Yet Another Value Podcast - Chris Paryse on Ferrellgas's big conversion $FGPR

Episode Date: March 20, 2026

Chris Paryse breaks down Ferrellgas (FGPR), a propane distributor emerging from a complex post-bankruptcy structure. The conversation focuses on the recently completed Class B to Class A unit conversion, which significantly increases free float and simplifies the capital structure. Chris explains how the company generated cash flow to eliminate legacy obligations and outlines a potential path toward reinstating dividends. They also discuss leverage, preferred securities, and the opportunity for valuation re-rating through relisting and improved liquidity. The episode highlights both the financial engineering aspects and the operational realities of a stable but low-growth propane business. Chris's twitter: https://x.com/CParyse86296___________________________________________________________[00:00:00] Ferrellgas situation overview[00:03:47] Business model explained simply[00:06:31] Class B conversion mechanics[00:08:38] Dilution and free float impact[00:10:49] Capital returns outlook discussed[00:11:26] Free cash flow breakdown[00:15:08] Preferred structure and leverage[00:17:41] Valuation and leverage debate[00:18:59] Relisting catalyst potential[00:20:07] Ownership and alignment concerns[00:23:24] M&A and consolidation strategy[00:30:02] Business segment deep dive[00:35:45] Commodity risk explained[00:37:54] Key catalysts summary[00:42:10] Private equity possibility discussed[00:45:03] Closing thoughts and contactLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

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Today we have Chris Preece on. He is going to be talking about a really fascinating situation. The company is Ferrell Gas. The ticker there is FGPR. You know, let's just hit the disclaimers. This is an MLP. It's a pretty illiquid security. So you should remember not tax advice, not investing advice. Go see the full disclaimer at the end of the podcast or the show notes. But it is a fascinating situation where you have a company that went bankrupt a few years ago, still carries a really heavy, a really heavy debt stack, but just did a big conversion that materially changes the company is going to materially change the liquidity of their stock. it kind of sets them up for relisting, lots of moves down the line, and Chris knows the story really, really well.

He focuses on special situations and distressed investing. So, you know, that's kind of right up my alley. So it's a fascinating situation. I think it's super timely because literally I am recording this intro. We recorded this podcast on March 17th. The conversion is like they filed the 8K yesterday that the conversion notices are out. The stock is the class B conversion is delisted. Like it's literally happening as I speak and we record this.

So by the time you are listening, the class B will be. Class A and they'll all be free flow. I think it's really interesting. Think you're going to enjoy it. We're going to get there in one second. But first, a word from our sponsors. Podcast is sponsored by FiscalAI. Fiscal.A.I. is the complete stock research terminal for fundamental investors. With 20 years of standardized and as reported financial statements, as well as one of the largest company-specific segments and KPI databases in the world, fiscal.a.I. is one-stop shop for downloading and analyzing fundamental data. Want to compare Google's cloud growth weight to AWS? They make it easy. Or I'll tell you,

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With me today, I'm happy to have on Chris Preece. Chris, how's it going? Good. How are you? Doing good. Super excited talk today. Really interesting one. Before we get there, I want to remind everyone a quick disclaimer, nothing on this podcast is investing advice. That's always true, but we're going to be talking about their free flow just increased quite a bit, but it's on the smaller side and it's an MLP, which carries extra tax risks and everything so people can consult a financial advisor. We're not giving tax advice. We're not giving financial advice, all that sort of stuff. Full disclaimer at the end of the podcast and in the show notes.

But anyway, Chris, the company we want to talk about today is feral gas. The ticker there is FGPR and I'll stop rambling and toss it over to you and say, what is FGPR and why are they so interesting? So feral gas is one of the largest propane distributors in the United States. Technically, they're second. They have a market share, I'd say, of around kind of 8% or so. So this is a very fragmented industry. I would say, you know, their business kind of goes across residential,

industrial. They're very well known for their tank exchange business, which is the Blue Rhino brand, where they have over 50% market share. And then they also do agricultural crop drying and auto gas for buses and things of that nature. Yep. And again, you said it, but the way I know them and most people know them is outside of, you know, a bunch of convenience stores or a Walmart, you drive up and, you know, in the front, they've got that big steel cage that's got Blue Rhino and you get the, it looks like a

mini-cag, you get the mini-cag, and you go and you probably are familiar with it from grilling and everything. So that's where most people probably know this from. Yeah. But most of their business is really driven from, you know, residential heating and, you know, commercial heating, you know, forklifts and on the industrial level, powering forklifts. That's where most of their business is driven. So it is very weather dependent, as you would expect. But they've kind of been able to over the last, certainly over the last number of years have generated, you know,

a size amount of EBITAN free cash flow. But going back here, what makes it interesting is this is a business that actually was in bankruptcy in 2020 and emerged in 2021. The story there is they levered up to get involved in some energy storage, oil storage businesses, which ended up being a disaster for them. It's absolutely classic. Yeah. And the old, you know, the founder an old CEO, Jim Farrell actually came back to run the business. He had retired. And then once they made these disastrous acquisition, or this disastrous acquisition, he came back to run it, took it through bankruptcy. It was kind of an unusual bankruptcy in the sense that the equity traveled through. It made it through. So I have a background in distress credit and special

situation equity. So I kind of track, you know, what's in bankruptcy, what's emerging. And this kind of hit my radar in 2021 as a post-rearred equity that seemed interesting. One of the board members who was the appointee of P-GIM started buying stock, you know, kind of right after emergence. So they kind of, you know, it kind of flipped the switch with me that maybe this is something that's interesting to look into. Perfect. Let's hit that, actually, because I think this is the most interesting angle. You know, as you and I are talking, it is, what's the day?

I can't remember. March 17. Last week, I believe, maybe it was the week before, but last week they delivered notice to the class B units of a big conversion. The conversion actually, like, I mean, it's literally happening as we speak, I believe. The Ds are flipping to A's. But I'm just saying Class B, Class B conversion, why don't you go through the background of what the Class B units are, what this conversion was, why it's important, why

I let off saying a big increase in free float, because I think that is like the really sexy angle, and we can talk about everything else behind that. Sure. So when the company emerged, it came out with a very complicated capital structure. And I think that's part of the reason why the equity never traded well post-emergence. So it came out with, you know, basically an undrawn ABL, high-yield bonds totaling about a little under $1.5 billion, a $700 million per person. which was pretty expensive, and then these Class B, Class B units. The Class B units were the old

hold code debt on the company that they converted into Class B units. So that debt was wiped, converted to Class B. But what was interesting about the Class B units is the way they were structured was there was 357 million of old hold code debt that now the Class B units were essentially entitled to $357 million of dividend payments. And then based on the time that they received that full $357, there was a dilution factor where they would convert into A's. So the longer it took for them to get paid back that $357 million in cash, the more dilution there would be on the A's. And so as you mentioned, they were just paid off and the ratio was five times. So there was $1.3 million that are now converting to 6.5 million A's.

So they've received their 357 of cash plus now 6.5 million eight units. Can I pause you there? Because I think this is a big point. I just want to stress. Okay, so they pay off the 350 million of cash-ish and they convert. And there's two reasons I want to stress. A, this conversion, as you mentioned, over time, it would get bigger and bigger, right? So there's about 1.3 million of class B units.

if it had taken until March, they would convert at 25x, right? So just to give you the draconian case, they converted at 5x, just to give you the trotone case. If they hadn't converted by the end of this month, it stepped up from 5 to 6x on the conversion rate. And this is important because there are just under 5 million Class A units before this conversion.

So right now you're talking about 6.5 million is what they actually converted. So again, free float doubles, all these class Bs, I'm sure are going to start hitting the market over time. this is a double, but if it had been six, you know, you're talking about instead of having 11.4 million shares outstanding, it's 12.8, right? So that's just 20 days could have resulted in 15% more shares. So I just wanted to stress like the conversion A, it's a huge number, right? A ton of a literally doubles the free flow, doubles the stock more than doubles. And B if they had done it just a little bit later and, you know, five years it would have been insane dilution. But if it had just been 20 days,

it would have been quite a bit more dilution. So one thing I'll know about the B is, though, is that they're largely held by PGM. So, you know, what did you just define who PGM is just over? You know, a large asset manager from Prudential, the Prudential asset management that they have, you know, a large presence in credit markets do a significant amount in high yield. They were the largest owner of the Holtco debt through the bankruptcy.

So they have a board member that they've appointed, Carney Hawks, who used to work for Brigade Capital Management. So he's their representative. So they've been very involved with the company since emergence. So they're the ones who are getting the large majority of the new A shares here. And we'll likely, although I don't know exactly the number, it's not inconceivable that they'll own roughly about 50% of the company. Yep, yep.

Pro forma. Let's keep going on that. So they have an interesting quote. I think it's on the Q4, where they say, hey, if you look over the past five years, kind of since our emergence, we've put $500 million to, they had the Eddystone settlement, which I didn't really look into because it was historical, but that was a legal settlement, and paying off the class B's, right? That's $500 million.

Now that the conversion is done, you know, we don't have to pay that off. Now there's the preferred, which I want to talk about later. It's still leverage, but, you know, I think what they're kind of looking to is cash is coming back to shareholders. So can you kind of lay out the path for what's the go forward path for? free cash flow and what's it look like for shareholders. Okay. So if you look at the go forward path for free cash flow, this is a business that's doing roughly

$330, $340 million of Eibata currently. Now that can fluctuate with weather, right? So we've seen in very, very warm winters, that number's been closer to $315. You know, in very, very cold winters, that number's been closer to $350. So they're kind of... It can't have been a bad time for them this year. Yeah, it was good. Yeah, I would note, though.

they do have West Coast exposure, and it was very warm in the West. So that kind of hurt a little bit of the benefit that they saw in the Midwest, East. They're definitely more levered to the Midwest, Southeast, than anywhere else in the U.S. So if you're looking at, that's the kind of EBITDA number we're working with. You know, if you look at the cash interest on the bonds, you know, they should be, you know, they're about a little over $100 million, a little under $110 million, I should say. And then on the preferred, we're talking in the $65, $70 million range. So pro forma free, you know, free cash flow should be around, call it, $85, $90 million

that they should be able to generate. And the leverage right now, so I look at what the leverage should be by kind of their fiscal year end, which is July, because they generate a lot of. of cash over the, you know, a lot of the receivables are turning into cash now. So they should be around, say, 6.8 times levered through the preferred. So that is a lot of leverage on this business. So the way I see the progression moving forward for them is, like you said, they've paid around $500 million. Generally, they've paid between $50 and $100 million a year in terms of dividends, you know, to get the bees paid off. I think when we're looking forward, you know,

they probably, you know, they just made $107 million payment on the bees. They made a $37.5 million payment in January on the final Eddystone litigation payment. I would expect them to probably try to rebuild some cash over the course of the next 12 months, get leverage a little lower, and then kind of reinstitute a dividend in the kind of maybe this time next year is my expectation. And the reason for that is if you look at the preferred, you know, So there's a lot of legacy instruments from the bankruptcy that have, you know, tighter covenants than, you know, a lot of other credits out there today. So if you look at the preferred, which was, it's primarily owned by distressed investors.

Aries probably owns 40% of it or so. There's a seven times covenant in there. Yep. Where if leverage gets above seven times, then you can't make dividends up to the holdco to pay, you know, to pay a dividend to the eight units. So my view is that they want to get that number lower, generate free cash flow for a year pay down, and then kind of reinstitute that dividend. I think the good thing about that is that I think it gives them the ability to pay a larger dividend next year than they could today. So my view is if they paid about a 50%, you know, if they use about 50% of their free cash flow to pay a dividend, you know, you're talking around, I think it's around,

370 or so per unit in that kind of range. So, you know, 370, 380. So if you're talking about like a 10% dividend yield on that, just given the leverage, you know, you're talking about a high 30, 30 stock. So let me pause you there and ask a few questions. So first question kind of wonky, but the preferreds. How much of the prefers are outstanding? Because it's seven, I think on the balance you to remember correctly, it's this discounted to 650. It's 700 a face. but they accrete a little bit as well. So I wasn't sure the exact number when I was kind of building out of the capital structure. And I'm sure everybody wants to hear what to put into their Excel models, but I've just got to ask since I've got you on.

So yeah, so there's a, it's 700 million face, but it pays a coupon. It would have been paying 8.9. It steps up to 9.7, you know, March 31st. So if you look at, you know, but what's in the preferred is essentially to take them out, it has to be done at a 12 and a quarter percent IRA. That's why I was asked. So the 12 and a quarter percent IRA, if you put that out today, it's probably around 117 or so. Okay. So you're talking, I think, you know, around, let's say 820 is kind of the real, I'd say, face of these things, 820, 825.

So then that's the number I'm including in the leverage. And that's the number they include in the leverage, too, that higher number. So they're not using that $700 million face number. Perfect, perfect. All right, so let me ask my second. So one question I look at this business, and I do actually want to talk a little bit more about the business, but pure. Capital-heavy business. You mentioned it's very low growth, right? It's mainly dependent on the weather, you know, the swing between 320 and 350, low growth. There is a history. It is pretty fragmented. We can talk about capital allocation and buyouts, and there are some peers and everything. But you mentioned it's

7x leopard, right? I think buyouts in this industry have kind of happened in the 8. to 9x range. So when I look at it, I say, hey, now, 8x is above the current price, 9x is well above the current price given the leverage, but it's not that much higher. And I kind of look and I say, hey, how much is this story about kind of just you have this really skinny equity stub on a big capital structure? So yes, the free cash flow to equity is really nice. And this is a stable business, all this sort of stuff. But how much is it talking about like, hey, the EV isn't that undervalued? You're just like, you've got such a skinny equity stub. You get a lot of torque here because rightly or wrongly, I think that's the case.

And it can work out really well. But I always see being like, hey, I think this business is worth 10 times EBDA. It's trading a 9.9 EBDA and I'm going to make a 500x because, you know, it's 9.875 levered and I'm going to capture the stub if all of that makes sense. Yeah, I mean, that certainly is in play here. So the business is about seven and a half times through the equity right now. If you look at a company like Suburban, which is this closest comp, that's trading a little over nine. There is that torque, right? So if you said, oh, this business is worth eight and a half times EBITDA, then, you know, you can argue for a, I believe it's like a $45, $50.

That's exactly what I've got. Yep. I think the story is, I think there's more to more to the story here than just like, oh, it's going to rewrite to eight and a half times and like you get all this leverage. although I do think there's clearly a lot of optionality when the market cap is less than your EBITDA. I kind of look at situations like that where there's no imminent catalyst for bankruptcy. You're trading less than one times EBITDA through your market cap represents less than one times EBITDA. Those are generally pretty interesting options as long as you think the business isn't in complete decline. And as you said, next year they can probably start paying a dividend.

is it going to be three, is it going to be four per share? But it sounds true because the dividend shouldn't create any value. But over time, you get enough gray hairs and you're like, dude, just stop putting the theory in. They may have $4 per share dividend. The stock is not going to trade at $20 per share. Like there's just no effing way. Right.

And it's the other part of that story too is, and I think this was a more imminent catalyst, although I don't know how much value it'll drive without a dividend coupled with it is they should, they're going to, they're likely going to relist on a major exchange. probably the NASDAQ, you know, I would expect kind of by this summer. So hopefully that gets them on a few more radars. People can buy the stock. It's off the pink sheets. And they can communicate a clear path to, you know, a dividend in the 2020, you know, early

2027 timeframe. And then you get all the, you know, you get retail back. Because I think a lot of the holders of the A units, if you look over the last five years, it's been kind of stranded retail holders who dribbled it out. out. And, you know, they probably didn't even, half of them probably didn't even realize they own it. And then they just, they kind of took the tax loss over a number of years. So, you know, I think you can get the retail holders back in here. You can get some institutional guys who own, you know, institutional MLPs to really kind of drive value here once the dividend comes back.

Let me, you mentioned that there was PJM, the, the big class B holder who's going to own a lot of stock here. Yeah. The employee stock plan is another big owner here. I think they owned 23% of the Class A units before the conversion. Obviously, that will be closer to, what, like 10% post-conversion, but still a chunk. But I will say, I looked at this board, and I was kind of surprised. As you said, the founder's son, who's like 80 years old, had been the CEO for a while,

came back as exec chairman. He's the chairman. He's in his 80s. Him, the CEO, everyone, there's not a lot of stock ownership on this. board. And I was kind of surprised by that. So I want to talk insider ownership being pretty poor because that was surprising to me. And then I'm going to drive it into the next question. But I'd love to just talk inside agreement alignment. So Jim Farrell owns about 5% of the company. Yeah, the employee, the employee, like you said, 23. Well, this is all predilution. So Jim actually, those were his

shares that he gifted to the employees. In the 90s, right? And they always say we're in a Late 90s. So, you know, I think he's very, and I think he's viewed very favorably within the company and by the employees. Yeah. He is very dedicated to getting these eight units up, I think, not just for himself, but for them. I mean, I think this is a fraction of his net worth at this point. So he's very dedicated to that. In terms of the other board members, you know, Carney Hawks has made, you know, purchases, you know, open market purchases. And, but I'd say the big thing of what has changed, I agree with you, that was always an issue in terms of insider ownership. I'd say what has changed is, if you look, they've done these phantom grants of late where they've been essentially granting phantom eight units that they'll bet, you know, over the course of three years, they'll get a, they'll get a cash payout based on the performance of the eight units. So that, that is a new change that kind of happened within, I think the last maybe six to nine months.

Okay. these phantom units were granted to all the board members. But that was always an issue for me as well, that there wasn't enough insider ownership, although you did see a little more insider buying here and there over the last couple of years from the members. Perfect. And the question I want to follow up with is,

we kind of started talking about the beginning, but this is a very fragmented industry. Yeah. But you also, you know, paragraphs went bankrupt. They kind of stepped outside the industry, but they went bankrupt. There's 7X Leverd. I've only loosely looked at some of the other peers,

but I know this is an industry that despite the stability, despite all that, everyone gets over their skis and goes bankrupt at some point. And when you hear them in the queue for a call talking, and they're saying, hey, after we do the conversion, you know, we're looking for ways to grow. We're strengthening our ability to grow. What I hear is they want to go do acquisitions at some point.

And, you know, that probably comes with a refi, but I see that and I say, hey, not a lot of insider ownership. company that already went bankrupt once. I understand that was kind of under a different watch, but you combine those went bankrupt from bad acquisitions, and you say, hey, am I going to wake up one day to a deal that just issues a ton of shares or destroys a lot of value in some way, shape, or form?

Yeah, so the vision here, and if you look at long term, I think you can make a clear case for the equity based on just the business today that this could be worth, you know, let's call it $40 to $50 a unit, up from 23. I think the longer term value creation here really is through M&A because it's such a fragmented industry. So if you take, you know, let's say if you took the number five player through the number

20 player in the propane industry. Now, I obviously don't have financials for those guys, but you know, you get a sense of, you know, where their EBITDA might be based on volumes. So you're talking, you know, 60 million gallons on the low end to let's say 300 million gallons on the high end with that range. Farrell gas does a little closer to 800. I would say, you know, EBITDA for those businesses probably range from 25 to 125 million. So I think there's some interesting acquisitions to do, potentially to do in that space

where there's geographic overlap. You know, you can improve your route density and get, you know, synergies that way. You can improve your geographic, you know, make yourself a little less dependent on weather in a particular region. So maybe they do expand a little more in the West or maybe on the Atlantic coast. There's options for that as well. But I think the most interesting part of the M&A story, at least from my perspective, is there's always going to be somewhat of a discount on this business given the leverage. So the question is, how do you pay a dividend that's valuable for the shareholders and deliver this business?

you know, you could, you know, the 40 million or so of excess free cash flow or 50 million of excess free cash flow that they might earn past the dividend, you know, it'll deliver the business, but not quickly. Two and a half billion of debt plus prefs, 50 million isn't like, yeah. So the way I see, so I'm one of the preff holders here, you know, my question is, yeah, how do I get paid back? And I think the and how does the company do it in a cost effective manner? So I think the biggest story here is can I reflate the A's, get the value up to in the 40s or 50s, and then use that as a currency to try to consolidate this industry because there's not a lot of players trying to consolidate it right now.

You know, Amerigas has their issues. They're owned by UGI. you know, if you look at suburban propane has kind of made a push into renewable natural gas. So they're not, I don't think they're focused on consolidating this industry. Superior's been more focused on kind of de-levering. They might be, you know, someone who gets, you know, tries to consolidate the industry at some point. But I think Ferrell gas is the one larger player right now that's, you know, that they want to do this. And you hear the stories, obviously, of all the older kind of mom and pops and, you know, just the smaller businesses where, you know, maybe they're not, you know, they're looking to sell. You know, they don't have the error that's going to take it over. So I think there's the opportunity for them. Can they buy, you know, $50 to $100 million of Yipita over the next three years or so? I think that there's a certainly, I think that's probably the goal. And then can they use a certain amount of equity currency, whether that's giving it to the owners, whether that's issuing it in the market,

you know, doing a bought deal with someone to do a finance and acquisition like this, and get leverage down to maybe where superior is in the four, four and a half times range. And then does your equity trade at a six and a half percent dividend yield as opposed to maybe a 10 or so where it might trade, you know, when leverage is six and a half, seven times. I completely agree.

The other interesting thing here is, let's say to get the equity to 40, right? Which, you know, the stock is 23 as we're speaking. So 40 is a far cry, and I think shareholders would be very happy. Let's say they pay a $3 dividend and in 18 months, they get to 40-ish or something, right? A, if they can issue it for equity and go buy and they've got a, I'm looking at their October deck, you know, they've got a slide that says, we're the second largest player, but the top six only have 30% of the market. So that is about as fragmented and a juicy of market. If they can go start buying mom and pops for eight times pre-snergy EBITO issuing a lot of

of equity in buying them debt-free basis. Like, that de-levers them very naturally. And the other thing is you get up to 40 and you go to your preferred soldiers and you say, hey, you know, why don't we swap some of those prefers into equity? You know, you guys will make a great stake. We're on the NASDAQ. The stock's getting more liquid. We can swap that.

And that's the other way they can pull the trigger and de-lever there. I'll pause there and then I want to go into a business question. I think that's an interesting point. I think that's something they've not only are working on now, but have at, you know, have been actively working on for a while is how can we deliver today? Is there a path doing some sort of maybe equity, you know, either pure equity or maybe an equity linked instrument like a convert where we can either go to the preferred holders or, you know, maybe they find other opportunistic credit investors who are saying, you know what, I'll write you

a $300 million check. You know, we'll do an equity that, you know, let's say it's a convert. I'm just throwing numbers, 4%, convertible at 35, and then we'll take out a huge chunk of your prefers, and then all of a sudden that seven times leverage covenant doesn't become a concern anymore. And you have a business that will probably trade at a better yield, dividend yield, than it would have previously with that giant preferred ahead of you. Well, I'm just laughing for two reasons. A, you're right, and especially, you know, you do the converts. in your scenario, the converts, even at 30, if this strikes 35, which is lower than what we talk about,

4% interest versus what the press are paying. So you're going to have a lot more cash than you kind of get into a purchase level. It could even make sense at 30. I don't think they would do that. I don't think the management team wants to sell equity at 30. But like, you can make the argument. If you sell stock at 30 and add 10 million shares, then you feel you get leveraged down a turn. You feel, you know, you can pay.

out 70% of your free cash flow at that point. So even though there's dilution on cash flow per unit, if you can pay out more of it and it trades in an 8% yield, that's a $40 stock still. And it gets you there faster than maybe waiting a year and, you know. Yeah. Well, the other reason I was laughing is the recent history of people doing creative stuff by issuing converts is, it's not so great for the companies that have issued the converts. It's been very good for the buyers of the but not so great for the company. So that's just the other reason I'm laughing. Though there is some logic to here. Let me turn to the business. You know, when I thought about it, and you said it up front, the first thing I thought was the blue rhino tanks, right? I'm going to grill. I need to get a

blue rhino tank, make sure. That is, I think it's a really interesting piece of the business. There's network effects, a lot of logistics, everything. It's only about 10% of the business here. About a third, the biggest line is residential. And I'm in Northeastern. I come from the suburbs, New Orleans, heating my house with propane might be a little foreign to me. It might be a little foreign to. Do you want to just talk about kind of the business side of particularly that Resi side, but we can also talk in industrial as well? So, yeah, so if you look at the business, res is, you know, a little under 30% of the total

volumes. But it does drive a lot of the fluctuation given weather. So I believe it's about, you know, maybe 9% of U.S. households use propane to heat their house. You know, obviously these are in more rural territories where it doesn't make sense to kind of build a natural gas line out to some of these houses. So they are kind of, you know, I'd say a lot of these houses are kind of captured, you know, by propane. And what's interesting, too, is that, you know, if you look at feral gas, 70% of their customers, you know, they lease the tank to them. So they really can't go anywhere else for their propane. Yep. Unless they want to, you know, pay feral gas

take it out, then pay someone else to put it in a new tank. It's a rougher version of the old satellite TV argument where you're like, hey, nobody's going to build a cable network out to your farm, a cable company out to your farm out there. And once you have the satellite dish on your house, like, yeah, you could switch from dish to direct TV, but are you going to go up onto your roof, uninstall the satellite, ship it back to that, pay to ship it back to them, pay to get a new one shipped, and probably not.

And this is probably even better because that was just the satellite. This is a big old propane. if I'm thinking about it correctly. Right. So, you know, I'm not going to make the argument that the propane used for heating is a growth business. You know, I think it's probably something in very slow decline, you know, as more people, you know, as houses, you know, new houses are built and old, you know, housing infrastructure

gets, you know, demolished. Like, generally, they're probably not, you know, putting in propane to heat the house. Although I would, you know, although I have heard anecdotally from certain builders, Like, yeah, I live in the Northeast that people are putting in propane heat because it's so much cheaper than natural gas here. So it's not something that I think is completely dead. But what you're saying is feral gas is an AI play. As all the AI data centers take all the nat gas and everything, all the houses switch over to propane. Getting that 20x multiple on this thing.

Well, they do like to tell you that they do provide backup power generation for data centers. So it is part of the story. But so I think this is kind of, let's say it's a zero growth business on the residential side. I think there's growth on the tank exchange side as they sign up more retailers because they are such a dominant player. And then obviously scale plays into that. They can work with the home depots of the world, the Walmarts, et cetera. The commercial business, I would say, is similar to residential in a sense. So like, you know, obviously with the heating side of things, that's probably not growth.

they're kind of dependent on industrial demand. A lot of their business is powering forklifts, doing that kind of thing. So if industrial demand grows, they can grow along with it. And just so I have no idea. The forklift, it's when the actual forklift itself goes off and down,

that's getting powered by propane. Am I thinking about that? Correct. Yes. Yeah. I think if you look at kind of where the growth is, though, in this business to offset some of these declines,

you know, we mentioned taking exchange. I think it's also in kind of their auto gas business, which, you know, We mentioned the backup generation for data centers, but I think more prevalent is kind of the buses. You know, I've seen more and more municipalities move to propane buses, just given how cheap it is, you know, relative to diesel certainly nap right today, and then even kind of compressed natural gas. It's cheaper.

So more municipalities are doing that. You know, some of the bus companies, you know, the public bus companies have talked about their propane business. know, and how that's, while the buses are more expensive, you, you know, you make that back pretty quickly on fuel. So I think those are kind of growth areas, but in the end, like, this is, you know, a flash to slightly growing business, in my opinion, on an organic basis. It's really the inorganic growth and the synergies associated with that that, where I see kind of, could this go from a $40 to $50 stock to a, you know, a $75 stock. And, you know, in three, years. Let me quickly on commodity risk, because I believe I have seen some of these companies before.

I could be misremembering, but it's not unheard of for a company that's distributing to retail. A lot of times the retail, especially when you're selling someone's home, it's kind of on a fixed price basis. And it's not unheard of them to get upside down. Propane obviously can be pretty volatile. We're talking two or three weeks into the Iran War. I don't think propane's really shot up yet, but it wouldn't be surprised to see something I moved there. Let's just talk quickly about the commodity risk here because that's one place where you could see them getting tripped up. So anything they sell, like if they enter to a fixed price contract with their customers for the winter or whatever, they're hedging that out immediately.

And anything that's not fixed price, they're obviously passing that on to their customers. And like we said, things are pretty sticky with most of their customers given that they have the tank. And I think you've even seen them try to, they're going to try to increase that ratio. So one thing they've done is like they've certainly pushed price over the last number of years as they try to call their unprofitable customers who are not helpful from a route density perspective. So if they have a will call customer who doesn't really, who doesn't, who owns their own tank, who's kind of off the route, like they're going to try to push price there to either have them pay it or go find someone else. Yeah.

So, you know, I think, you know, so I think they're in, you know, a pretty good spot from, from that perspective, from where they're either passing on the cost or they're hedging it, you know, hedging it out immediately. They're not really taking any propane price risk. No, that's perfect. But, you know, if anybody who's got, I'm starting to get the graze of my beers and anybody who's got the graze when you hear, hey, I'm distributing to come out. The first thing you says, I've seen this before and they, you know, they get hung up,

because the Commoddy 3X and they say, shit, we forgot to hedge. And they've got a great deck in their, slide in their deck that says, hey, 70% of this is the business customers and that's just passed through. And then 30% is to retail and we hedge it. We hedge it. Right. I just want to make sure. And historically, they've done it, you know, that certainly played out for, you know, basically the five years or so that I've been following the company. Cool.

Chris, look, I think we've kind of gone through my question. I mean, it's an interesting idea just because you've got the Class B conversions. You've got, you know, it's kind of upless. The volume's going to pick up. You've got the de-leverging story. You've got some financial engineering capabilities here. But it's also pretty simple. I mean, most people hear propane and they get it.

Hey, we take propane in big tanks and we sell it to people. Anything else you think we should be talking about or anything else we kind of haven't hit on here? Yeah. I mean, I think the biggest thing that for me is that I think there's a clear path of of catalysts here to really drive value. And, you know, obviously the B conversion was the first. Yep. And that's been, you know, executed now. I think the next thing we see is an uplisting, you know, to get off the pink sheets,

get on a real exchange, start to get some, you know, I don't, there's not going to be a lot of sell side coverage out there for a company like this, but there could be, you know, one or two guys. You say that, but it's got a two and a half billion dollar debt stack, right? So there's a lot of debt coverage. And I wouldn't be surprised, especially if they start saying, hey, we're going to start doing stuff. Like J.P. Morgan covers their debt right now. I would suppose if they say, hey, we're going to start doing stuff or they start

hitting at it. It feels like a couple of big banks might pick this thing up just because there's a possibility. There's certainly the possibility. They have, you know, they're making a bigger investor relations push, you know, as we speak. It's not something that they've historically made any push for at all. And now I think that's, you know, that's in the process of changing. And then I think, you know, you look into next year and hopefully we should get some sort of dividend announcement. I'm hopeful it's in that three to five per unit range. I think in the interim, though, and we touched on it a little bit,

is there's potential to deliver here doing a bigger transaction that probably involves Ares and Pigem to some extent, where they can deliver this capital structure and then maybe get the dividend coming a little faster than normal. And then I think the longer term story here is, like we talked, talking about M&A, I think there's an very interesting story to consolidate this industry. I think there's ample opportunity with the number of companies that are out there. And to the extent that you can use their equity as a currency, it just gets them to deliver much faster and be in a much better position, hopefully with leverage closer to four or four

and a half times, you know, once they do that. And then I think, you know, you're looking at hopefully in the next, say, to 18 months, a stock that's, you know, in the 40 to 50 range. And then beyond that, it's obviously going to be dependent on the kind of deals that they do. But it wouldn't shock me to see the stock in the kind of, you know, $60, $75 range at that kind of point. I'll throw two things. A, I mean, the stock has worked quite well over the past six months to a year, you know, and some of that's inflection and some. But I am a little surprised, like, you know, I loosely followed it.

And they got the Class B conversion done before it stepped up from five to six, right? And I think there was a question of if they could get that done or not. And just that alone saves them 15% dilution. And I'm just a little surprised that the stock hasn't responded better to that. Now, it's crazy liquid. I mean, as you and I are talking, I think, nine shares have traded so far today. So maybe it's just, hey, there has, oh, nope, I was on 11 shares have traded so far today. So, yeah, on average, you know, it trades about 5,000 shares.

a day. So this isn't liquid. Now do I expect it to become more liquid? And is that part of the story here? Yes, you know, with a listing, with a dividend, all those things. When do you think there's Class B shares that have converted? Like, when do you think we start seeing that volume flow through? Because that's kind of what I was looking for. Given how concentrated the holders were there, you know, certainly P. Jim owns a lot. You know, there's been, I can't confirm this, but there's a belief that Aresone's a significant chunk of those as well. And they're both, you know, both represent Aries. has a board member, PGM has a representative.

So I'm not expecting a tremendous amount of volume uptick from those B shares trading. I think those guys are in it and they're going to try to figure out a way, like we said, to maybe deliver this and start getting their cash out sooner through dividends. If they can come up with some creative opportunistic credit deal to, you know, take out a chunk of the prefers, get the dividend flowing, get this. more liquid and then, you know, start to get their payback through dividends through and then eventual sales. What if this makes sense as a private equity, private equity, and I think the ESOP is important, and clearly they value that, but I just kind of look at this and say,

hey, it's really liquid. You've got some chunky shareholders. You can have the private equity firm. It's not, it's absolutely not unheard of for private equity firms to partner with an ESOP, take this private, eliminate this, have it run privately. And it's an MLP, so the first thing people will, people with real gray hairs, you know, MLPs will think is, hey, the owner's base is going to be too low to sell. And the answer to that would we know if they roll everything in what Andrew's proposing ESOP partners with the private equity firm. And that would solve a bunch of issues here, to be honest.

So what do you think about that? And I think some peers are private, too, which is why I mentioned it. Yeah. So listen, I think that's an interesting proposition. I think the issue I have with it, so I'm not sure Jim Farrell would necessarily go for it. Maybe he would. It's not a conversation I've ever had with him. I've only spoken to him once.

So I think that's an interesting proposition to go private. I think he would need to keep control of the general partner, control of the company. I don't think it's like he wants to give up. that now Ares or PGM is running this company. Meant to mention that. So, you know, the MLP, you buy, you're part of the limited partner group. Correct me.

They own the GP, right? So it's not like, even though it is controlled and you're not paying distribution and incentive fees and all that sort of stuff. So this is one of the cleaner structures is the structure I personally like in MLPs. But just confirming because you always got a check. And I want to make sure I wasn't bleeding out of my eyeballs when I was reading everything. Right. So Jim Farrell, yeah, owns the GP.

The GP appoints the board. Now, can the GP be removed? Yeah, with, I believe it's two-thirds of the A units. But it's a no incentive, GP. There is an incentive, I believe. I have to look back. I don't, I could be misremembered, but in the 10K, I remember, like,

the GP obviously pays all the employees and they pass through all the cost of them but I don't remember seeing any incentives or anything. That's something that we need to double check. I think we're very far away from getting to that. Maybe that's why I didn't see it, yeah. But yeah, that's something, you know,

I need to double check on that. But he controls the GP and he makes, you know, essentially appoints the board. But now with P.GIM's ownership, clearly it gets closer to, you know, they could potentially, potentially assert control, although I think they're working collaboratively with the board and the management team.

I'm sure you've seen it before, but I've got the little data table of EVT, EBITDA numbers, and then implied stock price. And you very rarely see stock prices that swing this wildly on this small of multiple changes. It's a levered beast. It's a levered beast. Absolutely. This has been absolutely fantastic.

I've really enjoyed this. And I know, I mean, the way we connected was you did a guest write up on Caspi on our mutual friend, Nat Stewart's substack, which was excellent. So obviously, you've got, you know, e-liquid, e-liquid propane, rural. And then you've got Caspi, which is quite liquid, but, you know, way out in the Far East, growth dividend. My friend Art and Pocke and I have talked before, but you've got an eclectic mix of taste. How can people find you if they want to get in touch? Yeah, no, you can certainly reach out on Twitter. Just, you know, search my name, Chris Perrice there.

I'll put a link in the show notes because it can be tough to find, but I'll put a link to the Twitter handle on the show. I appreciate that. And then, you know, if you want to reach out via email, I'd say right now to use my personal email, C-P-A-R-Y-I-C at gmail.com. Fantastic. Yeah, like you talked about the eclectic ideas. Like, yeah, I'm a generalist who focuses on this kind of special situation.

catalyst-driven investment, so I can be all over the place. Well, the good news is-large is... Large ones, yeah. You're talking to a special situation junkie over here. So anytime you want to come on and talk any special situations of soft thoughts, I'd love to have you. But Chris Perisi, this has been great. Include a link to the Twitter handle on the show notes, and we'll go from there.

Thank you, Andrew. This was great. Appreciate it. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. please do your own work and consult a financial advisor. Thanks.