Fitch Rates AmeriGas' Sr. Unsecured Note Offering 'BB'
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
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
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WEBSITE.
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