S&P Affirms Rating, Outlook on Suburban Propane Partners (SPH); Sees Volume Increase in Upcoming Heating Season
Get Alerts SPH Hot Sheet
Overall Analyst Rating:
NEUTRAL ( Up)
Dividend Yield: 8.2%
Revenue Growth %: +5.6%
Join SI Premium – FREE
S&P Global Ratings affirmed its 'BB-' corporate credit rating on Suburban Propane Partners L.P. (NYSE: SPH). The outlook is stable. We also affirmed the 'BB-' rating on the company's senior unsecured notes. The recovery rating on this debt is '4', and indicates our expectation of average recovery (lower end of the 30%-50% range) in the event of a payment default.
Propane volume sales have been significantly lower as a result of record warm temperatures last winter. "Though credit metrics are materially weaker than normal, we expect a normalized winter during the upcoming heating season, which could lead to volume sales increasing by over 15% for fiscal 2017, resulting in adjusted leverage improving to about 4.25x," said S&P Global Ratings credit analyst Mike Llanos. Our forecast assumes fiscal 2016 leverage of about 5.5x under the expectation that retail gallons sold decline by 15% to 17% from the prior year. Offsetting the decline in gallons sold is the partnership's ability to maintain strong profit margins.
The stable outlook reflects our view retail propane volumes sold will increase by over 15% year-over-year such that the partnership achieves adjusted debt to EBITDA of about 4.25x in fiscal 2017.
We could lower the rating if the upcoming winter is warmer than normal. We could also consider lowering the rating if retail margins deteriorate or propane volumes only increase by 5% resulting in adjusted debt to EBITDA being sustained above 5x.
Though unlikely in the next year due to elevated debt levels, we could consider higher ratings if the partnership can maintain strong margins and increase retail propane gallons sold, or embrace a more conservative financial policy, such that financial leverage is sustained below 3x.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Truist Upgrades Strategic Education (STRA) to Buy, 'USHE Enrollment Growth To Unlock Significant Margin Leverage'
- Rubric Capital Management Files Definitive Proxy Statement for Xperi (XPER) 2024 Annual Meeting
- Citi Downgrades Arch Coal (ARCH) to Neutral
Create E-mail Alert Related Categories
Credit RatingsRelated Entities
Standard & Poor'sSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!