Kansas-based Ferrellgas Partners (FGP), a leading distributor of propane in the U.S., has recently raised nearly $288.6 million by placing 9.125% Senior Notes due in 2017 to selected private investors. It will utilize the raised fund to prepay some of its outstanding debts due in 2010 and 2013 as well as to reduce outstanding borrowings under its revolving credit facility.

Ferrellgas has been striving to expand through a series of acquisitions and opening of more offices over last several years. It has also made significant progress in improving operating efficiencies and expanding margin. However, its highly levered balance sheet remains a concern. As of April 30, 2009, the partnership had approximately $930 million of debt.

Ferrellgas has not even raised its distributions for once since going public in June 1994. While recent acquisitions have the potential to generate strong cash flows, we believe that the first priority on excess cash will remain towards debt repayment and not higher distributions. We reiterate our Neutral recommendation for FGP, as we prefer other players with better growth profile and less levered balance sheet.

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