Chris Paryse 谈 Ferrellgas 的重大转换 $FGPR

With me today, I’m happy to have Chris Paryse. Chris, how’s it going?

Good. How are you?

Doing good. Super excited to talk today. Before we get there, I want to remind everyone of the quick disclaimer: Nothing on this podcast is investment advice. That’s always true, but we’re going to be talking about a company whose free float just increased quite a bit. It’s on the smaller side, and it’s an MLP, which carries additional tax risks. People should consult a financial advisor. We’re not giving tax advice or financial advice. The full disclaimer is at the end of the podcast and in the show notes.

Anyway, Chris, the company we want to talk about today is Ferrellgas. The ticker is FGPR. I’ll stop rambling and toss it over to you: What is FGPR, and why is it so interesting?

Ferrellgas is one of the largest propane distributors in the United States. Technically, they’re second, with a market share of around 8%. This is a very fragmented industry. Their business spans residential and industrial markets. They’re very well known for their tank-exchange business, which is the Blue Rhino brand, where they have over 50% market share. They also do agricultural crop drying and autogas for buses and things of that nature.

You said it, but the way I know them—and most people know them—is from outside a bunch of convenience stores or a Walmart. You drive up and, in the front, they’ve got that big steel cage with Blue Rhino. You get the thing that looks like a mini keg. You get the mini keg and go use it for grilling and everything. That’s where most people probably know the company from.

Most of their business is really driven by residential and commercial heating, as well as the industrial level, where propane powers forklifts. That’s where most of their business is driven, so it is very weather-dependent, as you would expect. Over the last number of years, they’ve been able to generate a sizable amount of EBITDA and free cash flow.

Going back, what makes it interesting is that this is a business that was actually in bankruptcy in 2020 and emerged in 2021. The story there is that they levered up to get involved in some energy-storage and oil-storage businesses, which ended up being a disaster for them.

It’s absolutely classic.

The former founder and CEO, Jim Ferrell, actually came back to run the business. He had retired, and then, once they made this disastrous acquisition, he came back to run it and took it through bankruptcy. It was kind of an unusual bankruptcy in the sense that the equity traveled through—it made it through.

I have a background in distressed credit and special-situation equity, so I track what’s in bankruptcy and what’s emerging. This hit my radar in 2021 as a post-reorganization equity that seemed interesting. One of the board members, who was the appointee of PIMCO, started buying stock shortly after emergence. That kind of flipped the switch for me that this might be something interesting to look into.

Perfect. Let’s hit that, because I think this is the most interesting angle. As you and I are talking, it’s March 17. Last week, I believe—maybe it was the week before—they delivered notice to the class B units of a big conversion. The conversion is literally happening as we speak. I believe the Bs are flipping to As.

You’re talking about a class B-to-class A conversion. Why don’t you go through the background of what the class B units are, what this conversion was, and why it’s important? I led off by saying there was a big increase in the free float, because I think that’s the really sexy angle. We can talk about everything else behind that.

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. It came out with an undrawn ABL, high-yield bonds totaling a little under $1.5 billion, a $700 million preferred that was pretty expensive, and then these class B and class A units.

The class B units were the old HoldCo debt that was converted into class B units. That debt was wiped out and converted to class B. What was interesting about the class B units was that they were structured so that the $357 million of old HoldCo debt entitled the class B units to $357 million in dividend payments. Then, based on the time when they received that full $357 million, there was a dilution factor under which they would convert into As.

The longer it took for them to receive that $357 million in cash, the more dilution there would be on the As. As you mentioned, they were just paid off, and the ratio is 5 times. There were essentially 1.3 million Bs that are now converting into 6.5 million As. So, they received their $357 million in cash, plus 6.5 million A units.

Can I pause you there? I think this is a big point, and I want to stress it. They paid off the roughly $350 million in cash, and then the units converted. There are 2 reasons I want to stress this.

First, as you mentioned, over time the conversion would get bigger and bigger. There were about 1.3 million class B units. If it had taken until March 2031, they would have converted at 25 times, just to give you the draconian case. They converted at 5 times. If they hadn’t converted by the end of this month, the rate would have stepped up from 5 times to 6 times.

This is important because there were just under 5 million class A units before the conversion. So, you’re talking about 6.5 million units actually being converted. Again, the free float doubles. I’m sure all these class Bs are going to start hitting the market over time. That doubles the number of units, but if it had been 6 times, you’d be talking about 12.8 million shares instead of 11.4 million shares outstanding. Just 20 days could have resulted in 15% more shares.

I just wanted to stress: A, it's a huge number, right? It literally doubles the free float and more than doubles the stock. And B, if they had done it just a little bit later—say, 5 years—it would have been insane dilution. But if it had just been 20 days later, it would have been quite a bit more dilution.

One thing I'll note about the Bs, though, is that they're largely held by PIMCO.

So, why don't you just define who PIMCO is so everyone knows?

PIMCO is a large asset manager from Prudential Asset Management. They have a large presence in credit markets and do a significant amount in high yield. They were the largest owner of the HoldCo debt through the bankruptcy. They have a board member they've appointed, Carney Haug, who used to work for Brigade Capital Management, so he's their representative.

They've been very involved with the company since emergence. They're the ones getting the large majority of the new Class A shares here and will likely—although I don't know the exact number, and it's not inconceivable—own roughly 50% of the company pro forma.

Yep. Let's keep going on that. They have an interesting quote, I think on the Q4 call, where they say, “If you look over the past 5 years, kind of since our emergence, we've put $500 million toward 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 Bs, right? That's $500 million.

Now that the conversion is done, they don't have to pay that off. There are the preferreds, which I want to talk about later. It's still a levered entity, but I think what they're looking toward is cash coming back to shareholders. Can you lay out the go-forward path for free cash flow and what it looks like for shareholders?

If you look at the go-forward path for free cash flow, this is a business that's doing roughly $330–$340 million of EBITDA currently.

Currently.

That can fluctuate with weather, right? We've seen in very, very warm winters that number closer to $315 million. In very, very cold winters, that number has been closer to $350 million. That's roughly what they're doing.

It can't have been a bad time for them this year. They were super good in Q1.

I would note, though, that they do have West Coast exposure, and it was very warm in the West. So, that hurt a little bit of the benefit they saw in the Midwest and East. They're definitely more levered to the Midwest and Southeast than anywhere else in the U.S.

That's the kind of EBITDA number we're working with. If you look at the cash interest on the bonds, they should be paying a little over $100 million, or a little under $110 million, I should say. On the preferreds, we're talking in the $65–$70 million range. So, pro forma free cash flow should be around $85–$90 million that they should be able to generate.

On leverage, I look at what it should be by their fiscal year-end, which is July, because they generate a lot of cash over that period. A lot of the receivables are turning into cash now, so they should be around 6.8× levered through the preferreds. That is a lot of leverage on this business.

The way I see the progression moving forward is, as you said, they've paid around $500 million. Generally, they've paid between $50 million and $100 million a year in terms of dividends to get the Bs paid off. Looking forward, they just made a $107 million payment on the Bs, and they made a $37.5 million payment in January on the final Eddystone litigation payment.

I would expect them to try to rebuild some cash over the next 12 months, get leverage a little lower, and then reinstitute a dividend around this time next year. The reason for that is that there are a lot of legacy instruments from the bankruptcy that have tighter covenants than a lot of other credits out there today.

If you look at the preferreds, which are primarily owned by distressed investors, Ares probably owns 40% of them or so. There's a 7× covenant in there where, if leverage gets above 7×, they can't make dividends up to the HoldCo to pay a dividend to the Class A units.

My view is that they want to get that number lower, generate free cash flow year over year, pay down debt, and then reinstitute that dividend. The good thing about that is that it gives them the ability to pay a larger dividend next year than they could today.

If they paid about 50% of their free cash flow as a dividend, you're talking about roughly $3.70–$3.80 per unit. If you're talking about a 10% dividend yield on that, given the leverage, you're talking about a high-$30s stock.

Let me pause you there and ask a few questions. The first question is kind of wonky, but the preferreds: how much of them are outstanding? I think it's $700 million on the balance sheet, if I remember correctly, but it's discounted to $650 million. It's $700 million at face, but they accrete a little bit as well. I wasn't sure of the exact number when I was building out the capital structure, and I'm sure everybody wants to hear what's put into their Excel models, but I've got to ask since I'm not going to build one.

There's $700 million face, but it pays a coupon. It would have been paying 8.9%, and it steps up to 9.7% on March 31.

If you look at what's in the preferreds, to take them out, it has to be done at a 12.25% IRR.

That's why I was asking.

At a 12.25% IRR, if you took them out today, it's probably around $117 million or so.

Okay.

So, you're talking about roughly $820 million—that's the real, I'd say, face of these things. It's $820 million to $825 million. That's the number I'm including in leverage, and that's the number they include in leverage, too, that higher number. They're not using the $700 million face number.

Perfect. All right, let me ask my second question. I do want to talk a little bit more about the business, but it's a capital-heavy business. You mentioned it's very low growth, right? It's mainly dependent on the weather, with the swing between $320 million and $350 million. Low growth.

There is a history of the industry being pretty fragmented. We can talk about capital allocation and buyouts, and there are some peers and everything. But you mentioned it's 7× levered, right?

I think buyouts in this industry have happened in the 8× to 9× range. So, when I look at it, I say, “Hey, 8× is above the current price. 9× is well above the current price, given the leverage, but it's not that much higher.”

I kind of look at it and say, “How much of this story is just that you have this really skinny equity stub on a big capital structure?” The free cash flow to equity is really nice, and this is a stable business, all that sort of stuff. But how much of it is, “The enterprise value isn't that undervalued; you've just got such a skinny equity stub that you get a lot of torque here”?

Rightly or wrongly, I think that's the case, and it can work out really well. But I always see people say, “I think this business is worth 10× EBITDA. It's trading at 9.9× EBITDA, and I'm going to make 500× because it's 9.875× levered and I'm going to capture the stub.” If all of that makes sense.

That certainly is in play here. The business is about 7.5× through the equity right now. If you look at a company like Suburban Propane, which is the closest comparable, that's trading at a little over 9×.

There is that torque, right? If you said, “This business is worth 8.5× EBITDA,” then you can argue for a $45–$50 stock.

That's what I've got. Yep.

I think there's more to the story here than just, “It's going to re-rate to 8.5× and 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 at less than 1× EBITDA, so your market cap represents less than 1× EBITDA. Those are generally pretty interesting options, as long as you think the business isn't in complete decline.

As you said, next year they can probably start paying a dividend. Is it going to be $3 or $4 per share? It's not certain, because a 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 pay a $4-per-share dividend, and this stock is not going to trade at $20 per share. There's just no effing way.

The other part of that story, too—and I think this is a more imminent catalyst, although I don't know how much value it'll drive without a dividend coupled with it—is that they're likely going to relist on a major exchange.

Yep. Probably the Nasdaq. I would expect that by this summer. Hopefully that gets them on a few more radars so people can buy the stock and gets it off the pink sheets. They can communicate a clear path to a dividend in the 2026 to early 2027 time frame.

Then you get all the retail back, because I think a lot of the holders of the A units, if you look over the last 5 years, have been stranded retail holders who’ve dribbled it out. Probably half of them didn’t even realize they owned it, and then they just took the tax loss over a number of years. I think you can get the retail holders back in here, along with some institutional guys who own institutional MLPs, to really drive value here once the dividend comes back.

Let me follow up on something you mentioned. There was PJM, the big Class B holder who’s going to own a lot of stock here. The employee stock ownership plan, or ESOP, 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, 10% post-conversion, but it’s still a chunk.

But I will say, I looked at this board and was kind of surprised. As you said, the founder’s son, who’s about 80 years old and had been the CEO for a while, came back as executive chairman. He’s the chairman, and he’s in his 80s. Between him, the CEO, and everyone else, there’s not a lot of stock ownership on this board. I was kind of surprised by that.

So I want to talk about insider ownership being pretty poor, because that was surprising to me. Then I’m going to drive it into the next question, but I’ll just talk about insider ownership and alignment. Jim Ferrell owns about 5% of the company. The ESOP owns, like you said, 23%, but this is all pre-dilution.

Jim—so, Jim actually gifted those shares to the employees in the 1990s, right? They always say, “We’re employee-owned.” I think he’s viewed very favorably within the company and by the employees. He’s very dedicated to getting these A units up, I think, not just for himself, but for them. This is a fraction of his net worth at this point.

In terms of the other board members, Courtney Hawks has made open-market purchases. But I’d say the big thing that’s changed—I agree with you that insider ownership was always an issue—is that they’ve done these phantom grants of late. They’ve essentially been granting phantom A units that, over the course of 3 years, will result in a cash payout based on the performance of the A units. That’s a new change that happened within the last 6 to 9 months.

Okay. These phantom units were granted to all the board members. But that was always an issue for me as well: 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.

The question I wanted to follow up with is that we kind of started talking about the game, but this is a very fragmented industry. Ferrellgas went bankrupt. They kind of stepped outside the industry, but they went bankrupt. They’re 7× levered. I’ve only loosely looked at some of the other peers, but I know this is an industry where, despite the stability and everything else, everyone gets over their skis and goes bankrupt at some point.

When you hear them on the Q4 call talking and saying, “Hey, after we do the conversion, we’re looking for ways to grow. We’re strengthening our ability to grow,” what I hear is that they want to do acquisitions at some point. That probably comes with a refinancing, but I see that and say, “Hey, there’s not a lot of insider ownership. Companies that already went bankrupt once—I understand that was under a different watch—but you combine that with the fact that they went bankrupt from bad acquisitions, and you say, ‘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 long term, I think you can make a clear case for the equity based just on the business today—is that this business could be worth, let’s call it, $40 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.

If you take, let’s say, the number-5 player through the number-20 player in the propane industry, I obviously don’t have financials for those guys, but you get a sense of where their EBITDA might be based on volumes. You’re talking 60 million gallons on the low end to, let’s say, 300 million gallons on the high end. Ferrellgas does a little closer to 800 million gallons. I would say EBITDA for those businesses probably ranges from $25 million to $125 million.

I think there are some interesting acquisitions to do in that space where there’s geographic overlap. You can improve your route density and get synergies that way. You can improve your geographic footprint and make yourself a little less dependent on weather in a particular region. Maybe they expand a little more in the West or on the Atlantic Coast. There are options for that as well.

But I think the most interesting part of the M&A story, at least from my perspective, is that there’s always going to be somewhat of a discount on this business given the leverage. The question is: how do you pay a dividend that’s valuable for the shareholders and delever this business?

The $40 million or so of excess free cash flow, or $50 million of excess free cash flow, that they might earn after the dividend will delever the business, but not quickly. They have $2 billion to $2.5 billion of debt plus preferreds, and $50 million of excess free cash flow will delever the business, but not quickly.

Right. So, the way I see it, if I’m one of the preferred holders here, my question is: how do I get paid back? How does the company do it in a cost-effective manner?

I think the biggest story here is: can I reflate the A units, get the value up into the $40s or $50s, and then use that as a currency to try to consolidate this industry? There aren’t a lot of players trying to consolidate it right now. AmeriGas has its issues; it’s owned by UGI. Suburban Propane has made a push into renewable natural gas, so I don’t think they’re focused on consolidating this industry.

Superior has been more focused on delevering. They might be someone who tries to consolidate the industry at some point, but I think Ferrellgas is the one larger player right now that wants to do this. You hear the stories, obviously, of all the older mom-and-pops and the smaller businesses where maybe they’re looking to sell. They don’t have the heir who’s going to take it over.

Can they buy $50 million to $100 million of EBITDA over the next 3 years or so? I think that’s probably the goal. Then can they use a certain amount of equity currency, whether that’s giving it to the owners, issuing it in the market, or doing a bought deal with someone to finance an acquisition like this, and get leverage down to maybe where Superior is, in the 4× to 4.5× range?

Then does your equity trade at a 6.5% dividend yield as opposed to maybe a 10% yield, where it might trade when leverage is 6.5× to 7×? I’ll pause there, and then I want to go into a business plan.

No, I think that’s an interesting point, and I think that’s something they’ve not only been working on now, but have been actively working on for a while: how can we delever today? Is there a path using some sort of equity—either pure equity or maybe an equity-linked instrument like a convertible—where we can either go to the preferred holders or 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, let's say, it's a convert. I'm just throwing out numbers: a 4% convertible at 35. Then we'll take out a huge chunk of your preferreds, and all of a sudden, that 7× leverage covenant doesn't become a concern anymore. You have a business that will probably trade at a better dividend yield than it would have previously with that giant preferred ahead of you.

Well, I'm laughing for two reasons. You're right, and especially if you do the converts in your scenario—even at 30, if the strike is 35, which is lower than what we talked about—with 4% interest versus what the prefs are paying, you're going to have a lot more cash, and then you kind of get into a virtuous cycle.

But I'm also laughing because 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 you could make the argument that if you sell stock at 30 and add 10 million shares, then you feel you get leverage down a turn and you feel 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 at an 8% yield, that's still a $40 stock. It gets you there faster than maybe waiting a year.

Yeah. Well, the other reason I was laughing is that the recent history of Ferrellgas doing creative stuff by issuing converts is not so great for the companies that have issued the converts. It's been very good for the buyers of the converts, but not so great for the company. So, that's just the other reason I'm laughing, though there is some logic to it here.

Let me turn to the business. 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. That is, I think, a really interesting piece of the business. There's network effects, a lot of logistics, and everything. It's only about 10% of the business here. About a third—the biggest line—is residential.

I'm a Northeasterner. I come from the suburbs of New Orleans, so heating my house with propane might be a little foreign to me. Do you want to just talk about the business side, particularly that residential side? We can also talk industrial as well.

So, if you look at the business, residential is a little under 30% of the total volumes, but it does drive a lot of the fluctuation given weather. I believe about 9% of U.S. households use propane to heat their houses. Obviously, these are in more rural territories where it doesn't make sense to build a natural gas line out to some of these houses. A lot of these houses are captured by propane.

What's interesting, too, is that if you look at Ferrellgas, 70% of their customers lease the tank from them. So, they really can't go anywhere else for their propane unless they want to pay Ferrellgas to take it out and then pay someone else to put 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.” Once you have the satellite dish on your house, you could switch from DISH to DIRECTV, but are you going to go up onto your roof, uninstall the satellite, ship it back to them, pay to get a new one shipped in? Probably not. This is probably even better because that was just the satellite dish. This is a big old propane tank, if I'm thinking about it correctly.

Right. I'm not going to make the argument that propane used for heating is a growth business. I think it's probably something in very slow decline, as new houses are built and old housing infrastructure gets demolished. Generally, they're probably not putting in propane to heat the house.

Although I have heard anecdotally from certain builders—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 it's—

So, what you're saying is Ferrellgas is an AI play? As all the AI data centers take all the natural gas and everything, all the houses switch over to propane. Get that 20× multiple on this thing.

I do like to tell you that they provide backup power generation for data centers. So, yep, it is part of the story.

I think this is 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. Obviously, with the heating side of things, that's probably not growth. They're dependent on industrial demand. A lot of their business is powering forklifts and doing that kind of thing. So, if industrial demand grows, they can grow along with it.

Just so I understand: I have no idea. When the actual forklift itself goes up and down, that's getting powered by propane? Am I thinking about that correctly?

Correct. Yes.

I think if you look at where the growth is in this business to offset some of these declines, we mentioned tank exchange. I think it's also in their autogas business, which—we mentioned the backup generation for data centers—but more prevalently, it's the buses.

I've seen more and more municipalities move to propane buses, given how cheap it is relative to diesel. It's even cheaper than compressed natural gas, so more municipalities are doing that. Some of the bus companies, the public bus companies, have talked about their propane business and how, while the buses are more expensive, you make that back pretty quickly on fuel.

So, I think those are growth areas, but in the end, this is a flat to slightly growing business, in my opinion, on an organic basis. It's really the inorganic growth and the synergies associated with that where I see it going from a $40 stock to a $75 stock in 3 years.

Let me quickly touch 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, retail, especially when you're selling to someone's home, is kind of on a fixed-price basis—and it's not unheard of for them to get upside down. Propane obviously can be pretty volatile.

We're talking 2 or 3 weeks into the Iran war. I don't think propane has really shot up yet, but I wouldn't be surprised to see some type of move there. Let's just talk quickly about the commodity risk here, because that's one place where you could see them getting tripped up.

Anything they sell—if they enter into a fixed-price contract with their customers for the winter or whatever—they're hedging that out immediately. 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.

I think you've even seen them try to increase that ratio. One thing they've done is certainly push price over the last number of years as they try to cull their unprofitable customers who are not helpful from a route-density perspective. So, if they have a will-call customer who owns their own tank and is off the route, they're going to try to push price there to either have them pay it or go find someone else.

I think they're in a pretty good spot from that perspective, where they're either passing on the cost or hedging it out immediately. They're not really taking any propane price risk.

No, that's perfect. I'm starting to get the grays in my beard, and anybody who's got the grays, when you hear, “Hey, I'm distributing a commodity,” the first thing you say is, “I've seen this before.” They get hung up because the commodity goes 3×, and they say, “Shit, we forgot to hedge.”

They've got a great slide in their deck that says, “Hey, 70% of this is business customers, and that's just passed through, and then 30% is retail, and we hedge it. We hedge it.” Right? Just wanted to make sure.

Historically, that's certainly played out over basically the 5 years or so that I've been following the company.

Cool. Chris, look, I think we've gone through my questions. I mean, it's an interesting idea just because you've got the Class B conversions, it's going to uplist, the volume's going to pick up, you've got the deleveraging story, and 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 sell it to people. Is there anything else you think we should be talking about, or anything else we haven't hit on here?

Yeah, I think the biggest thing for me is that there's a clear path of catalysts here to really drive value. Obviously, the Class B conversion was the first, and that's been executed now. I think the next thing we see is an uplisting—to get off the pink sheets, get on a real exchange, and start to get some sell-side coverage. I don't think there's going to be a lot of sell-side coverage out there for a company like this, but there could be 1 or 2 guys.

You say that, but it's got a $2.5 billion 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.” JPMorgan covers their debt right now. I wouldn't be surprised if they say, “Hey, we're going to start doing stuff,” or start hinting at it. It feels like a couple of big banks might pick this thing up just because—

There's a possibility. That's certainly a possibility. They're making a bigger investor-relations push as we speak. It's not something they've historically made any push for at all, and now I think that's in the process of changing.

Then I think you look into next year and hopefully we should get some sort of dividend announcement. I'm hopeful it's in that $3 to $5 per-unit range. In the interim, though—and we touched on it a little bit—there's potential to delever here by doing a bigger transaction that probably involves Ares and PGIM to some extent, where they can delever this capital structure and maybe get the dividend coming a little faster than normal.

The longer-term story here is, like we talked about, M&A. I think there's a very interesting story to consolidate this industry. There's ample opportunity with the number of companies that are out there. To the extent that they can use their equity as a currency, it just gets them to deal up, lever much faster, and be in a much better position, hopefully with leverage closer to 4 to 4.5 times once they do that.

I think you're looking at, hopefully in the next 12 to 18 months, a stock that's in the $40 to $50 range. 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 this stock in the $60 to $75 range at that point.

I'll throw 2 things out. First, the stock has worked quite well over the past 6 months to a year. Some of that is inflection, but I am a little surprised. I loosely followed it, and they got the Class B conversion done before it stepped up from 5 to 6, right? I think there was a question of whether they could get that done or not. 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 illiquid. As you and I are talking, I think 9 shares have traded so far today. No, I'm wrong—11 shares have traded so far today. On average, it trades about 5,000 shares a day, so this isn't liquid. Do I expect it to become more liquid, and is that part of the story here? Yes, with a listing, with a dividend, and all those things. When do you think those Class B shares converted? When do you think we start seeing that volume flow through? That's kind of what I was looking for.

Given how concentrated the holders were there, certainly PGIM owns a lot. There's been a belief—I can't confirm this—that Ares owns a significant chunk of those as well. They both have representation: Ares has a board member, and PGIM has a representative.

I'm not expecting a tremendous volume uptick from those Class B shares trading. Those guys are in it, and they're going to try to figure out a way, like we said, to maybe delever this and start getting their cash out sooner through dividends. If they can come up with a creative, opportunistic credit deal to take out a chunk of the preferreds, get the dividend flowing, get this thing more liquid, and then start to get their payback through dividends and eventual sales.

Would this make sense as a private-equity play? I think the ESOP is important, and clearly they value that, but I look at this and say, “Hey, it's really illiquid. You've got some chunky shareholders. You could have a private-equity firm.” It's absolutely not unheard of for private-equity firms to partner with an ESOP, take this private, eliminate this, and have it run privately.

It's an MLP, so the first thing people with real gray hairs who know MLPs will think is, “Hey, the owner's basis is going to be too low to sell.” The answer to that would be no if they roll everything in, what I'm proposing: the ESOP partners with a private-equity firm. That would solve a bunch of issues here, to be honest. What do you think about that? I think some peers are private, too, which is why I mentioned it.

That's an interesting proposition. The issue I have with this is that I'm not sure Jim Ferrell 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.

I think it's an interesting proposition to go private. I think he would need to keep control of the GP—control of the company. I don't think he wants to give up control and have Ares or PGIM running this company.

Not to mention that, with the MLP, when you buy, you're part of the limited-partner group. Correct me if I'm wrong—

They own the GP, right?

So even though it is controlled, you're not paying distribution and incentive fees and all that sort of stuff. This is one of the cleaner structures. It's the structure I personally like in MLPs, but I'm just confirming because you always have to check, and I want to make sure I wasn't bleeding out of my eyeballs when I was reading everything.

Right. Jim Ferrell owns the GP, and the GP appoints the board. Can the GP be removed? Yes, with, I believe, 2/3 of the A units. But it's a no-incentive GP. There is an incentive, I believe. I thought it was a no-incentive GP. I have to look back.

I could be misremembering, but in the 10-K, I remember the GP obviously pays all the employees and passes through all the costs to them, but I don't remember seeing any incentive fees or anything.

Yeah, that's something I would need to double-check. I think we're very far away from getting to that. Maybe that's why I didn't see it. But he controls the GP and essentially appoints the board. With PGIM's ownership, clearly it gets closer to where they could 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 EV/EBITDA numbers and implied stock price. You very rarely see stock prices swing this wildly on such small multiple changes. It's just a levered beast.

It's a levered beast. Absolutely.

This has been absolutely fantastic. I've really enjoyed this. The way we connected was that you did a guest write-up on Kaspi.kz on our mutual friend Nat Stewart's Substack, which was excellent as well. Obviously, you've got illiquid, rural propane, and then you've got Kaspi.kz, which is quite liquid but way out in the Far East—growth, dividend. My friend Artem Poken[?], who I've talked about before, but you've got an eclectic mix of tastes. How can people find you if they want to get in touch?

You can certainly reach out on Twitter. Just search my name, Chris Paryse, there.

I'll put a link in the show notes because it can be tough to find.

And then, if you want to reach out via email, right now I'd say just use my personal email: cparise@gmail.com.

Fantastic. Like you talked about, you have an eclectic mix of ideas.

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, you're talking to a special-situations junkie over here. Anytime you want to come on and talk about any special situations with us, I'd love to have you. Chris Paryse, this has been great. We'll include a link to the Twitter handle in the show notes, and we'll go from there.

Thank you, Andrew. This was great. I appreciate it.