Fitch Affirms AmeriGas Partners, LP at 'BB'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BB' long-term Issuer Default Rating (IDR) and the 'BB/RR3' 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. 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 partnership must continue to manage volatile supply costs and customer conservation.

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 negative volume impacts from warmer weather and commodity price volatility.

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 yearend). With an abnormally warm 2015 and the first quarter of 2016 (1Q2016) near a close with warmer than normal weather nationally, Fitch expects 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 nationwide has been over 15% warmer than normal thus far this year which will weigh on 2016 results.

Customer Conservation/Attrition: Fitch's primary concern with respect to 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; however, 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 our 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 Adequate: 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, 2015 was $279 million, 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).

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

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

--Long-term IDR at 'BB';

--Senior unsecured debt at 'BB/RR3'.

The Rating Outlook is Stable.

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 (pub. 07 Dec 2015)

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001693

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001693

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
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
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
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
alyssa.castelli@fitchratings.com