Debt and Financing Obligations

6 Months Ended

Jun. 30, 2020

Debt and Financing Obligations

Debt and Financing Obligations

Note 8.    Debt and Financing Obligations

Credit Agreement

Certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, have a $1.17 billion senior secured credit facility (the “Credit Agreement”) which was amended on May 7, 2020 to, among other things, provide temporary adjustments to certain covenants and reduce the total aggregate commitment by $130.0 million from $1.3 billion (see “–Fourth Amendment to the Credit Agreement” below). The Credit Agreement matures on April 29, 2022.

There are two facilities under the Credit Agreement:

● a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnership’s borrowing base and $770.0 million; and

● a $400.0 million revolving credit facility to be used for general corporate purposes.

Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Availability under the borrowing base may be affected by events beyond the Partnership’s control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits and general economic conditions.

The average interest rates for the Credit Agreement were 2.8% and 4.5% for the three months ended June 30, 2020 and 2019, respectively, and 3.1% and 4.6% for the six months ended June 30, 2020 and 2019, respectively.

The Partnership classifies a portion of its working capital revolving credit facility as a current liability and a portion as a long-term liability. The portion classified as a long-term liability represents the amounts expected to be outstanding during the entire year based on an analysis of historical daily borrowings under the working capital revolving credit facility, the seasonality of borrowings, forecasted future working capital requirements and forward product curves, and because the Partnership has a multi-year, long-term commitment from its bank group. Accordingly, at June 30, 2020 the Partnership estimated working capital revolving credit facility borrowings will equal or exceed $175.0 million over the next twelve months and, therefore, classified $41.7 million as the current portion at June 30, 2020, representing the amount the Partnership expects to pay down over the next twelve months. The long-term portion of the working capital revolving credit facility was $175.0 million at both June 30, 2020 and December 31, 2019, and the current portion was $41.7 million and $148.9 million at June 30, 2020 and December 31, 2019, respectively. The decrease in total borrowings under the working capital revolving credit facility of $107.2 million from December 31, 2019 was in part due to lower prices.

As of June 30, 2020, the Partnership had total borrowings outstanding under the Credit Agreement of $404.7 million, including $188.0 million outstanding on the revolving credit facility. In addition, the Partnership had outstanding letters of credit of $39.9 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $725.4 million and $660.2 million at June 30, 2020 and December 31, 2019, respectively.

The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. The Partnership was in compliance with the foregoing covenants at June 30, 2020. The Credit Agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement). In addition, the Credit Agreement limits distributions by the Partnership to its unitholders to the amount of Available Cash (as defined in the Partnership’s partnership agreement).

Please read Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information on the Credit Agreement.

Deferred Financing Fees

The Partnership incurs bank fees related to its Credit Agreement and other financing arrangements. These deferred financing fees are capitalized and amortized over the life of the Credit Agreement or other financing arrangements. In connection with the Fourth Amendment (as defined below) in May 2020, the Partnership capitalized additional financing fees of $1.2 million. Also in connection with the Fourth Amendment, the Partnership incurred expenses of approximately $0.7 million associated with the write-off of a portion of the related deferred financing fees. These expenses are included in interest expense in the accompanying consolidated statements of operations for the three and six months ended June 30, 2020. The Partnership had unamortized deferred financing fees of $15.9 million and $18.0 million at June 30, 2020 and December 31, 2019, respectively.

Unamortized fees related to the Credit Agreement are included in other current assets and other long-term assets and amounted to $6.6 million and $7.8 million at June 30, 2020 and December 31, 2019, respectively. Unamortized fees related to the senior notes are presented as a direct deduction from the carrying amount of that debt liability and amounted to $8.6 million and $9.5 million at June 30, 2020 and December 31, 2019, respectively. Unamortized fees related to the Sale-Leaseback Transaction (defined below) are presented as a direct deduction from the carrying amount of the financing obligation and amounted to $0.7 million at both June 30, 2020 and December 31, 2019.

Amortization expense of approximately $1.3 million and $1.2 million for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $2.5 million for the six months ended June 30, 2020 and 2019, respectively, is included in interest expense in the accompanying consolidated statements of operations.

Supplemental cash flow information

The following table presents supplemental cash flow information related to the Credit Agreement for the periods presented (in thousands):

	Six Months Ended
	June 30,
	2020		2019
Borrowings from working capital revolving credit facility	$	680,100	$	881,700
Payments on working capital revolving credit facility		(787,300)		(778,900)
Net (payments on) borrowings from working capital revolving credit facility	$	(107,200)	$	102,800
Borrowings from revolving credit facility	$	50,000	$	—
Payments on revolving credit facility		(54,700)		(8,000)
Net payments on revolving credit facility	$	(4,700)	$	(8,000)

Fourth Amendment to the Credit Agreement

On May 7, 2020, the Partnership and certain of its subsidiaries entered into the Fourth Amendment to Third Amended and Restated Credit Agreement (the “Fourth Amendment”), which further amends the Credit Agreement. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Credit Agreement.

The Fourth Amendment amends certain terms, provisions and covenants of the Credit Agreement, including, without limitation:

(i) increases by 0.125% the applicable rate under the working capital facility for borrowings of base rate loans, Eurocurrency rate loans and cost of funds rate loans and for issuances of letters of credit;

(ii) adds two pricing levels under the revolving credit facility for borrowings of base rate loans, Eurocurrency rate loans and cost of funds rate loans and for issuances of letters of credit;

(iii) adds a Eurocurrency rate floor of 0.75% and a cost of funds rate floor of 0.50%;

(iv) for the four (4) quarters commencing with the quarter ended June 30, 2020, (a) increases to Combined Total Leverage Ratio covenant levels and (b) a reduction to the Combined Interest Coverage Ratio covenant levels; and

(v) reduces the aggregate commitments under the facilities by 10%, with the commitments under the working capital facility reduced to $770.0 million from $850.0 million and the commitments under the revolving credit facility reduced to $400.0 million from $450.0 million.

All other material terms of the Credit Agreement remain substantially the same as disclosed in Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.

Senior Notes

The Partnership had 7.00% senior notes due 2027 and 7.00% senior notes due 2023 outstanding at June 30, 2020. Please read Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information on these senior notes.

Financing Obligations

Capitol Acquisition

On June 1, 2015, the Partnership acquired retail gasoline stations and dealer supply contracts from Capitol Petroleum Group (“Capitol”). In connection with the acquisition, the Partnership assumed a financing obligation of $89.6 million associated with two sale-leaseback transactions by Capitol for 53 leased sites that did not meet the criteria for sale accounting. During the terms of these leases, which expire in May 2028 and September 2029, in lieu of recognizing lease expense for the lease rental payments, the Partnership incurs interest expense associated with the financing obligation. Interest expense of approximately $2.3 million was recorded for each of the three months ended June 30, 2020 and 2019, and $4.6 million and $4.7 million was recorded for the six months ended June 30, 2020 and 2019, respectively, which is included in interest expense in the accompanying consolidated statements of operations. The financing obligation will amortize through expiration of the leases based upon the lease rental payments which were $2.5 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively, and $5.0 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively. The financing obligation balance outstanding at June 30, 2020 was $86.6 million associated with the Capitol acquisition.

Sale-Leaseback Transaction

On June 29, 2016, the Partnership sold to a premier institutional real estate investor (the “Buyer”) real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores located in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island (the “Sale-Leaseback Sites”) for a purchase price of approximately $63.5 million. In connection with the sale, the Partnership entered into a Master Unitary Lease Agreement with the Buyer to lease back the real property assets sold with respect to the Sale-Leaseback Sites (such Master Lease Agreement, together with the Sale-Leaseback Sites, the “Sale-Leaseback Transaction”).

As a result of not meeting the criteria for sale accounting for these sites, the Sale-Leaseback Transaction is accounted for as a financing arrangement. As such, the property and equipment sold and leased back by the Partnership has not been derecognized and continues to be depreciated. The Partnership recognized a corresponding financing obligation of $62.5 million equal to the $63.5 million cash proceeds received for the sale of these sites, net of $1.0 million financing fees. During the term of the lease, which expires in June 2031, in lieu of recognizing lease expense for the lease rental payments, the Partnership incurs interest expense associated with the financing obligation. Lease rental payments are recognized as both interest expense and a reduction of the principal balance associated with the financing obligation. Interest expense was $1.1 million for each of the three months ended June 30, 2020 and 2019 and $2.2 million for each of the six months ended June 30, 2020 and 2019. Lease rental payments were $1.1 million for each of the three months ended June 30, 2020 and 2019, and $2.3 million and $2.2 million for the six months ended June 30, 2020 and 2019, respectively. The financing obligation balance outstanding at June 30, 2020 was $62.2 million associated with the Sale-Leaseback Transaction.