Business Context and Reporting Period
Company: Star Gas Partners, L.P. (filing entity); Petroleum Heat and Power Co., Inc. (subsidiary borrower).
Filing Type: Form 8-K (Current Report).
Date: January 14, 2014.
Event: Entry into a material definitive agreement regarding a second amended and restated asset-based revolving credit facility.
Key Financial Metrics and Facility Terms
- Facility Size: Up to $350 million ($450 million during the heating season from December through April).
- Outstanding Borrowings (as of closing): $94.3 million.
- Letters of Credit Outstanding: $46.5 million.
- Interest Rate: Adjusted LIBOR or Alternate Base Rate plus an applicable margin.
- Collateral: Liens on substantially all assets, including accounts receivable, inventory, real property, and equipment.
- Existing Debt: 8.875% Senior Notes (referenced in covenant conditions).
Material Changes and Covenants
The filing details the amendment of the credit facility, extending the maturity date to the later of June 2017 or January 2019, contingent on specific conditions. Key covenants and restrictions include:
- Availability Requirement: Must maintain Availability of 12.5% of the facility size OR a fixed charge coverage ratio of not less than 1.1 (based on trailing twelve-month Adjusted EBITDA).
- Acquisition Covenant: Must maintain $40 million in Availability on a pro forma basis to make acquisitions.
- Distribution Covenant: To pay distributions to unitholders or repurchase units, the company must maintain 15.0% Availability and a fixed charge coverage ratio of at least 1.15.
- Restrictions: Limits on incurring additional indebtedness, paying inter-company dividends, making investments, granting liens, selling assets, and making acquisitions.
- Expansion Option: Ability to increase the facility by $100 million without bank group consent, though funding is not guaranteed.
Outlook, Risks, and Contingencies
Maturity and Termination: The facility terminates in June 2017 unless the company repays at least $100 million of its 8.875% Senior Notes and maintains sufficient Availability to repay the remaining notes, in which case the termination date extends to January 2019. If Availability falls below the required payoff amount after June 1, 2017, the termination date accelerates to three days following that date.
Risks: Acceleration of all outstanding amounts may occur upon events of default, including failure to make payments, non-performance of covenants, insolvency, or bankruptcy.
Investor Verification Checklist
- Verify the current "Availability" under the facility to ensure compliance with the 12.5% minimum covenant.
- Confirm the status of the 8.875% Senior Notes repayment to determine if the facility maturity extends to 2019.
- Review the Fixed Charge Coverage Ratio to assess the ability to pay distributions to unitholders.
- Monitor the utilization of the $100 million expansion option and the bank group's willingness to fund it.
- Check the upcoming Form 10-Q for the full text of the credit facility agreement and pledge/security agreement.