Business Context and Reporting Period
This Form 8-K was filed by Star Gas Partners, L.P. (and Star Gas Finance Company) on June 3, 2011. The report details the entry into a material definitive agreement by Petroleum Heat and Power Co., Inc. (Petro), a subsidiary of the Partnership, to secure working capital financing.
Key Financial Metrics and Facility Details
- Facility Type: Amended and restated asset-based revolving credit facility.
- Capacity: Up to $250 million, increasing to $300 million during the heating season (December through April).
- Letters of Credit: Capacity for up to $100 million.
- Outstanding Balances at Closing: No borrowings outstanding; $46.7 million in letters of credit outstanding.
- Maturity Date: June 3, 2016.
- Collateral: Secured by liens on substantially all assets, including accounts receivable, inventory, real property, and equipment.
- Interest Rate: Adjusted LIBO Rate or Alternate Base Rate plus an applicable margin.
Material Changes and Covenants
The filing represents a refinancing or amendment of existing credit terms. The new facility imposes specific financial covenants and restrictions:
- Financial Covenants: The borrower must maintain either excess availability of 12.5% of the revolving commitment or a fixed charge coverage ratio of at least 1.1 to 1.0.
- Distribution Restrictions: To pay distributions to unitholders, the company must maintain excess availability of at least 17.5% of the revolving commitment and a fixed charge coverage ratio of 1.15x.
- Operational Restrictions: Limits on incurring additional indebtedness, paying inter-company dividends, making investments, granting liens, selling assets, and making acquisitions.
- Expansion Option: The facility size can be increased by $100 million without bank group consent, though funding is not guaranteed.
Outlook, Risks, and Contingencies
The agreement includes standard events of default, such as failure to make payments, non-performance of covenants, insolvency, or bankruptcy, which could trigger acceleration of debt. The filing notes that the ability to pay interest or principal on 8.875% senior notes via inter-company dividends is restricted if the relevant covenants are not met. The text does not provide specific forward-looking revenue guidance or management commentary beyond the terms of the credit agreement.
Investor Verification Checklist
- Verify the current utilization of the $250 million facility and the status of the $46.7 million in letters of credit.
- Confirm compliance with the 12.5% excess availability or 1.1x fixed charge coverage ratio covenants.
- Assess the impact of the 17.5% excess availability requirement on the company's ability to pay unitholder distributions.
- Review the terms of the 8.875% senior notes to understand the interaction with the new inter-company dividend restrictions.
- Examine the "heating season" definition to determine when the $300 million capacity is active.