Fitch Rates AmeriGas' Sr. Unsecured Note Offering 'BB/RR3'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BB/RR3' rating to AmeriGas Partners, LP's (APU) senior unsecured note offering due 2025. The notes are being co-issued with AmeriGas Finance Corp. Proceeds are expected to be used to repay in part AmeriGas Finance's outstanding notes due in 2022, guaranteed by APU, 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 some debt 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 1.9 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: A high percentage of APU's earnings are derived in the first two quarters of each fiscal year (September fiscal year-end). APU's 2016 results were negatively impacted by an abnormally warm winter season nationally, given the effect of last winter's El Nino weather pattern. Fitch notes that while a repeat of last year's El Nino warmer winter weather has a low probability of repeating, APU's business nevertheless remains sensitive to weather fluctuations and highly dependent on the winter heating season. APU's cylinder exchange business affords some seasonal diversity, and national accounts are a steady year round earnings provider.

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. 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, prices rising modestly (approximately 1% to 2% per year) in the outer years;

--Growth and maintenance capital spending between $115 million and $125 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 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 Sept. 30, 2016 was $304.6 million.

The offering and the proposed tender is expected to push the maturities of approximately half of the 2022 notes to 2025, greatly reducing near-term refinancing needs. Fitch does not expect APU to require any external financing and leverage should remain fairly constant between 3.5x and 4.0x (debt/EBITDA).

FULL LIST OF RATING ACTIONS

Fitch rates APU's offering of senior unsecured notes 'BB/RR3.'

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 - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015)

https://www.fitchratings.com/site/re/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/site/re/873504

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016380

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
Primary Analyst
Peter Molica
Senior Director
Fitch Ratings
+1-212-908-0288
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
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Director
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or
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+1-212-908-0531
or
Media Relations
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[email protected]

Source: Fitch Ratings

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