Fitch Affirms UGI Utilities' Ratings

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its ratings on UGI Utilities (UGIU). Approximately $628 million of debt is affected by today's rating actions. UGIU's ratings are as follows:

--Long-Term Issuer Default Rating (IDR) at 'A-';

--Senior Unsecured at 'A'

The Rating Outlook is Stable.

UGIU's ratings and Stable Outlook reflect the predictable cash flows of its regulated gas and electric operations, effective energy recovery mechanisms, and strong credit ratios. Primary credit concerns include inherent sensitivity to prevailing weather conditions, high commodity prices that have induced customer conservation, and increased working capital needs. The ratings also consider the impact of UGIU's announced acquisition of PPL Corp.'s PPL Gas Utilities Corp. and Penn Fuel Propane LLC subsidiaries. In addition the ratings reflect the higher risk nature of its affiliated businesses.

In March 2008, UGIU announced it would be acquiring the two subsidiaries of PPL for $268 million plus working capital. UGI plans on funding the acquisition with a mix of 50% debt and 50% equity. The plan is for UGIU to retain the utility business while selling the propane business to AmeriGas Partners, L.P. (APU; Fitch IDR of 'BB+'), a partially-owned subsidiary of UGIU's parent UGI. Although UGIU's credit measures will weaken in the short term as a result of the additional debt incurred for the PPL acquisition, pro forma financial ratios are expected to remain consistent with UGIU's rating category given UGIU's low business risk profile. The acquisition is expected to close in the first quarter of fiscal 2009.

UGIU's ratings primarily reflect its standalone credit profile. Although its affiliates are engaged in higher risk businesses, including domestic retail propane at APU, international propane distribution, and energy generation and marketing, UGIU's parent company, UGI, has no holding company debt and receives distributions well in excess of its common dividend obligations. In an extreme scenario, where dividends from an affiliate company were severely impaired and/or parent cash support was required, additional demands for distributions from UGIU could result, potentially pressuring UGIU's financial profile. UGIU is also dependent on UGI for equity market access.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.