansas averaged $0.88 and $0.32 per gallon during the three months ended April 30, 2021 and 2020, respectively. This increase in the wholesale cost of propane contributed to our increase in sales price per gallon and therefore revenues.

Revenues

Retail sales increased $106.7 million compared to the prior year period. This increase resulted from an $85.4 million increase in sales price per gallon and a $21.3 million increase in sales volume, both as discussed above.

Wholesale sales increased $36.3 million compared to the prior year period. The increase in sales was primarily due to an increase in sales price per gallon and the increases in tank exchange sales volumes, both as discussed above.

Other gas sales increased $7.3 million compared to the prior year period primarily due to an increase in sales price per gallon.

Other revenues increased $2.3 million compared to the prior year period primarily due to increased miscellaneous fees billed to customers and increased tank rental income.

Gross margin - Propane and other gas liquids sales

Gross margin increased $28.2 million primarily due to increased retail volumes, increased tank exchange sales volumes, both as discussed above, and increased retail gross margin per gallon. The $18.0 million increase in retail gross margin resulted primarily from a $12.2 million increase attributed to sales volumes, as discussed above, and a $5.8 million increase in gross margin per gallon. The $10.2 million increase in wholesale gross margin primarily relates to increased tank exchange sales volumes, as discussed above.

Gross margin - other

Gross margin increased $2.1 million compared to the prior year period primarily due to increased miscellaneous fees billed to customers and increased tank rental income.

Operating income

Operating income increased $25.4 million primarily due to a $28.2 million increase in "Gross margin - Propane and other gas liquid sales", a $2.1 million increase in gross margin – other, both as discussed above, and a $1.3 million decrease in “Operating expense – equipment lease expense”, partially offset by a $5.7 million increase in “Operating, general and administrative expense”. “Operating expense – equipment lease expense” decreased due to our entering into more finance leases instead of operating leases, resulting in less lease expense and greater interest expense and amortization expense. “Operating, general and administrative expense” increased due to a $3.1 million increase in “Operating expense – personnel, vehicle, plant and other”, and a $2.6 million increase in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased primarily due to a $2.2 million increase in field personnel costs, and a $1.1 million increase in vehicle fuel and other vehicle costs. “General and administrative expense” increased primarily due to a $1.5 million increase in legal costs and a $1.0 million increase in personnel incentives.

Adjusted EBITDA

Adjusted EBITDA increased $26.9 million primarily due to a $28.2 million increase in "Gross margin - Propane and other gas liquid sales", a $2.1 million increase in gross margin – other, both as discussed above, and a $1.3 million decrease in “Operating expense – equipment lease expense”, partially offset by a $4.7 million increase in “Operating, general and administrative expense”. “Operating, general and administrative expense” increased due to a $3.2 million increase in “Operating expense – personnel, vehicle, plant and other”, and a $1.5 million increase in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” increased primarily due to a $2.2 million increase in field personnel costs and a $1.1 million increase in vehicle fuel and other vehicle costs. “General and administrative expense” increased primarily due to a $1.0 million increase in personnel incentives.

Operating Results for the nine months ended April 30, 2021 and 2020

NM – Not meaningful

(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 various customer fee income and to a lesser extent appliance and material sales.

(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 and other reflects the additional expense recognized in excess of cash paid.

Propane sales volumes during the nine months ended April 30, 2021 decreased 3%, or 18.9 million gallons, from the prior year period primarily due to decreased sales volumes to retail and wholesale customers, substantially offset by increased sales to tank exchange customers. Sales volumes to retail customers were impacted by a now recovering industrial commercial customer base and weak agriculture demand. Weather in the more highly concentrated geographic areas we serve for the nine months ended April 30, 2021 was approximately 2% warmer than normal, and 2% colder than the prior year period.

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 nine months ended April 30, 2021 averaged 64% more than the prior year period, while at the Conway, Kansas major supply point prices averaged 76% more than the prior year period. The wholesale market price at Mt. Belvieu, Texas averaged $0.69 and $0.42 per gallon during the nine months ended April 30, 2021 and 2020, respectively, while the wholesale market price at Conway, Kansas averaged $0.67 and $0.38 per gallon during the nine months ended April 30, 2021 and 2020, respectively. This increase in the wholesale cost of propane contributed to our increase in sales price per gallon and therefore revenues.

Revenues

Retail sales increased $105.2 million compared to the prior year period. This increase resulted from a $129.9 million increase in sales price per gallon, partially offset by a $24.7 million decrease in sales volume, both as discussed above.

Wholesale sales increased $89.9 million compared to the prior year period. The increase in sales was primarily due to the increases in tank exchange sales volumes and an increase in sales price per gallon, both as discussed above.

Other gas sales increased $6.0 million compared to the prior year period primarily due to an increase in sales price per gallon.

Other revenues increased $1.9 million compared to the prior year period primarily due to increased miscellaneous fees billed to customers and increased tank rental income, partially offset by a $2.4 million one-time refund of federal fuel excise tax received in fiscal 2020 that was not repeated in fiscal 2021.

Gross margin - Propane and other gas liquids sales

Gross margin increased $42.4 million primarily due to increased tank exchange sales volumes and to a lesser extent increased retail gross margin per gallon, partially offset by the decreased other volumes sales, each as discussed above. The $37.3 million increase in wholesale gross margin primarily relates to increased tank exchange sales volumes. The $5.1 million increase in retail gross margin resulted primarily from a $18.6 million increase in gross margin per gallon, partially offset by a $13.5 million overall decrease in sales volume, as discussed above.

Gross margin - other

Gross margin decreased $1.5 million compared to the prior year period primarily due to increased miscellaneous fees billed to customers and increased tank rental income, partially offset by a $2.4 million one-time refund of federal fuel excise tax received in fiscal 2020 that was not repeated in fiscal 2021.

Operating income

Operating income increased $50.7 million primarily due to a $42.4 million increase in "Gross margin - Propane and other gas liquid sales", as discussed above, a $4.3 million decrease in “Operating expense – equipment lease expense”, and a $3.1 million decrease in “Operating, general and administrative expense”. “Operating expense – equipment lease expense” decreased due to our entering into more finance leases instead of operating leases, resulting in less lease expense and greater interest expense and amortization expense. “Operating, general and administrative expense” decreased due to a $15.4 million decrease in “Operating expense – personnel, vehicle, plant and other”, partially offset by a $12.3 million increase in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” decreased primarily due to a $5.3 million decrease in vehicle fuel and other vehicle costs, $3.0 million in decreased plant and office costs, a $2.8 million decrease in general insurance and workers compensation costs and a $2.7 million decrease in field personnel costs. “General and administrative expense” increased primarily due to a $6.6 million increase in legal costs and a $5.4 million increase in personnel incentives.

Adjusted EBITDA

Adjusted EBITDA increased $55.2 million primarily due to a $42.5 million increase in "Gross margin - Propane and other gas liquid sales", as discussed above, a $7.0 million decrease in “Operating, general and administrative expense”, and a $4.3 million decrease in “Operating expense – equipment lease expense”, as discussed above. “Operating, general and administrative expense” decreased due to a $16.3 million decrease in “Operating expense – personnel, vehicle, plant and other”, partially offset by a $9.3 million increase in “General and administrative expense”. “Operating expense – personnel, vehicle, plant and other” decreased primarily due to a $5.3 million decrease in vehicle fuel and other vehicle costs, a $3.6 million decrease in field personnel costs, $3.0 million in decreased plant and office costs and a $2.8 million decrease in general insurance and workers compensation costs. “General and administrative expense” increased primarily due to a $5.4 million increase in personnel incentives and a $3.9 million increase in legal costs.

Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash flows from operating activities, our Credit Facility and funds received from sales of debt and equity securities. As of April 30, 2021, our total liquidity was $423.1 million, which is comprised of $211.3 million in unrestricted cash and $211.8 million of availability under our Credit Facility. These sources of liquidity and short term capital resources are intended to fund our working capital requirements, acquisitions and capital expenditures. As of April 30, 2021, letters of credit outstanding totaled $138.2 million. 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.

As of April 30, 2021, we had $11.5 million of restricted cash for a cash deposit made with the administrative agent under the senior secured credit facility that was terminated in April 2020.

We believe that the liquidity available from cash flows from operating activities, unrestricted cash and the Credit Facility will be sufficient to meet our capital expenditure, working capital and letter of credit requirements for the foreseeable future.

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 Discussion 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 April 30, 2021 to the twelve months ended January 31, 2021 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 April 30, 2021, distributable cash flow attributable to equity investors increased $35.6 million compared to the twelve months ended January 31, 2021. We declared an $8.0 million quarterly distribution to Preferred Unitholders on April 30, 2021 and paid this distribution in May 2021. No cash distributions have been paid to our Class A unitholders since the three months ended October 31, 2018. Thus, cash reserves, which we utilize to meet future anticipated expenditures, increased by $107.5 million during the twelve months ended April 30, 2021, compared to an increase of $79.9 million in the twelve months ended January 31, 2021.

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 $103.0 million for the nine months ended April 30, 2021, compared to net cash provided by operating activities of $115.8 million for the nine months ended April 30, 2020. This decrease in cash provided by operating activities was primarily due to a $52.8 million increase in working capital requirements, partially offset by a $33.7 million increase in cash flow from operations and a $6.3 million inflow associated with other assets and other liabilities.

The increase in working capital requirements for the nine months ended April 30, 2021 compared to the nine months ended April 30, 2020 was primarily due to an $45.7 million decrease in accrued interest expense related to the timing and nature of the restructuring transaction in March 2021 and the debt refinancing in April 2020, a $45.6 million increase in requirements for accounts and notes receivable due to rising propane prices in the quarter that was partially offset by slight decreases in volume of propane sold and a $12.3 million increase in requirements for inventory partially due to rising propane prices in the current period, partially offset by a $39.2 million decrease in requirements for other current liabilities and a $16.3 million decrease in accounts payable.

The increase in cash flow from operations was primarily due to a $44.0 million increase in gross profit and a net decrease in “Operating expense – personnel, vehicle, plant and other” and “Operating expense – equipment lease expense” of $19.7 million, partially offset by a $12.3 million increase in “General and administrative expense”, a $10.2 million increase in “Reorganization items, net” and a $10.1 million increase in "Interest expense".

The operating partnership

Net cash provided by operating activities was $110.3 million for the nine months ended April 30, 2021, compared to net cash provided by operating activities of $131.3 million for the nine months ended April 30, 2020. This decrease in cash provided by operating activities was primarily due to a $62.0 million decrease in working capital requirements, partially offset by a $35.9 million increase in cash flow from operations and a $5.0 million inflow associated with other assets and other liabilities.

The increase in working capital requirements for the nine months ended April 30, 2021 compared to the nine months ended April 30, 2020 was primarily due to an $51.8 million decrease in accrued interest expense related to the timing and nature of the restructuring transaction in March 2021 and the debt refinancing in April 2020, a $45.6 million increase in requirements for accounts and notes receivable due to rising propane prices in the quarter that was partially offset by slight decreases in volume of propane sold and a $12.3 million increase in requirements for inventory partially due to rising propane prices in the current period, partially offset by a $36.0 million decrease in requirements for other current liabilities and a $16.3 million decrease in accounts payable.

The increase in cash flow from operations was primarily due to a $44.0 million increase in gross profit and a net decrease in “Operating expense – personnel, vehicle, plant and other” and “Operating expense – equipment lease expense” of $19.7 million, partially offset by a $21.7 million increase in "Interest expense" and a $12.2 million increase in “General and administrative expense”.

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 $47.0 million for the nine months ended April 30, 2021, compared to net cash used in investing activities of $76.2 million for the nine months ended April 30, 2020. This decrease in net cash used in investing activities was primarily due to a $36.4 million decrease in “Cash payments to construct assets in connection with future lease transactions”, a $6.8 million decrease in “Capital expenditures” and a $6.4 million decrease in “Business acquisitions, net of cash acquired”, partially offset by a $21.6 million decrease in “Cash receipts in connection with leased vehicles”.

The decrease in "Capital expenditures" was primarily due to a decrease financing the construction of assets with cash, a decrease in maintenance capital expenditures, and to a lesser extent a decrease in growth capital expenditures during the nine months ended April 30, 2021 compared to the nine months ended April 30, 2020. The decrease in both growth and maintenance capital expenditures was primarily due to more effective use of equipment on hand. This was especially noticeable in tank and cylinders, but also had an impact in vehicles and storage facilities.

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, other than the $19.9 million term loan credit agreement with Ferrellgas Partners, L.P. See “Disclosures about Effects of Transactions with Related Parties” below for further discussion.

Financing Activities

Ferrellgas Partners

Net cash used in financing activities was $166.9 million for the nine months ended April 30, 2021, compared to net cash provided by financing activities of $268.2 million for the nine months ended April 30, 2020. This decrease in cash flow provided by financing activities was primarily due to a $1,893.7 million increase in payments for settlement and early extinguishment of liabilities due to the redemption of the 2021 Notes, the 2022 Notes, the 2023 Notes and the 2025 Notes (as discussed further in Note F – Debt), a $67.5 million increase in payments of redemption premiums related to those extinguishments of liabilities, a $16.8 million increase in cash paid for financing costs and a $4.3 million increase in cash payments for the principal portion of finance lease liabilities, partially offset by a $771.3 million increase in proceeds from the debt offering due to the issuance of the 2026 Notes and the 2029 Notes, a $670.4 million increase in proceeds from the sale of the Preferred Units, net of offering costs and issue discount and a $105.0 million net decrease in short-term borrowings in fiscal 2020 that was not repeated in fiscal 2021.

Letters of credit outstanding at April 30, 2021 and July 31, 2020 totaled $138.2 million and $126.0 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. As of April 30, 2021, we had available borrowing capacity under our Credit Facility of $211.8 million, which included remaining available letter of credit capacity of $86.8 million. At July 31, 2020, we did not have in place a credit facility providing for the issuance of letters of credit and had $78.2 million of restricted cash pledged as cash collateral for letters of credit outstanding. Additionally, at July 31, 2020, we also issued letters of credit of $50.0 million by utilizing our liquidity available on the terminated accounts receivable securitization facility.

Accounts receivable securitization facility

On March 30, 2021, Ferrellgas terminated the agreement governing the accounts receivable securitization facility, initially dated as of January 19, 2012 and as subsequently amended from time to time (the “Accounts Receivables Facility”). In connection with the termination of the Accounts Receivables Facility, Ferrellgas repaid all of the outstanding obligations and fees thereunder.

Distributions

Partnership distributions

Pursuant to the Amended Ferrellgas Partners LPA, distributions by Ferrellgas Partners to its partners are required to be made such that the ratio of (i) the amount of distributions made to holders of Class B Units to (ii) the amount of distributions made to holders of Class A Units and the general partner is not less than 6:1 until holders of Class B Units receive distributions in the aggregate amount equaling $357.0 million (which was the outstanding principal amount of the Ferrellgas Partners Notes), upon receipt of which the operating partnership may elect to convert the Class B Units (or under certain circumstances the Class B Units will automatically convert) to Class A Units at the applicable conversion rate described in the Amended Ferrellgas Partners LPA. See Note H – Equity for additional discussion.

Ferrellgas Partners does not intend to pay any distributions to Class B Unitholders, Class A Unitholders or the general partner for the three months ended April 30, 2021.

The ability of Ferrellgas Partners to make cash distributions to its Class A Unitholders and Class B Unitholders is dependent on the receipt by Ferrellgas Partners of cash distributions from the operating partnership. For so long as any Preferred Units remain outstanding, the amount of cash that otherwise would be available for distribution by the operating partnership to Ferrellgas Partners and the general partner will be reduced by the amount of cash distributions and other payments made by the operating partnership in respect of the Preferred Units, including payments to redeem Preferred Units. Further, the indentures governing the 2026 Notes and 2029 Notes, the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units contain covenants that limit the ability of the operating partnership to make distributions to Ferrellgas Partners and therefore effectively limit the ability of Ferrellgas Partners to make distributions to its Class A Unitholders and Class B Unitholders. See Note F – Debt and Note G – Preferred units for a discussion of these limitations. See also “Risk Factors— Our ability to make cash distributions to holders of Class A Units and Class B Units is dependent on the receipt by Ferrellgas Partners of cash distributions from the operating partnership, which are limited by our obligations in respect of the Preferred Units and the terms of the indentures governing the 2026 Notes and 2029 Notes, the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units and may be limited by a variety of other factors. Accordingly, we may be unable to make cash distributions to holders of Class A Units and Class B Units, and we do not anticipate making any such cash distributions in the near future.”

Preferred unit distributions

Pursuant to the OpCo LPA Amendment, the operating partnership will pay to the holders of each Preferred Unit a cumulative, quarterly distribution (the "Quarterly Distribution") at the Distribution Rate (as defined below) on the unit purchase price of such Preferred Unit, which is $1,000 per unit.

"Distribution Rate" means, for the first five years after March 30, 2021, a rate per annum equal to 8.956%, with certain increases in the Distribution Rate on each of the 5th, 6th and 7th anniversaries of March 30, 2021, subject to a maximum rate of 11.125% and certain other adjustments and exceptions.

The Quarterly Distribution will be paid in cash; provided, that the operating partnership may, at its option in its sole discretion, pay any Quarterly Distribution "in kind" through the issuance of additional Preferred Units ("PIK Units") at the quarterly Distribution Rate plus an applicable premium that escalates each year from 75 bps to 300 bps so long as the Preferred Units remain outstanding. In the event the operating partnership fails to make any Quarterly Distribution in cash, such Quarterly Distribution will automatically be paid in PIK Units.

The Distribution Rate on the Preferred Units will increase upon violation of certain protective provisions for the benefit of Preferred Unit holders notwithstanding the cap mentioned above.

As of April 30, 2021 the Quarterly Distribution accrued was $8.0 million, reflecting a prorated distribution amount for the period from the Effective Date to April 30, and the Quarterly Distribution in that amount was paid in cash to holders of Preferred Units on May 17, 2021.

Preferred unit tax distributions

For any quarter in which the operating partnership makes a Quarterly Distribution in PIK Units in lieu of cash, it shall make a subsequent cash tax distribution for such quarter in an amount equal to the (i) the lesser of (x) 25% and (y) the highest combined federal, state and local tax rate applicable for corporations organized in New York, multiplied by (ii) the excess (if any) of (A) one-fourth (1/4th) of the estimated taxable income to be allocated to the holders of Preferred Units for the year in which the Quarterly Tax Payment Date (which refers to certain specified dates that next follow a Quarterly Distribution date on which PIK Units were issued) occurs, over (B) any cash paid on the Quarterly Distribution date immediately preceding the Quarterly Tax Payment Date on which a quarterly tax amount would otherwise be paid (such amount, the "Tax Distribution"). Tax Distributions are treated as advances against, and reduce, future cash distributions for any reason, including payments in redemption of Preferred Units or PIK Units, or payments to the holders in their capacity as such pursuant to any side letter or other agreement.

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, as well as fees paid for the Class B units exchange and amounts related to the termination of the Ferrellgas Partners Notes.

Cash distributions paid

The operating partnership did not pay cash distributions during the nine months ended April 30, 2021. The operating partnership paid cash distributions of $15.7 million during the nine months ended April 30, 2020.

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 $219.2 million for the nine months ended April 30, 2021, 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 three months ended April 30, 2021, Ferrellgas Partners and the operating partnership did not pay distributions.

Term loan credit agreement between Ferrellgas Partners, L.P. and Ferrellgas, L.P.

As discussed in Note L – Transactions with related parties in the notes to the condensed consolidated financial statements of the operating partnership, on January 8, 2021 Ferrellgas Partners, L.P. entered into a term loan credit agreement with Ferrellgas, L.P., pursuant to which Ferrellgas, L.P. extended to Ferrellgas Partners, L.P. an unsecured, non-amortizing term loan in the aggregate principal amount of $19.9 million. The term loan bears interest at a rate of 20% per annum, and all interest on the term loan will be added to the outstanding principal amount of the term loan. The term loan will mature on July 1, 2022.

Contractual Obligations

In the performance of our operations, we are bound by certain contractual obligations.

The following table summarizes our long-term debt, including current portion, and fixed rate interest obligations at April 30, 2021. These obligations reflect the issuance of the $650.0 million aggregate principal amount of 5.375% senior notes due 2026 and the $825.0 million aggregate principal amount of 5.875% senior notes due 2029.

(in thousands)

(1) We have long and short-term payment obligations under agreements such as the indentures governing our senior notes. Amounts shown in the table represent our scheduled future maturities of long-term debt (including current maturities thereof) for the periods indicated. For additional information regarding our debt obligations, see “Liquidity and Capital Resources – Financing Activities.”

(2) Fixed rate interest obligations represent the amount of interest due on fixed rate long-term debt.

The operating partnership

The contractual obligations discussed above also apply to the operating partnership.

We did not enter into any risk management trading activities during the three months ended April 30, 2021. 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 April 30, 2021 and July 31, 2020, 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 $16.8 million and $8.0 million as of April 30, 2021 and July 31, 2020, 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 April 30, 2021, we had no outstanding cash borrowings under our Credit Facility. Thus, no interest rate risk that would result in a reduction to future earnings.

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 April 30, 2021.

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 April 30, 2021, that our disclosure controls and procedures are effective in achieving that level of reasonable assurance.

During the most recent fiscal quarter ended April 30, 2021, progress continued on a plan that calls for modifications and enhancements to our internal controls over financial reporting in relation to our implementation of Salesforce.com applications and the impacts on our revenue cycle. Specifically, we implemented/modified internal controls surrounding revenue recognition.

Except as disclosed above, 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) during the fiscal quarter ended April 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The following risk factors are provided to update and supplement the risk factors set forth under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for fiscal 2020.

Our ability to make cash distributions to holders of Class A Units and Class B Units is dependent on the receipt by Ferrellgas Partners of cash distributions from the operating partnership, which are limited by our obligations in respect of the Preferred Units and the terms of the indentures governing the 2026 Notes and 2029 Notes, the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units and may be limited by a variety of other factors. Accordingly, we may be unable to make cash distributions to holders of Class A Units and Class B Units, and we do not anticipate making any such cash distributions in the near future.

The ability of Ferrellgas Partners to make cash distributions to its Class A Unitholders and Class B Unitholders is dependent on the receipt by Ferrellgas Partners of cash distributions from the operating partnership. For so long as any Preferred Units remain outstanding, the amount of cash that otherwise would be available for distribution by the operating partnership to Ferrellgas Partners and the general partner will be reduced by the amount of cash distributions and other payments made by the operating partnership in respect of the Preferred Units, including payments to redeem Preferred Units. Further, the indentures governing the 2026 Notes and 2029 Notes, the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units contain covenants that limit the ability of the operating partnership to make distributions to Ferrellgas Partners and therefore effectively limit the ability of Ferrellgas Partners to make distributions to its Class A Unitholders and Class B Unitholders. See Note F – Debt and Note G – Preferred units for a discussion of these limitations.

Accordingly, we may be unable to make cash distributions to holders of Class A Units and Class B Units.

If we are unable to access the financing markets, including through our Credit Facility, it may adversely impact our business and liquidity.

Market conditions may impact our ability to access the financing markets on terms acceptable to us or at all. In addition, there are limitations on our ability to utilize fully all commitments under the Credit Facility. Availability under the Credit Facility is determined by reference to a borrowing base comprised of a combination of accounts receivable and propane inventory that fluctuates over time and the borrowing base may be further reduced by discretionary actions of the administrative agent under the Credit Facility. See “Risk Factors—The amount of borrowings permitted under our Credit Facility may fluctuate significantly.” If we are unable to access the financing markets, including through our Credit Facility, we would be required to use cash on hand to fund operations and repay outstanding debt, including the notes offered hereby. There is no assurance that we will be able to generate sufficient cash to fund our operations and repay or refinance such debt. A failure to generate such cash would have a material adverse effect on our business if we were unable to access financing markets. Additionally, even if we are able to generate sufficient cash to refinance such debt, cash available to us for working capital and other corporate uses could be reduced. Market conditions may also impact our ability to utilize letters of credit or other financial instruments we use to conduct our business.

Holders of the Class B Units have the right to appoint an independent director, and certain consent from the holders of Class B Units is required for certain transactions, which may reduce our operating flexibility. The holders of the Class B Units and their affiliates may have conflicts with us.

The holders of Class B Units are permitted to designate one independent director to the Board of Directors of the general partner (the “Class B Independent Director”). The Class B Independent Director may not be affiliated with any prior holders of the Ferrellgas Partners Notes that entered into the Transaction Support Agreement and must be acceptable to Ferrellgas Partners and the operating partnership. The interests of holders of the Class B Units may conflict with our interests or the interests of other securityholders.

The partnership agreements of Ferrellgas Partners and the operating partnership provide certain covenants for the benefit of holders of the Class B Units, including, among others, that none of Ferrellgas Partners, the operating partnership or their respective subsidiaries may (i) incur indebtedness in excess of $75.0 million, other than certain refinancing transactions, (ii) issue or redeem outstanding equity interests (other than the Preferred Units) or (iii) engage in certain related party transactions, asset sales, investments, contributions or other transfers of assets, in each case above a specified threshold. Accordingly, the Class B Independent Director has significant influence with respect to our management, business plans and policies. These restrictions, which can be waived only upon consent by holders of the Requisite New Class B Units (defined as (a) if the holder that initially holds a majority of the Class B Units (the “Initial Class B Majority Holder”) holds at least 50% of Class B Units, holders of at least 50% of the outstanding Class B Units or (b) if the Initial Class B Majority Holder holds less than 50% of New Class B Units, holders of at least one-third of the outstanding Class B Units), may limit our flexibility to pursue strategic opportunities.

Holders of the Class B Units will have the right to acquire the general partner interests in Ferrellgas Partners and the operating partnership upon a material breach of certain covenants in the governance documents of Ferrellgas Partners and the operating partnership and will convert into Class A Units under certain circumstances.

On the Effective Date, Ferrellgas Partners issued approximately 1.3 million Class B Units to holders of the Ferrellgas Partners Notes. Holders of the Class B Units will have the right to acquire the general partner interests in Ferrellgas Partners and the operating partnership, without the approval of the general partner, Ferrellgas Partners, the holders of the Class A Units or the operating partnership, upon a material breach of certain covenants in the governance documents of Ferrellgas Partners and the operating partnership or if the Class B Units fail to convert within ten years after the Effective Date. Additionally, if the Class B Units are not called by Ferrellgas Partners (which is only permitted within five years of the issuance thereof), then upon receipt of distributions equal to $357 million the Class B Units will convert into Class A Units in accordance with the conversion factors described in the Amended Ferrellgas Partners LPA. Ferrellgas Partners will only be able to call the Class B Units to the extent it receives sufficient distributions from the operating partnership, and the operating partnership will be limited in its ability to make distributions by its debt agreements and the terms of the Preferred Units. See “—We issued $700.0 million aggregate initial liquidation preference of Preferred Units, the terms of which restrict us from undertaking certain actions while such Preferred Units are outstanding.” Any such acquisition and/or conversion could have a material adverse effect on us and could substantially change our management and the resolution of conflicts of interest, as described above. Such acquisition also could result in a “change of control” under our debt instruments, including the indentures governing the 2026 Notes and 2029 Notes, or our other securities, including the First Amendment to the Amended OpCo LPA governing the Preferred Units, which could result in an event of default under such instruments or require that we offer to repurchase our debt and/or other securities.

We issued $700.0 million aggregate initial liquidation preference of Preferred Units, the terms of which restrict us from undertaking certain actions while such Preferred Units are outstanding.

We issued $700.0 million initial aggregate liquidation preference of Preferred Units. The Preferred Units are entitled to quarterly distributions in cash or payment in kind and are redeemable at the option of the operating partnership at any time, or at the option of the holders no earlier than ten years after the Effective Date, subject to the terms as described in more detail under as discussed in Note G – Preferred units.

For so long as at least 20% of the Preferred Units initially issued (without any adjustment for PIK payments) remain outstanding, holders of the Preferred Units have the right, voting as a separate class, to designate one director onto the board of the general partner, which may not exceed nine directors.

For so long as at least $35.0 million aggregate liquidation preference of Preferred Units remain outstanding, the partnership agreements of Ferrellgas Partners and the operating partnership limit the following, unless agreed by holders of at least 1/3 of the outstanding Preferred Units:

• change of control transactions, unless Ferrellgas Partners has sufficient liquidity to redeem the Preferred Units;
• amendments to organizational documents that adversely affect the rights of the holders of the Preferred Units;
• authorization, creation or issuance of any equity interest having rights, preferences or privileges senior or pari passu to the Preferred Units, and none of the operating partnership’s subsidiaries may issue additional equity or redeem any equity;
• authorization, creation or issuance of additional Preferred Units;
• filings for bankruptcy;
• engage in any investment, contribution or other transfer of any value, or asset sales outside the ordinary course of business, to any person above specified thresholds;
• entering into or modifying any transaction or agreement with an affiliate or related party;
• redemptions or repurchases by Ferrellgas Partners, the operating partnership or their respective subsidiaries of equity interests of the operating partnership ranking junior to the Preferred Units, other than explicitly permitted as described herein, or by Ferrellgas Partners, to its common limited partnership units;
• limitations on distributions on the operating partnership’s common limited partnership other than as set forth herein;
• limitations on the incurrence of indebtedness other than $75.0 million, or refinancings of the Credit Facility or the 2026 Notes or 2029 Notes (with premiums, interest and expense counting toward the $75.0 million basket); and
• limitations on tax elections that cause Ferrellgas Partners or the operating partnership to be classified as a corporation, or any fundamental changes in the nature of the business or the entering into any material line of business substantially different from those conducted on the Effective Date.

Accordingly, the holders of the Preferred Units will have significant influence with respect to our management, business plans and policies. The interests of holders of the Preferred Units may conflict with our interests or the interests of our debtholders or securityholders.

Additionally, upon the occurrence of certain “change of control” transactions, the holders of the Preferred Units will have the option to require the redemption of all or a portion of the Preferred Units in cash in an amount equal to the redemption price; such a “change of control” will also trigger a “change of control” under the indentures governing the 2026 Notes and 2029 Notes.

In the event that no Class B Units are outstanding and the outstanding amount of Preferred Units is greater than $233.3 million after the tenth anniversary of the Effective Date, to the extent the operating partnership fails to redeem all the outstanding Preferred Units, holders of at least 1/3 of the outstanding Preferred Units will have the right to appoint a majority of the members of the directors onto the board of directors of the general partner and initiate a sale of the operating partnership.

These restrictions may limit our flexibility to pursue strategic opportunities.

The amount of borrowings permitted under our Credit Facility may fluctuate significantly.

Availability under the Credit Facility is determined by reference to a borrowing base, determined based on specified percentages of our eligible accounts receivable and eligible propane inventory, that may fluctuate significantly over time, and the borrowing base may be further reduced by discretionary actions of the administrative agent under the Credit Facility, including the imposition of reserves and availability blocks and the re-characterization of assets that might otherwise increase loan availability. The borrowing base is calculated on a monthly basis, or more frequently under certain circumstances. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities—Senior secured revolving credit facility.” As a result of the foregoing, our access to credit under the Credit Facility is potentially subject to significant fluctuation and, if such fluctuations result in a reduction in loan availability, such fluctuations could materially and adversely impair our liquidity, financial position and results of operations, including in respect of our ability to make interest payments on our debt obligations.

Restrictive covenants in the indentures governing the Notes and the agreements governing our other indebtedness and other financial obligations, including our Credit Facility, may reduce our operating flexibility.

The indentures governing the Notes, the Credit Agreement governing the Credit Facility will contain and the agreements governing our other financial obligations contain, and any indenture or other agreement that will govern debt incurred by us in the future may contain, various covenants that limit our ability to, among other things:

• incur additional indebtedness and guarantee indebtedness;
• pay dividends or make other distributions, repurchase or redeem our capital stock, or make other restricted payments;
• prepay, redeem or repurchase certain debt;
• issue certain preferred stock or similar equity securities;
• make loans and investments;
• sell assets;
• incur liens;
• enter into transactions with affiliates;
• enter into agreements restricting our subsidiaries’ ability to pay dividends; and
• consolidate, merge or sell all or substantially all of our assets.

These restrictions could limit our ability to:

• obtain future financings;
• make necessary capital expenditures;
• withstand a future downturn in our business or the economy in general; or
• conduct operations, compete effectively or otherwise take advantage of business opportunities that may arise.

The Credit Agreement governing the Credit Facility requires and some of the agreements governing our future indebtedness and other financial obligations may also require, the maintenance of specified financial ratios and the satisfaction of other financial conditions, including a minimum interest coverage ratio, a maximum senior secured leverage ratio, and a maximum total net leverage ratio. Further, there are limitations on our ability to utilize fully all commitments under the Credit Facility. Availability under the Credit Facility is determined by reference to a borrowing base comprised of a combination of accounts receivable and propane inventory that fluctuates over time and the borrowing base may be further reduced by discretionary actions of the administrative agent under the Credit Facility. See “Risk Factors—The amount of borrowings permitted under our Credit Facility may fluctuate significantly.”

In addition, the limited partnership agreement governing the terms of the Preferred Units also restricts our ability to pay dividends and make distributions relating to our other capital stock, and future issuances of equity by Ferrellgas Partners or the operating partnership may contain additional restrictions. See “—We issued $700.0 million aggregate initial liquidation preference of Preferred Units, the terms of which restrict us from undertaking certain actions while such Preferred Units are outstanding.”

Our ability to meet those financial ratios and conditions can be affected by unexpected downturns in business operations beyond our control, such as significantly warmer-than-normal weather, a volatile energy commodity cost environment, deterioration in credit quality of key business partners, or an economic downturn. Accordingly, we may be unable to meet these ratios and conditions. This failure could impair our operating capacity and cash flows and could restrict our ability to incur debt or to make cash distributions, even if sufficient funds were available. See “—If we are unable to access the financing markets, including through our Credit Facility, it may adversely impact our business and liquidity.”

In addition, the terms of any future indebtedness may be more restrictive.

Our breach of any of these covenants or failure to meet any of these ratios or conditions could result in a default under the terms of the relevant indebtedness, which could cause such indebtedness or other financial obligations and, by reason of any cross-default provisions that may exist, any of our other existing or future debt, including the Notes, to become immediately due and payable. If we were unable to repay those amounts, the holders of such debt could initiate a bankruptcy proceeding or liquidation proceeding or, in the case of secured debt, proceed against their collateral in accordance with state law and the rights granted under the relevant debt agreements. If our lenders or noteholders accelerate the repayment of borrowings or other amounts owed, we may not have sufficient assets to repay our indebtedness or other financial obligations, including indebtedness under the Notes, the Credit Agreement and any future debt obligations. As of April 30, 2021, we had approximately $1,475.0 million principal amount of total indebtedness and we had no secured indebtedness under our Credit Facility (in each case, excluding $138.2 million represented by outstanding letters of credit under our Credit Facility); and we had commitments available to be borrowed under our Credit Facility of approximately $211.8 million (after giving effect to $138.2 million of outstanding letters of credit under the Credit Facility and subject to adjustment based on calculation of our borrowing base). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—General.”

The indentures governing the 2026 Notes and the 2029 Notes and the Credit Agreement governing the Credit Facility contain important exceptions to the covenants.

The indentures governing the Notes contain important exceptions to the covenants, including the covenants that restrict our ability to sell assets and make restricted payments. For example, the indentures governing the Notes initially permit us to make $60 million plus the amount of our Available Cash from Operating Surplus (as defined in the indentures governing the Notes) for the preceding fiscal quarter (so long as our fixed coverage ratio is at least 1.75x) or $25 million (if our fixed coverage ratio is below 1.75x) plus an additional $25 million, in each case, of restricted payments for any purpose, subject to compliance with applicable conditions, as well as to make additional restricted payments for specified purposes. Furthermore, we may utilize exceptions to sell assets and such asset sales may be on unfavorable terms. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities.”

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our Credit Facility will be at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming all loans are fully drawn and all commitments are available under the Credit Facility, each quarter point change in interest rates would result in a change of approximately $0.9 million in annual interest expense on our indebtedness under our Credit Facility.