Fitch Ratings has affirmed the 'BB' Issuer Default Rating (IDR)
and 'BB' senior unsecured debt rating of AmeriGas Partners, LP
(APU) and its fully guaranteed financing co-borrower AmeriGas
Finance Corp. Approximately $2.3 billion in outstanding long-term
debt is affected. Fitch has also assigned a 'RR3' recovery rating
to APU's senior unsecured notes reflecting expectations for average
recoveries in a distressed scenario. The Rating Outlook is Stable.
A full list of ratings follows at the end of this release.
APU's ratings reflect the underlying strength 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 company must continue to manage volatile supply costs and
customer conservation.
Fitch has largely viewed the retail propane sector business
outlook to be moderately negative, stressing concerns over demand
destruction due to fuel switching, price volatility and the impact
of conservation. However, Fitch believes that 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 itself
adept at managing its operating costs, distribution policies, and
integrating acquisitions. As a result, APU has seen steady EBITDA
growth, cash flow consistency and improved credit metrics over the
past several years despite elevated sales volume and commodity
price volatility.
KEY RATINGS 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. Approximately 41% of retail gallons sold is for residential
use, largely heating. 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 dependent
on the winter heating season. Approximately 75% of earnings are
derived in the first two quarters of each fiscal year (September
fiscal yearend). With the first quarter 2015 (1Q'15) already posted
and 2Q'15 near a close with slightly warmer than normal weather,
Fitch projects 2015 results to be within the company's previously
projected ranges of $635 million to $665 million. 1Q'15 adjusted
EBITDA was roughly 18% lower on a year over year basis due largely
to weather which was 6.2% warmer than normal and 10% warmer than
1Q'14. APU's cylinder exchange business affords some seasonal
diversity and national accounts are steady year round. The seasonal
factors are embedded in Fitch's analysis and ratings.
Adequate Liquidity: Liquidity is adequate and maturities are
manageable. APU's liquidity is supported by a $525 million
revolving credit facility which 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 Dec. 31, 2014
was $207 million. Debt maturities through 2018 total $35 million.
Fitch does not expect APU to require any external financing and
leverage should remain fairly constant between 3.5x and 4.0x
(debt/EBITDA). A large strategic acquisition would likely require
additional debt but this is not in the Fitch forecasts.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer
include:
--Maintenance capital consistent with recent historical
results.
--Acquisitions of roughly 10 million to 20 million gallons
annually.
--Distribution growth of between 3% to 5% annually.
--Weather at or near normal for 2016-2018.
RATINGS 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 to remain
1.1x 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 customer, margin and or volume
trends could lead to a negative ratings action.
Fitch has taken the following rating actions on AmeriGas:
AmeriGas Partners, L.P./AmeriGas Finance Corp.
--IDR affirmed at 'BB';
--Senior unsecured debt affirmed at 'BB' and assigned an 'RR3'
recovery rating to these notes.
The Rating Outlook is Stable.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'2015 Outlook: Natural Gas Pipelines (Stability Despite Price
Uncertainty)' (December 2014);
--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter
2014' (December 2014);
--'MLP End Game (Common Goals - Divergent Strategies) (November
2014);
--'What Investors Want to Know: Pipelines, Midstream and MLPs'
(October 2014);
--'Midstream Spending Significantly Rising for MLPs and C-Corps'
(August 2014);
--'Corporate Rating Methodology - Including Short-Term Ratings
and Parent and Subsidiary Linkage' (May 2014)';
--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors'
(January 2014).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982274
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Fitch RatingsPrimary AnalystPeter Molica, +1-212-908-0288Senior
DirectorFitch Ratings33 Whitehall StreetNew York, NY
10004orSecondary AnalystKathleen Connelly,
+1-212-908-0290DirectororCommittee ChairpersonMichael Weaver,
+1-312-368-3156Managing DirectororMedia RelationsAlyssa Castelli,
+1-212-908-0540 (New York)alyssa.castelli@fitchratings.comElizabeth
Fogerty, +1-212-908-0526 (New
York)elizabeth.fogerty@fitchratings.com