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Ferrellgas Partners L.P. is a company that distributes propane and other gas liquids. In its recent quarterly report, the company discusses its credit policies and risk management strategies.
Credit Policies and Risk Management
Ferrellgas Partners has credit policies in place for its counterparties, which primarily include major energy companies and major U.S. financial institutions. These policies help to reduce the company’s overall credit risk. Ferrellgas assesses the financial condition of its counterparties, including their credit ratings, and establishes agreements that govern credit limits. Collateral may be required in certain cases, either from the counterparty or from Ferrellgas in the form of letters of credit, parent guarantees, or cash.
Concentrations of Credit Risk
The report also mentions that Ferrellgas has concentrations of credit risk associated with certain derivative financial instruments held by specific counterparties. However, if these counterparties fail to perform as agreed, the maximum credit risk loss for Ferrellgas based on the gross fair values of the derivative financial instruments would be zero. This indicates that Ferrellgas has taken measures to minimize its credit risk exposure.
Furthermore, the report states that as of April 30, 2023, there were no open derivative contracts with credit-risk-related contingent features. This demonstrates that Ferrellgas has not entered into any contracts that have credit limits based on its debt rating.
Regarding financial transactions, Ferrellgas does not have any employees and is managed and controlled by its general partner. The general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments made on behalf of Ferrellgas. These expenses primarily include compensation and benefits paid to employees of the general partner who perform services for Ferrellgas. For the three months ended April 30, 2023, the operating expense totaled $77,876, and the general and administrative expense totaled $7,869.
Contingencies and Commitments
The report also addresses contingencies and commitments. Ferrellgas mentions that its operations are subject to various hazards and risks associated with handling, storing, transporting, and providing combustible liquids such as propane and crude oil. The company may face lawsuits arising from its ordinary course of business. However, management believes that there are no known claims or contingent claims that are expected to have a significant negative impact on Ferrellgas’ financial condition, results of operations, and cash flows.
Additionally, the report mentions a lawsuit filed against Ferrellgas and Bridger, along with two former officers, by Eddystone Rail Company. Eddystone alleges certain claims related to a contract for the use of an Eddystone facility. Ferrellgas believes it has valid defenses to these claims and intends to vigorously defend against them.
Net Earnings per Unitholders’ Interest
The report also includes information on net earnings per unitholders’ interest. The net earnings attributable to Ferrellgas Partners for the three months ended April 30, 2023, was $72,427. After deducting distributions to preferred unitholders, distributions to Class B unitholders, allocation of undistributed net earnings to Class B units, and general partner’s interest in net earnings, the undistributed net earnings attributable to Class A unitholders amounted to $6,115. The weighted average Class A units outstanding during the period were 4,857.6, resulting in a basic and diluted net earnings per Class A unit of $1.26.
Condensed Financial Statements
The report also includes condensed financial statements of Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp., which are wholly-owned subsidiaries of Ferrellgas Partners, L.P. These subsidiaries have nominal assets, do not conduct any operations, and have no employees.
Overall, Ferrellgas Partners L.P.’s quarterly report highlights its credit risk management strategies, financial transactions, potential litigations, and net earnings. The company aims to mitigate credit risk through credit policies and collateral requirements. It maintains agreements with counterparties and carefully evaluates their financial conditions. The absence of open derivative contracts with credit-risk-related contingent features indicates the company’s cautious approach. While potential lawsuits and legal claims exist, Ferrellgas intends to vigorously defend itself. The net earnings per unitholders’ interest reflect positive results for the reported period.
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