Fitch Affirms AmeriGas Partners' IDR at 'BB'; Outlook Stable

NEW YORK--()--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. The Rating Outlook is Stable. Approximately $2.3 billion in outstanding long term debt is affected.

APU has faced a number of challenges in recent years but recent performance reflects the underlying profitability and franchise strength in managing though these challenges. The recovery in APU's profitability follows the unprecedented mild winter of 2011/2012 and merger related integration charges in 2012 and into 2013. APU generates the bulk of its earnings and cash flows in the heating season, principally the quarter ended March 31 and to a lesser extent the Quarter ended Dec. 31. The record cold weather in the current March 2014 Quarter has created operational challenges for APU as propane supply constraints and price spikes in January and February affected normal delivery channels. Fitch still expects Debt to EBITDA to improve slightly to approximately 3.5x for the fiscal year ended Sept. 30, 2014 and be sustained over the forecast period.

The Rating Outlook is Stable.

Key Rating Drivers

--Improved profitability and credit metrics

--Declining propane and negative volume trends;

--Weather sensitivity adds to seasonal volatility;

--Volatile commodity pricing;

--Broad market and geographic reach.

2014 March Quarter Update

The supply and price volatility experienced by APU and the entire propane industry during the March 2014 Quarter are seasonal risk factors that Fitch overlays in its credit analysis of APU and in developing stress scenarios. The extremely warm winter in 2011/2012 created significant financial stress. Fitch considers weather as a transient event and captured within our financial models and rating assignments.

Improved Financial Profile

Stronger profitability, which Fitch considers sustainable, has allowed Fitch's key leverage and coverage measures to improve from their 2012 levels immediately following the acquisition of Heritage Propane. Fitch models reflect EBITDA to Interest and Debt to EBITDA at approximately 4.0x and 3.5x respectively over the next few years. Fitch base case models assume normal weather.

Liquidity is satisfactory. APU has strong cash flows and will not require any external financing over the forecast period. Capital expenditures are relatively modest. Debt maturities through 2018 are modest and liquidity is provided through a $525 million bank facility that matures in 2016 and which provides sufficient capacity to meet seasonal borrowing needs. Distribution coverage, at 1.2x to 1.3x is below historical levels following increases in quarterly distributions as well as more units outstanding as part of the Heritage acquisition.

Demand and Negative Volume Trends:

Residential heating remains the largest use for propane. Residential heating, irrespective of fuel, exhibits a natural decline curve from efficiency and customer conservation. In addition, propane is subject to customer switching.

APU believes retail propane consumption in the U.S. declining at an annual rate of up to 3% rate based on historical industry data. APU has been an active consolidator. Retail propane gallons sold have been maintained at a 900 million to 1.3 billion range over the last 12 years largely through acquisitions.

While volume trends are negative, EBITDA margins have improved in recent years reflecting cost savings and operating efficiencies achieved through acquisition.

Market and Geographic Scale

APU is the largest retail propane distributor in the U.S. spanning all 50 states. The company leverages its large distribution network with its cylinder exchange business and national accounts business which services large regionally diverse corporate users.

Rating Sensitivity

--An upgrade is not deemed likely over the next 12 to 24 months;

--An acceleration of declining volume trends coupled with margin erosion would likely result in a negative rating action;

--A large debt financed acquisition could result in a ratings downgrade.

Fitch has affirmed the following ratings with a Stable Outlook:

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

--IDR at 'BB';

--Senior Unsecured Debt at 'BB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2013);

--'Recovery Ratings and Notching Criteria For Utilities' (Nov. 12, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823359

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Contacts

Fitch Ratings
Primary Analyst:
Glen Grabelsky, +1-212-908-0577
Managing Director
Fitch Ratings
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Julie Jiang, +1-212-908-0708
Director
or
Committee Chairperson:
Ralph Pellecchia, +1-212-908-0586
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Glen Grabelsky, +1-212-908-0577
Managing Director
Fitch Ratings
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Julie Jiang, +1-212-908-0708
Director
or
Committee Chairperson:
Ralph Pellecchia, +1-212-908-0586
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com