Fitch Rates AmeriGas' Sr. Unsecured Note Offering 'BB'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BB/RR3' rating to AmeriGas Partners, LP's (APU) senior unsecured note offering. The notes are being co-issued with AmeriGas Finance Corp. Proceeds are expected to be used to fund a tender for all callable debt and for general partnership purposes. Fitch believes the proposed debt tender transaction to be marginally positive for APU, with the potential for modest interest savings and the extension of maturities.

Fitch's Long-Term Issuer Default Rating (IDR) for APU and its fully guaranteed financing co-borrower, AmeriGas Finance Corp. is 'BB'. The Rating Outlook is Stable.

APU's ratings reflect the underlying strength and size of its retail propane distribution network, broad geographic reach, adequate credit metrics, and proven ability to manage unit margins under various operating conditions. APU's financial performance remains sensitive to weather conditions and general customer conservation, and the partnership must continue to manage volatile supply costs and customer conservation.

Fitch believes APU management has exhibited its ability and intent to maintain a stable balance sheet and consistent credit metrics even in the face of varying market conditions and growth through acquisitions. APU has proven adept at managing operating costs, distribution policies, and integrating acquisitions.

KEY RATING DRIVERS

Scale of Business: APU is the largest retail propane distributor in the country, providing it with significant customer and geographic diversity. This broad scale and diversity helps to dampen the weather related volatility of cash flows. APU is the largest retail propane distributor in the United States with an estimated 15% market share serving approximately 2 million customers. AmeriGas has approximately 2,000 locations in all 50 states. Retail gallon sales are fairly evenly distributed by geography limiting the impact that unseasonably warm weather could have on a regional basis.

High Degree of Seasonality: APU is highly seasonal and very dependent on the winter heating season. A high percentage of earnings are derived in the first two quarters of each fiscal year (September fiscal year-end). With an abnormally warm 2015 and first quarter of 2016 (1Q2016), Fitch expects current year EBITDA to be negatively impacted. The cylinder exchange business affords some seasonal diversity, and national accounts are a steady year round earnings provider. However, weather this past winter nationwide was much warmer than normal, which will weigh on 2016 results.

Customer Conservation/Attrition: Fitch's primary concern about the retail propane industry continues to be customer conservation and attrition. Customer conservation and switching to electric heat reduces propane demand during high usage periods. Recent propane price declines and expectations for some price stability at or near current low levels have alleviated some conservation demand destruction and helped APU lower its bad debt expense. Electricity remains the largest competing heat source to propane, but customer migration to natural gas remains a longer-term competitive factor as natural gas utilities look to build out systems to serve areas previously only served by propane and electricity providers.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Retail and wholesale sales consistent with recent history;

--Retail and wholesale pricing consistent with current pricing for 2016 rising modestly (approximately 2% per year) in the outer years;

--Growth and maintenance capital spending of between $105 million and $115 million annually.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--If leverage (debt/EBITDA) were to improve to between 3.0x to 3.5x on a sustained basis and distribution coverage were expected to remain 1.1x or above on a sustained basis, Fitch would consider a positive ratings action.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Leverage above 4.5x times on a sustained basis, with distribution coverage below 1.0x would likely lead to a rating downgrade.

--Accelerating deterioration in declining customer, margin and or volume trends could lead to a negative ratings action.

LIQUIDITY

Liquidity is adequate, and maturities are manageable. APU's liquidity is supported by a $525 million revolving credit facility that is typically used to fund any short-term borrowing needs. APU's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating-season months due to the need to fund higher levels of working capital. Availability under the revolver at March 31, 2016 was $396.7 million.

The offering and the proposed tender is expected to push any significant maturities at APU out to 2022, alleviating near-term refinancing risks. Fitch does not expect APU to require any external financing and leverage should remain fairly constant between 3.5x and 4.0x (debt/EBITDA).

Fitch currently rates APU as follows:

AmeriGas Partners, L.P./AmeriGas Finance Corp.

--Long-term IDR 'BB';

--Senior unsecured debt 'BB/RR3'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: March 29, 2016

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers - Effective from 7 December 2015 to 1 April 2016 (pub. 07 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873504

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007730

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160620005818/en/

Fitch Ratings
Peter Molica
Senior Director
Fitch Ratings
+1-212-908-0288
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly
Director
+1-212-908-0290
or
Committee Chairperson
Philip Smyth, CFA
Senior Director
+1-212-908-0531
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• North American Construction (NOA) Tops Q2 EPS by 9c; Offers Guidance
• Gaxos.ai Inc. (GXAI) Reports Q2 EPS of $0.02
• Marchex (MCHX) Reports In-Line Q2 EPS