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S&P downgrades Ferrellgas Partners on $629M impairment charge, disrupted cash flow

S&P Global Ratings downgraded following itsdisclosure of a $629million impairment charge in its crude oil logistics segment and a delivery interruptionfrom a major supplier.

The rating agency lowered Ferrellgas Partners' corporatecredit rating to B from B+, as well as its senior unsecured debt to CCC+ fromB-. The outlook remains negative, according to a Sept. 30 news release. Itsoperating subsidiary FerrellgasLP's corporate credit and senior unsecured debt ratings were alsolowered to B from B+ with a negative outlook.

The rating action follows Ferrellgas Partners' settlement ona contract with Jamex Marketing LLC, which contributed 80% of the partnership'sadjusted EBITDA. Despite the minimum volume commitment and payment obligationstipulated in the contract, Jamex stopped delivering volumes and remittingpayment since February. Thus, S&P Global Ratings no longer expects cashflows to stream in from Jamex.

"With the dramatic decline in crude oil prices and itsimpact on volumetric demand, the partnership's midstream businesses haveunderperformed relative to our expectations," S&P Global Ratings saidin the release. Ferrellgas Partners' recent expansion into the midstream sectoraffected cash flow despite the majority contribution of its propane operations,according to the rating agency.

Consolidated adjusted debt to EBITDA is expected to go above7x over the next 12 months with a heightened execution risk of successful debtreduction, with the partnership announcing a possible distribution cut to $1.00per unit annually from $2.05 per unit in order to preserve liquidity.

"With company cofounder James Ferrell as interim president andCEO following the departure of Steve Wambold, we expect the partnership tofocus on lowering its debt balance," S&P Global Ratings said.

S&P Global Ratings and S&P Global MarketIntelligence are owned by S&P Global Inc.