Ferrellgas Partners’ Leverage: A Key Concern

Debt-to-EBITDA ratios

AmeriGas Partners (APU) and Suburban Propane Partners (SPH) have net-debt-to-EBITDA[1. earnings before interest, tax, depreciation, and amortization] ratios of 4.9x and 5.3x, respectively. In comparison, Ferrellgas Partners (FGP) has a much higher net-debt-to-EBITDA ratio of 7.6x.

The debt-to-EBITDA ratio is frequently used to assess a company’s ability to repay debt. A lower ratio is considered better from a credit perspective.

Star Gas Partners (SGU) has a net-debt-to-EBITDA ratio of -0.3x. SGU’s negative net-debt-to-EBITDA ratio is due to its negative net debt. On June 30, 2017, its cash holdings exceeded its outstanding debt.

Ferrellgas Partners’ Leverage: A Key Concern

FGP’s high leverage

The chart above compares the debt-to-EBITDA ratios for APU, FGP, SPH, and SGU. One of the factors contributing to Ferrellgas Partners’ (FGP) high leverage levels is its high capex over the last couple of years.

FGP’s ratio has fallen from ~10.0x a year ago to the current level of 7.6x. We’ll discuss the capital expenditures of the four MLPs in the next part of this series.

For the quarter ended April 30, 2017, FGP’s leverage ratio, as defined in its secured credit facility, was ~6.5x. This is lower than the ~7.8x limit allowed under the facility. The company noted that it is committed to reducing leverage and targets a ratio of 4.5x or lower. FGP slashed its fiscal 1Q17 distribution 80.0% in November 2016 with the aim of strengthening its balance sheet.

Next, let’s look at the capital spending trends for the four MLPs.